Regulation Matters brochure February 2019

February 2019

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

OCCASIONAL PAPER 47 Firms using social media

An FCA think piece covering the growth of social media usage by financial services firms Key areas likely to be included in a FCA visit focusing on Financial Crime systems and controls

Review use of social media in your firm and any changes to your policy and practice. Carry out your self- assessment, looking at these areas.

PREPARING FOR AN AML AUDIT

All firms

MIFID II, PENSIONS AND CP19/5

Investment firms

The current position on pensions and future developments

Respond to CP19/5

POLICY STATEMENT 19/1 – RETIREMENT OUTCOMES REVIEW: FEEDBACK ON CP18/17

Investment firms

Policy changes principally impacting product providers and will influence the information they provide to consumers

For your information but you should familiarise yourselves with the new illustrations and statements from providers

REMINDER OF KEY REGULATORY MATTERS

All firms

A reminder of key regulatory matters and recommended actions.

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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Occasional Paper 47

AT A GLANCE The FCA has issued a paper which reflects its thinking about the use of social media to facilitate advertising by financial services firms. Firms should examine their existing practice in the light of the paper, particularly where character restricted platforms may inhibit the provision of adequate risk warnings.

Want to know more? CLICK HERE (or turn to page 6) for a more detailed summary, including recommended actions.

Preparing for an AML Audit AT A GLANCE Anti-money laundering and counter-terrorist financing represents a key area of interest for the FCA. Whilst banks and other institutions represent potentially the highest risk, intermediaries are subject to the same regime but may not have the dedicated AML support approach. Our article provides some likely hot topics where and FCA visit may focus and may stimulate you to review your existing processes in this area, and in particular to recognise the EU’s blacklist of countries with deficient AML/ CTF regimes. Want to know more? CLICK HERE (or turn to page 7) for a more detailed summary, including recommended actions. functions to help them implement a risk based

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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MiFID II, Pensions and CP19/5

AT A GLANCE

Updated guidance on personal pension arrangements and the impact of ex-post cost and charges disclosures under MiFID II.

Want to know more? CLICK HERE (or turn to page 8) for a more detailed summary, including recommended actions.

Policy Statement 19/1 – Retirement Outcomes Review: Feedback on CP18/17 AT A GLANCE The FCA has published a policy statement setting out feedback to its consultation paper on changes to its rules and guidance to address harms identified in its retirement outcomes review (RoR), together with its final rules and guidance (PS19/1). The FCA confirms that it is proceeding largely on the basis on which it consulted, with some refinements in places to reflect feedback received and recent developments.

Want to know more? CLICK HERE (or turn to page 9) 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 regulatory matters affecting financial adviser firms including actions recommended in last month’s issue of Regulation Matters (issue 138).

Subject

Recommended Action

1

Handbook Notice 60

You need to engage with your PII provider to verify that your policy is not exposed to the insolvency limitations described. This may mean you need to consider re-broking your PII cover. • Download the FCA guidance and latest JMLSG guidance • Review the systems and controls • Review the financial crime training material you use • Review the capability of any systems used for electronic verification of identity; and • Satisfy yourself that you have proportionate risk based systems to monitor existing client relationships and reflect this in your annual MLRO report or self-assessment.

2

FG18/5: Finalised Guidance on financial crime systems and controls

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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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

Expected Date

Intended Audience

1

Guidance on SM&CR for solo regulated firms Regulatory fees and levies Regulatory fees and levies General insurance value measures reporting Investment Platforms Market Study remedies Mortgage Market Study - Final Report Impact of FCA regulation on small firms

Finalised guidance based on GC18/4

Winter 2018/19 – consultation closed 10/12/2018

All FCA solo regulated firms.

2

Policy proposals for 2019/20 - PS to CP18/34 Rates proposals 2019/20 Consultation Paper

March 2019

Firms that pay the illegal money lending levy and single financial guidance body levy.

3

April 2019

4

Q1 2019

Insurers, intermediaries and other firms involved in the insurance

market, and trade bodies representing these firms.

5

Consultation and discussion on (to be published alongside the Market Study Final Report)

March 2019

Platform service providers, other firms that distribute retail investment products, fund managers.

6

Market study

Q1 2019

Lenders, sourcing and other software providers, and intermediaries.

