OpinionJul 10 2014

Five things I learned from the FCA’s annual report

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The Financial Conduct Authority published its annual report today, as it seemed everyone else, but that is a different matter.

Here are five things I learned from the 110-page FCA annual report.

The Retail Distribution Review costs a fortune

The FCA spent £3.3m monitoring the RDR in the 12 months to the end of March. In the previous financial year it spent £2.4m, meaning the regulator has spent at least £5.7m on the RDR. Has it been worth it?

The regulator attributed the latest costs to carrying out three phases of a review looking at how firms are meeting RDR requirements. By the way, in case you have any doubts, the regulator’s second review revealed “disappointing” results, suggesting that firms are still not being clear enough on how much their advice will cost clients.

In relation to the nature of the advice given, it found that restricted firms were not being clear on their restrictions and that firms were not giving a clear explanation of the services they offer.

The FCA found similar failings in its first of three reviews, but at the time conceded that the new disclosure rules were relatively new and produced guidance to help firms comply.

The results of the third thematic review, expected to focus on disclosure as well, is expected at the end of autumn.

Arch Cru redress costs

By April 2014, advisers had paid out £11.8m as redress to Arch Cru investors, out of a total estimated £31.8m.

In December 2012, the FSA confirmed it was set to launch a consumer redress scheme over the failure of Arch Cru that will force advisers to provide redress to investors.

Advisers were forced into identifying cases where they may have mis-sold Arch Cru funds and make redress payments where appropriate.

In 2013, for the first time, the regulator used its power for the first time until FSMA to impose a redress scheme following an industry-wide review into the sale of Arch Cru funds.

I though the payout would have been more by now.

Even now, the Arch Cru debacle still rumbles on with a group litigation action against Capita, the former authorised corporate director of Arch Cru.

Financial Adviser columnist Gill Cardy said last week that around 1,000 investors are claiming their investment losses are attributable to the ACD’s failings in the administration and compliance of the various UK authorised Arch cru funds, as set out comprehensively in the Financial Services Authority’s final notice of November 2012.

You’re a nosey bunch

Clearly wanting more information than the regulator makes readily available, financial advisers made 54 requests to the FCA under the Freedom of Information Act to the 12 months to the end of March.

Journalists made a total of 87 requests - I would have thought it would been a lot more - of which the Financial Times group made 10.

MPs only made three requests for information.

In total, the FCA received 748 requests, of which 473 were progressed as formal FoIA requests. This is an increase of around 3 per cent since 2012/13.

The most frequently requested topics were about complaints, mortgages, the Co-operative Bank, whistleblowing and Keydata.

The FCA only disclosed material in 50 per cent of cases where it held the information requested, although this is a rise of 40 per cent in 2012/13. I am not at all surprised by this.

Complying with the FoI act and the DPA cost the FCA just under £853,000 in 2013 to 2014, compared to £825,000 for 2012 to 2013.

This price tag includes processing requests under both pieces of legislation, time spent by business areas and the cost of Tribunal appeals.

The watchdog revealed it used external lawyers on “complex requests” and appeals totalling £32,000 plus Vat this year compared with £9,846 the year before.

As a result, the FCA estimated the average cost to process each case is £847.41.

Sipps continue to fall under the spotlight

Just days after the Financial Services Compensation Scheme raised a red flag about Sipp transfer advice, the FCA confirmed the third Sipp operators thematic review has begun.

As FTAdviser revealed in October 2013, the review will be focusing on the financial strength of Sipp operators and the way they conduct due diligence on investments being put into personal pensions. The regulator stated it would publish findings in 2014 to 2015.

The regulator revealed Sipp complaints it has already been handling behind the scenes.

The FCA stated it identified ‘introducers’ were approaching armed forces service personnel, encouraging them to transfer out of their relatively secure forces pension and move into much higher risk Sipps, investing in speculative overseas property development.

The Royal British Legion, the Forces Pension Society and Help For Heroes were contacted by the regulator to establish how widespread the problem was and alert them to it.

Men of action slap down penalties

In 2013 to 2014 the FCA imposed 46 penalties totalling £425m.

Five public censures and 26 prohibitions were made by the regulator, who also took action against firms and individuals operating a variety of unlawful schemes, such as boiler room frauds, land banking scams, and other ‘get rich quick’ investment schemes.

This has included freezing assets, closing down unlawful schemes and pursuing civil and criminal action in appropriate cases.

During the year the FCA intervened early in 21 cases where it identified a risk of harm to consumers.

This means engaging earlier than the regulator normally would in the course of an ordinary disciplinary investigation and agreeing an appropriate response.