Regulation Matters January 2020

January 2020

Regulation Matters Welcome to this edition of Regulation Matters covering regulatory updates which impact financial advisers. If you have any questions about any of the subject matters and would like further information on the additional service available to support directly authorised firms, please contact 0800 085 0825 .

IN THIS ISSUE

Who is it relevant to? Summary

Action recommended / for your information?

Subject

THE FCA DIRECTORY

All firms

What you need to do to meet your obligations

Action recommended

DB PENSION TRANSFERS UPDATE

Firms who give – or have given

• Preparing for the proposed ban on contingent charging • Triage - Reminder about what constitutes triage and the importance of recording triage cases • What to do if your PI insurer excludes cover for past DB transfer advice or if your excess increases. The FCA has relaxed affordability requirements to try to help these borrowers. Affected firms will need to assess whether relevant ‘workers’ ought to be on the payroll as employees

Action recommended

in the past - DB pension transfer advice

MORTGAGE PRISONERS

Mortgage advisers

For your information

OFF PAYROLL WORKING FROM APRIL 2020

Firms who meet the definition of ‘medium’ or ‘large’ sized companies

Action recommended for the small number of firms that would be affected

REMINDER OF KEY REGULATION MATTERS

All Firms

Actions recommended in relation to ongoing regulatory matters

For your information

REGULATORY MATTERS ON THE HORIZON

All Firms

Overview of FCA planned activity. For your information

Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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The FCA Directory AT A GLANCE

On 9th December 2019, the FCA Register stopped showing details of advisers and pension transfer specialists at directly authorised (‘DA’) firms. Now, in respect of DA firms, the Register shows only the details of individuals who hold Senior Management Functions. Firms are still able to view historic authorisations by selecting individuals, previous involvement and authorised individuals prior to the 9th December can be viewed. With effect from 9th December 2019, DA firms must populate the new directory with information on ‘Directory Persons’, including Certification Staff and mortgage advisers. The information firms provide must be complete and accurate with effect from 9th December 2019 but firms have until 9th December 2020 to actually upload/input the information. Advisers and Pension Transfer Specialists at appointed representatives will continue to be shown on the Register, although their principals will also have to upload data to the new Directory.

Want to know more? Turn to page 6 for a more detailed summary, including recommended actions.

Preparing for the DB Transfer Proposals

AT A GLANCE

The FCA proposes to introduce its ban on contingent charging (and related proposals) on the 1st of the month after they announce their decision/policy on the proposals, which is expected to be in Q1 2020. That could mean firms have less than a week’s notice to make changes to disclosure documents and suitability report templates; and introduce a process for checking the client’s understanding of the advice. Also, there are limited transitional provisions for charging contingent fees on ‘pipeline business’. Triage - It is very important to ensure that your firm understands the boundary between triage (generic, educational information) and advice. It is also very important to keep records of triage cases in order to reassure the FCA and PI insurers about the proportion of enquiries that do not progress to advice and a recommendation to transfer. Some firms are finding that their PI policy at renewal excludes cover for DB transfer advice or has an excess of more than £5,000. When this happens, firms need to ensure they have in place at least the increased level of capital resources required by the FCA’s rules. Firms with a PI exclusion (or high excess level) also need to consider recent comments by the FCA about PI cover when deciding whether they wish to continue to offer DB transfer advice even where they conclude that they have appropriate levels of capital resources.