7

The FCA is carrying out a survey of smaller firms on how FCA regulation specifically impacts them to inform FCA cost benefit analyses and judgements of proportionality. The independent consultancy, Kantar Public, has been engaged by the FCA to conduct in-depth interviews with a small representative sample of firms over the next month. These interviews will inform the design of an online questionnaire which will be sent to a larger sample of firms in April and May. As with the wider FCA and Practitioner Panel Survey, Kantar will fully anonymise all results.

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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Occasional Paper 47 In 2015, the FCA published guidance on social media advertising (FG15/4), in which it reminded firms that any form of communication (including character- restricted social media adverts) is capable of being a financial promotion, which means it must contain certain information, including any necessary risk warnings. This makes social medial advertising for financial services firms technically challenging. According to occasional paper 47, consumers are increasingly using social media to research and buy products and so financial services firms are incorporating it into their marketing strategies. However, ‘standalone compliance’ (meaning the requirement that ‘the advert must be balanced, for example including risk warnings, or information about unusual features, alongside positive information about the product’) is a challenge in this context because of character limits, even in the light of recent increases in this by Twitter. The FCA ran a series of behavioural experiments in simulated social media environments that examined the design and timing of risk warnings and other balancing information. The overall conclusion was that, for character- limited social media, standalone compliance reduces consumers’ information search and understanding of risks, ultimately leading to them choosing less suitable products and services. The results also suggested that advertisers and consumers could benefit from experimenting with the design and presentation of risk warnings. The focus was on examining several design features of character- limited risk warnings, together with the effect of standalone compliance (SC) on three key aspects of consumer choice: preference, information search and understanding. The results demonstrate that: n For character-limited social media, ‘standalone compliance’ reduces consumers’ preference rating, search activity (such as shopping around) and understanding of risks, ultimately leading to an increased likelihood of choosing less suitable products. n Products advertised through standalone compliant tweets are less attractive to potential customers. They are then less likely to be clicked on and have their webpages explored relative to non-compliant tweets.

n There is an important role for well-placed risk warnings in educating consumers. More detailed risk warnings on product webpages were found to be most effective at increasing understanding. They were significantly more effective when designed using insights from behavioural science. n The effects of risk warnings can be skewed by otherwise irrelevant presentational choices, such as including the Money Advice Service (MAS) logo, or explicitly referencing that a risk warning is FCA-mandated. The paper notes that the findings on risk warning design emphasises their importance for financial products, but also demonstrates the difficulty in designing appropriate frameworks and maximising their effectiveness. The results suggest that advertisers and consumers could benefit from experimentation on the design and presentation of risk warnings. Future research could identify the properties that maximise the effectiveness of risk warnings on product landing pages, and webpages more generally. The paper concludes that there is potential to incorporate the paper’s findings into policy, but that this must be done ‘with caution and monitoring of any effects’. Occasional paper 47 scratches the surface of a much more fundamental task for firms wanting to think more broadly about the effectiveness of risk warnings and, ultimately, whether their customers understand the key features of the products they buy. We must hope that this work ultimately leads to more innovative ways in which firms engage with their clients. WHAT SHOULD FIRMS DO NOW? It would be worth considering how/if you use social media to promote your firm and or its products and services. The Occasional Paper does not change any rules but it is a clear indicator of an area of regulatory interest and attention. At TenetSelect we have a team of compliance specialists who can support in the assessment of your financial promotions. If you would like to access this service please give us a call on 0800 085 0825 for further information on the additional services available to directly authorised firms.

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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 an AML Audit Whilst it is not common for small firms to receive a visit from the regulator, they will request data to inform their sample size to target their limited supervisory resource. One area of focus for the FCA is the prevention of financial crime which includes money laundering and fraud.