Want to know more? Turn to page 7 for a more detailed summary, including recommended actions.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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Mortgage Prisoners AT A GLANCE

On 28th October 2019, the FCA announced new rules, which came into effect immediately. Under the new rules, a modified (relaxed) affordability assessment process can be used by lenders where: • The borrower has an existing mortgage (or more than one) – with any lender(s) • The proposed new loan is not increasing the amount borrowed (except for fees – both lender and intermediary - added to the new loan) • There has been no ‘payment shortfall’ outstanding in the last year • The new loan will cost less than the existing one (taking into account fees) – strict tests are to prescribed to establish that the new loan is more affordable than the existing The new loan can be different in some very limited respects; e.g. • The term could be different (e.g. longer) • The switch can involve moving from interest-only to repayment (provided the payments are more affordable) but not vice versa Where the relevant conditions are met, the lender is permitted to conclude that the new mortgage is affordable without looking into income/expenditure, as would be required under the standard affordability assessment requirements. Lenders and the regulated administrators of mortgages owned by unregulated lenders must also communicate to relevant borrowers the fact that these new rules might make it easier to switch to a more affordable loan, possibly with a new lender.

Want to know more? Turn to page 9 for a more detailed summary, including recommended actions.

Off Payroll Workers

AT A GLANCE

Off-payroll working rules (sometimes known as IR35) change on 6th April 2020 and are applied differently. From this date, all public authorities and medium and large sized firms will be responsible for deciding the employment status of workers. The definition of a medium or large sized firm is where a firm meets at least two of the conditions set out below: • You have an annual turnover of more than £10.2 million • You have a balance sheet total of more than £5.1 million • You have more than 50 employees Firms who are affected and who engage with workers who are not on payroll will need to assess whether that should change after 6th April 2020.

Want to know more? Turn to page 10 for a more detailed summary, including recommended actions.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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Reminder of key regulatory matters

Below is a useful reminder of key ongoing regulatory matters affecting financial adviser firms including actions recommended.

Subject

Recommended Action

Further Information

1

SM&CR

https://www.fca.org.uk/firms/ senior-managers-certification- regime/solo-regulated-firms

Having passed the 9th December 2019 deadline for most elements of implementation, firms will need to meet the 9th December 2020 deadline for: • Providing Conduct Rules training to staff other than Senior Management and Certification Function holders (excluding ‘ancillary’ staff) • Providing initial certificates to Certification Staff • Having processes to comply with the annual F&P and Certification requirements

Regulatory Matters on the Horizon

It’s an ever-changing market with a constant stream of new and updated regulation for financial advisers to worry about. We have provided a brief overview of the FCA’s planned activity as we currently understand it, but please be aware that the FCA does sometimes change the timing. Rest assured, as part of our service we will keep you informed and provide guidance to help you remain compliant.

Subject

Publication Type Policy Statement and revised rules Consultation paper

Expected Date Intended Audience

1

Proposed ban on contingent charging for DB Transfer Advice

Q1 2020

Firms that provide advice on pension transfers

2

FCA second-stage consultation on guidance on the fair treatment of vulnerable customers FCA review of RDR and the Financial Advice Market Mortgage Advice and Selling Standards

Q1 2020

All firms

3

Report

Delayed to ‘Autumn 2020’

All firms

4

Policy Statement

Delayed to ‘early 2020’

Mortgage Firms

5 In the FCA’s 2019 business plan the following was confirmed: In 2017 the FCA conducted a review ‘Assessing Suitability’ review to identify areas where firms could do more to ensure they provide customers with suitable advice and clear communications. They confirmed they would carry out a second review in 2019 and aim to publish their findings in 2020.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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The FCA Directory On 9th December 2019, the FCA Register stopped showing details of advisers and pension transfer specialists at directly authorised (‘DA’) firms. In respect of DA firms, the Register shows only the details of individuals who hold Senior Management Functions. However, it will continue to show details of advisers (and Pension Transfer Specialists) at Appointed Representatives (read on for if your firm has Appointed Representatives). With effect from 9th December 2019, DA firms must provide the FCA with the information required to maintain the new Directory with information on ‘Directory Persons’, who are: n Certified Staff (those holding Certification Functions) – including ‘Appointed Representative Directory persons’ (read on for if your firm has one or more ARs) and, for the first time, mortgage advisers. n Directors who do not hold a SMF (e.g. non-exec) n Sole traders (no SMFs required) and certification staff and ARs (authorised by a Principal) The information must be complete and accurate with effect from 9th December 2019 but firms have until 9th December 2020 to actually upload the information. Information uploaded before 9th December 2020 will not appear until 9th December 2020. Firms can choose not to upload the location that an adviser operates from, for example for safety reasons. The information is uploaded via Connect and it can be done in bulk. More information can be found here: https://www.fca.org.uk/firms/directory-persons Firms have seven business days to update the directory with joiners/leavers and there is a £250 penalty for late notification. Also, there will be a requirement to notify the FCA that the firm’s Directory information is accurate at least every twelve months. The Connect system will generate reminders to the dedicated user. Late notifications will result in the Directory containing a warning to consumers that the information may be out of date.

DOES YOUR FIRM HAVE ONE OR MORE APPOINTED REPRESENTATIVES? Advisers and Pension Transfer Specialist who are (employed by) appointed representatives continue to be shown on the Register but they will also now be ‘Appointed Representative Directory Persons’. Therefore, if your firm has appointed representatives, you’ll need to ensure that both the Register and the Directory are up- to-date with regard to investment advisers and Pension Transfer Specialists. AR Directory persons are those who deal with clients and/or their property at ARs AND who are required to have a qualification. Therefore, it will include investment/ mortgage advisers and PTSs (where the PTS deals directly with the client). • Identify those individuals whose details you will need to upload to the directory • Begin uploading the data, using the bulk upload facility if relevant • Ensure all data is uploaded by the 9th December 2020 deadline At TenetSelect we offer compliance audits to ensure you have the systems and controls in place to run your business both effectively and compliantly. If you would like access to this service please call us on 0800 085 0825 for further information on the additional services available to directly authorised firms. WHAT SHOULD FIRMS DO NOW?

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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Preparing for the DB Transfer Proposals The FCA proposes to introduce its ban on contingent charging and some of the related proposals on the 1st of the month after they announce their decision/policy on the proposals, which is expected to be in Q1 2020. If introduced as proposed, the above will require changes to initial disclosure documents and, possibly, triage material. They will also require firms to devise a process for checking – and evidencing – the client’s understanding of the risks.

You should also consider whether you wish to engage with Abridged Advice , which is proposed to be available within a week of the new rules being finalised. In issue 144 we explained the concept of Abridged Advice. Firms will wish to consider whether they are prepared to take on all of the potential liabilities arising from being fully responsible for the suitability of a recommendation not to transfer based only on information about the client; i.e. not based on full scheme information. Firms should check with their PI insurers/brokers when considering whether to engage with Abridged Advice. There is a proposal for a limited transitional period for charging contingent fees on ‘pipeline business’ but only if: n A client agreement for the contingent charge was entered into before the new rules take effect; and n The fee is incurred no more than three months after the new rules take effect. TRIAGE It is very important to ensure that your firm understands the boundary between triage and advice. The FCA provides useful guidance in PERG 12 (Q35 and the subsequent table of examples). It is also very important to keep records of triage cases. Those who were among the reported 1,600 firms that received FCA letters about their past DB advice late in 2019 will be very aware of how important it is to be able to reassure the FCA that a significant proportion of enquiries do not proceed to advice and a recommendation to transfer. It will also be very useful to reassure PI insurers, especially if obtaining/retaining cover for DB advice continues to become more difficult in general.

That could mean that firms will have little/no notice (the FCA says ‘within a week’) before some of the proposed new rules come into effect. In order to reduce the risk of having to suspend taking on new cases or delaying pipeline cases, you might wish to take pre-emptive action in relation to the following proposals, which are intended to come into effect within one week: n  The charge for advice not to transfer must be calculated in exactly the same way as it would be calculated if the firm were to recommend a transfer and arrange an individual pension with a suitable investment strategy. n Ongoing charges derived from the proceeds of DB transfers must not be higher than they would be if derived from other types of transactions. n The proposed changes to what’s permitted in Triage material n The proposed Handbook guidance, reminding of the requirement to obtain information on a client’s knowledge and experience asserting that advisers should obtain evidence that a client who is advised to transfer DB scheme benefits understands the risks of the recommendation before going ahead with arranging the transfer. There is also a proposed rule that: • an adviser who seeks to obtain such evidence must make a clear record of what evidence was obtained and, • if it does not show that the client had a reasonable understanding, the firm must either not recommend transferring or keep a record of why it has nonetheless chosen to recommend the transfer.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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WHAT SHOULD FIRMS DO NOW? 1. Identify what changes are proposed to take effect within 1 week of implementation (see page 7 of CP 19/25) and consider whether the firm should make changes to disclosure documents, templates and/or processes in anticipation of the proposed changes. 2. Ensure that you understand the boundary between triage and advice and that you document cases deterred by triage (anonymising where appropriate, as per GDPR obligations). 3. Take appropriate action if DB advice is excluded from your PI policy or subject to an excess of more than £5,000. At TenetSelect we have a team of regulatory consultants and compliance specialists to support firms in meeting their regulatory requirements. Should you require further information on any of the additional services we can offer directly authorised firms please call us on 0800 085 0825 .

PI EXCLUSIONS Some firms are finding that their PI policy at renewal excludes cover for DB transfer advice or has an excess of more than £5,000. When this happens, firms need to ensure they have in place at least the increased level of capital resources required by the FCA’s rules (See IPRU-INV 13 ). They will also need to consider whether the minimum level specified in IPRU-INV is sufficient (‘appropriate’) in their particular circumstances, as per the requirement in the FSMA (Paragraph 2D of Schedule 6 ), Threshold Condition 2 in the FCA Handbook and FCA guidance in IPRU-INV 13 ( IPRU-INV 13.1.24 ). See also CP 19/20 re the FCA’s expectations in relation to financial resources. Firms with a PI exclusion (or increased excess level) who conclude that they have appropriate financial resources (at least the minimum specified in the Handbook) should also consider recent reported comments by Debbie Gupta. Ms Gupta is reported to have asserted that firms must stop providing new pension transfer advice and stop ‘pipeline business’ if DB advice is excluded at renewal or if an excess is very high. Ms Gupta’s comments were reported here: https://www.ftadviser.com/regulation/2019/11/28/ fca-clarifies-position-on-pi-for-advice/

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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Mortgage Prisoners On 28th October 2019, the FCA published Policy Statement PS19/27, which announces new Handbook rules that came into effect on the same date (MCOB 11.9). The new rules have two focal elements; 1. To relax affordability criteria for Mortgage Prisoners. 2. To put the onus on Lenders to communicate effectively to relevant borrowers that it might have become simpler for them to switch to a more affordable mortgage.

Where those criteria are met, the lender can now adopt a modified affordability assessment, which permits the lender to enter into the contract provided that the proposed new loan is ‘more affordable’ than the existing one. The new loan will be ‘more affordable’ where the following criteria are met: n The new mortgage deal’s total costs, either during an introductory deal if there is one, or across the full term, are lower than the total cost of the old mortgage, even taking into account fees levied by both the lender and any intermediary; n The monthly costs are lower; and n The interest rate is lower. Importantly, only lenders who will allow borrowers to switch internally on expiry of any new deal’s introductory rate will be permitted to use the modified criteria. The new rules require lenders who use the modified assessment to make some additional disclosures to borrowers. For example, there will be an explanation of the modified affordability assessment and warnings regarding potential interest rate increases and the fact that total costs may be higher if extending the term beyond that of the existing arrangement (if relevant). The new rules also establish a requirement for lenders to let relevant borrowers know by 1st September 2020 that new rules might mean that they might find it easier to switch to a more affordable mortgage. This requirement applies to active and inactive lenders; and also to authorised administrators acting for unregulated entities (e.g. organisations that have purchased loans from lenders that have wound down). WHAT IMPACT MIGHT THE NEW RULES HAVE? There has been some response in the market to this, for example Ipswich Building Society has released six new products tailored for Mortgage Prisoners. The new rules are widely regarded as a step in the right direction. However, some commentators have expressed concern that the changes are insufficient to make real change to most mortgage prisoners. Nonetheless, financial planners can be on the lookout for clients who might benefit and mortgage advisers might see an increase in demand for advice as mortgage prisoners are made aware of the potential to switch to a more affordable loan. WHAT SHOULD FIRMS DO NOW? Consider whether the rule changes might be advantageous to some existing clients or might generate demand for advice from mortgage prisoners.

BACKGROUND Mortgage Prisoners were inadvertently created in 2014, when the Mortgage Market Review (MMR) brought in much more stringent affordability criteria, and placed the responsibility for evidencing affordability squarely on the Lenders’ shoulders. Borrowers who took out mortgages based on pre- MMR criteria and who now don’t meet the new stricter criteria are effectively trapped because they can’t meet the standard affordability requirements. Once their current product deals end, they therefore can’t switch, forcing them onto more expensive terms than those available elsewhere in the marketplace. THE NEW RULES Standard affordability rules require the lender to assess affordability based on the customer’s income and expenditure. The new rules though, permit the use of modified affordability assessment rules where a consumer meets the following criteria: n The Borrower has a current mortgage; n Is up to date with their mortgage payments, i.e. no ’payment shortfall’, and has been for the last 12 months; n Does not want any additional borrowing, other than to finance any arrangement fees for the mortgage, including any fees charged by any intermediary; n Is looking to switch to a new mortgage secured on the currently mortgaged property.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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IR35 – Off Payroll Working April 2020 and potential impact for advisory firms

The list of factors is not exhaustive, but the following factors are regarded as the most important: Personal service In order for the worker to be an employee, they must be obliged to provide their services personally. If the worker is entitled to provide a substitute to do the work, this may point away from an employment relationship. However, the absence of a right of substitution will not necessarily make the situation one of employment. Mutuality of obligation The HMRC guidance states that as a minimum, in an employment relationship there must be an obligation on the part of the worker to provide his or her work or skill and an obligation on the part of the engager to pay the worker for that service. Right of control The employee must be subject to a certain degree of control by the engager, although control need not be exercised in practice. It is, according to HMRC, the right of control that matters. This control may take the form of the way in which a worker performs their services; what tasks have to be performed and when and where they must be performed. For example, an employee will usually be expected to work set hours each day or week. An independent contractor is more likely to have the freedom to work when and where they want. The fact that a worker may be told how to perform duties will usually be seen as a strong pointer to employment but, where the worker is an expert the absence of this aspect of control would probably not be seen as that significant. Right of substitution and engagement of helpers If a worker has a right to send a replacement or engage a helper, and particularly if the worker has to pay any replacement or assistant, this would be an indicator of self-employment. However, it would also be relevant to look at whether the firm has a right to reject a substitute (and whether the right is exercised on a regular basis) or whether, for example, the worker’s right is only to propose a substitute. Provision of own equipment A self-employed contractor would generally provide whatever equipment is needed to do the job. In contrast, where a worker is provided with the necessary equipment and materials that would point to employment.

Off-payroll working rules (sometimes known as IR35) change on 6th April 2020 and are applied differently. From this date, all public authorities and medium and large sized firms will be responsible for deciding the employment status of workers. The definition of a medium or large sized firm is where a firm meets at least two of the conditions set out below: n You have an annual turnover of more than £10.2 million n You have a balance sheet total of more than £5.1 million n You have more than 50 employees This is in line with the small companies’ regime. If you are an unincorporated entity, the test applied is whether you have an annual turnover of more than £10.2 million. Details of the rules can be found on the Government website . IMPACT FOR ADVISORY FIRMS The vast majority of our advisory firm clients should be unaffected by the new rules coming into force as they will not meet at least two of the conditions set out above. Although the new rules do not apply to small firms, the old IR35 rules will continue to apply to any affected individuals. EMPLOYMENT STATUS IR35/Off Payroll Working is an issue that deals solely with the taxation treatment of workers. Aligned to this issue is the test of whether a person is genuinely a self- employed person, or whether they would qualify as an employee or worker. Should a person who you consider is self-employed actually be classified as an employee/worker, it has further consequences for you as principal in addition to the tax status. HMRC has published guidance on the factors it considers to be the most important in determining an individual’s employment status: https://www.gov.uk/hmrc-internal-manuals/ employment-status-manual/esm0500

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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IR35 – Off Payroll Working April 2020 and potential impact for advisory firms (continued)

‘Part and parcel’ of the organisation If an individual is ‘part and parcel’ of a firm’s organisation, they are more likely to be an employee. The HMRC guidance gives the example of someone taken on to manage a firm’s staff, who would normally be seen as an integral part of the firm’s organisation with the result that this would be seen as a strong If an individual is entitled to benefits such as paid l eave, membership of firm’s pension scheme, right to car park space and canteen facilities, this will be a good indicator that an employment relationship exists. A contract of employment may also contain access to a grievance procedure and the worker may be subject to disciplinary procedures. However, the absence of such benefits will not be determinative − in particular, it may simply reflect the intention of the parties that the individual be self-employed. Right to terminate contract A right to terminate an engagement for a reason other than serious breach, by giving notice of a specified length, may be viewed as indicative of a contract of employment. However, this would (in the view of HMRC) only be a minor factor. Personal factors The HMRC guidance also indicates that it may sometimes be necessary to take into account factors which are personal to the worker. The guidance gives the example of a skilled worker who works for a number of firms throughout the year and has a business-like approach to obtaining engagements. It says that this will point towards self-employment. However, the guidance also states that personal factors will usually carry less weight in the case of indicator of employment. Employee-type benefits

Financial risk Individuals who risk their own money (for example, incurring significant amounts of expenditure on training in order to obtain the skills needed, which are used in subsequent engagements) are less likely to be employees. Self-employed workers may also be required to rectify unsatisfactory work in their own time for no additional reward. The risk of making a loss is a very strong indicator of self-employment and can be decisive on its own. Opportunity to profit A person whose profit (or loss) depends on the capacity to reduce overheads and organise work effectively is more likely to be self-employed. People who are paid by the job (rather than on an hourly or day rate, for example) will often be in this position. Length of engagement The length of an engagement is unlikely to be determinative in itself with regard to an individual’s employment status. However, it should be noted that it is more likely that an employee will have an open- ended contract.

an unskilled worker. Mutual intention

The intention of both parties can be decisive where the factors pointing to employment and to self-employment are evenly balanced. However, a stated intention (for example that an individual is not an employee) will not, without more, be determinative.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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IR35 – Off Payroll Working April 2020 and potential impact for advisory firms (continued)

SUMMARY All of the issues above have to some extent been considered by employment tribunals, and the only trend generally appearing is that each case is fact-specific. The same issues continue to be challenged in court in IR35 cases brought by HMRC, and there has been both high profile wins and losses for HMRC. These cases demonstrate that there is no certainty on employment status, nor how this will be viewed by HMRC and the courts. Below are some practical considerations to take into account to try and limit any exposure to the IR35 test or employment status: • Include a right of substitution within the contract. This should be drafted so that it is as wide-ranging as possible and should not be subject to an excessively-wide veto on the part of the principal. If the right is actually exercised in practice, this will help to demonstrate that there is no requirement of personal service. Due to the regulatory nature of your work, this step may be difficult to achieve. If there is more than one adviser in the firm, the right of substitution could be achieved through allowing the other adviser to perform the work, or through a locum. • Avoid an obligation to provide and accept work. This means as principal, you should not create an obligation on yourself to provide leads, nor place an obligation on your adviser to accept the leads from you. • The adviser should be subject to as little control as possible. For example, the adviser should, if possible, be free to set their own hours and place of work and to determine how the work is done. In the regulated environment, this issue is difficult to achieve where there are strict rules and processes in place determined by the FCA. Notwithstanding, the less control you as principal set regarding matters such as working hours, time off, uniform etc. points further away from employment/ worker status.

• The worker should not be integrated into the company more than is absolutely necessary. For example, the worker should not be held out as a member of the company, should not be subject to its policies and procedures, and should not be entitled to participate in employee-type benefits. • If possible, require the intermediary to provide their own equipment, rather than providing this to them. • Although not determinative, it is still helpful to state in the contract that the relationship is not intended to be one of employment. The IR35 legislation and off-payroll working rules deal with the tax treatment applied by HMRC. It is entirely possible that HMRC will determine that a person is an employee for tax purposes, but an employment tribunal may not make such finding. However, the tests used to determine this issue are largely the same. The responsibility for determining the employment and tax status of your advisers is that of the directors or principals of the firm. Where you are in any doubt in respect of these issues, we strongly recommend that you seek independent legal and tax advice. WHAT SHOULD FIRMS DO NOW? Consider whether the rule changes apply to the firm and, if so, consider whether any off payroll workers should be treated differently from 6th April 2020.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

12 | Regulation Matters - January 2020

A range of services to add value to your firm At TenetSelect, we provide a wide range of services and expertise to help directly authorised firms meet their compliance requirements and grow their business. If you have a particular compliance concern or any of our services are of interest, please get in touch by calling 0800 085 0825.

COMPLIANCE SUPPORT SOLUTIONS File checking service n Full range of product areas covered, including pension transfers Themed audit n Systems & controls, Training & Competence, disclosure & ongoing servicing, Centralised Investment Proposition Training & competence support delivered in house A support solution tailored to individual needs n Training needs analysis n Skills & knowledge assessment Compliance helpdesk for ongoing queries n Access to our regulatory experts as and when you need support Financial promotions and stationery approval n Assessment of your marketing and stationery to help ensure it meets the FCA’s requirements On-site attendance for FCA visit n A regulatory expert on hand to reduce potential risk Comprehensive compliance guidance manual n Manual which you can adopt for your firm Compliance, systems & controls template documentation n Wide range of documentation available via the Extranet Full suite of regulatory registers n Designed to capture a variety of management information and highlight potential risks Regulatory guidance bulletins n Ongoing updates and guidance to help you remain compliant RMAR submission software and report completion n Software to help you do it or outsource it to us Complaint handling service n KPI reviews File reviews n n CPD assessments

RESEARCH, TECHNICAL & SPECIALIST INVESTMENT SUPPORT Research & technical support n The Tenet panel, technical guidance, including access to a helpdesk Investment solutions n Tenet’s active Model Portfolios powered by Morningstar Specialist investment support n Review of EIS/BPR/Tax Planning Schemes and the client profile n Feedback on general suitability of the client and the legitimacy of the scheme

BUSINESS SUPPORT SOLUTIONS Paraplanning

n Full paraplanning service including data gathering research, analysis and client report Advanced Diploma (AF) exam days

n 1 day revision programme New adviser recruitment

n Our recruitment service will find the right adviser for your business Exclusive software discounts n Range of discounts to save you money e.g. software CPD events n Invite to our events where you have everything you need for your CPD Marketing support n Utilise our range of compliant marketing support Protection panels & mortgage club

n Access to leading terms via our panels Account management

n Access to a dedicated account manager to help you make the most of our service

n Outsource the handling of client complaints

WANT TO KNOW MORE? To find out how your firm could benefit from the many services available or for details of packages and costs, please call 0800 085 0825 . Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.

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