In this context, on 13th February 2019, the European Commission adopted a delegated regulation (C(2019) 1326 final), which supplements the fourth Money Laundering Directive (MLD4) by identifying 23 high-risk third countries with strategic deficiencies in their anti-money laundering and counter-terrorist financing frameworks. The aim of the list is to protect the EU financial system by better preventing money laundering and terrorist financing risks. Under Article 18 of MLD4, firms are required to apply enhanced due diligence (EDD) measures when dealing with financial operations involving customers and financial institutions from the high-risk third countries identified by the Commission. The list has been established on the basis of an analysis of 54 priority jurisdictions, which was prepared by the Commission in consultation with member states. It will be updated as and when necessary, with the aim of further identifying third countries as being of high-risk and reflecting progress made by listed countries. WHAT SHOULD FIRMS DO NOW? The 23 country list can be found in the annex here: http://europa.eu/rapid/press-release_ IP-19-781_en.pdf. We suggest that you download this and update your existing AML processes accordingly. You may also wish to revisit Regulation Matters Issue 138 for more information on financial crime systems and controls. At TenetSelect we have dedicated guidance to assist our firms in this complex and ever- changing area. We also have a team of highly qualified regulatory consultants who can support in completing an audit of your system and controls. If you would like to access these services please call us on 0800 085 0825 for further information on the additional services available to directly authorised firms.

We are in a position to provide you with some insight into the type of information about a firm’s existing practices that the FCA look for. This should thereby offer you a head’s up as to areas you should review and test in order to be in a state of readiness should you be chosen because, as the National Lottery advertisements say, “it could be you”. Some of the areas you should expect to be covered include: n Governance and Management Information - the role of senior management in setting a ‘tone from the top’ and managing AML and financial sanctions risks. Potentially this would encompass the AML MI used to support the MLRO report, CPD undertaken by the MLRO specifically to support ongoing development and awareness of changes in financial crime methodologies and regulations (e.g. review of FCA/JMLSG/FATF rules and guidance and EU directives); n Policies and Procedures - the control environment to manage the money laundering and financial sanctions risks your firm is exposed to; n Risk assessment - your identification, assessment and mitigation of the money laundering and financial sanctions risks, particularly those posed by high-risk customers; n Identification of high risk/ sanctioned individuals or entities - assessment of how the firm identifies high risk and/ or sanctioned individuals or entitles; n Due diligence and ongoing monitoring - file reviews to assess the adequacy of customer due diligence and enhanced due diligence carried out on higher risk customers and the subsequent ongoing monitoring of these accounts; and n Communication, training and awareness - understanding the steps you have taken to raise employee awareness of money laundering and financial sanctions risks, and details of any specific financial crime training provided to staff.

CLICK HERE to return to page 2.

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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MiFID II, Pensions and CP19/5

n  Ensuring investment in cash is an active decision (chapter 9) . Providers will be required to ensure that consumers invest in cash only if they make an active decision to do so. The FCA proposes that these providers must also give consumers warnings about the likely impact of investing in cash on their long-term income, both when they enter drawdown (or transfer funds already in drawdown into a new product) and on an ongoing basis. n  Disclosure of actual charges information (chapter 10) . Rules will be introduced that require firms to disclose actual charges paid by consumers in drawdown on an annual basis. The proposed rules and guidance are set out in the draft Conduct of Business Sourcebook (Investment Pathways) Instrument 2019, which is set out in Appendix 1 to CP19/5. The deadline for responses to CP19/5 is 5th April 2019. The FCA will consider the feedback it receives and publish its final rules and guidance in a policy statement in July 2019. As is clear in chapter 10 of the consultation, it is possible, indeed likely, that the FCA will bring pensions into alignment with the existing MiFID II provisions. WHAT SHOULD FIRMS DO NOW? Consider responding to CP19/5 and evaluate the impact of having to provide ongoing cost and charges disclosures to your client with pensions under advice. 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.

In our view, following further correspondence with FCA on this matter, stakeholder and personal pensions, including SIPPS, are out of scope of MiFID II on the basis of the exemption in Article 2(1)(i) of the directive. The position regarding MiFID financial instruments held within a pension wrapper is a little more complex and is addressed in guidance at PERG 10.4A and 13.5A. As the response to Q53D in PERG 13.5A explains, “the FCA does not consider that a member of a pension scheme acquires a financial instrument purely as a result of having a financial instrument held for his benefit under the trusts of an occupational or personal pension scheme.” Services provided in relation to the instruments in a pension wrapper portfolio may also therefore fall within the scope of the exemption from MiFID. In terms of ongoing disclosures, you should already be aware of the requirement in the FCA Handbook (high- level principles for business) that communications should be fair, clear and not misleading. Firms should also be aware of the specific information disclosure requirements that may apply to when doing non-MiFID business, including the requirement to disclose information on costs and associated charges set out in COBS 6.1.9R. However, the FCA published CP19/5 on the 28th January 2019. In this, the FCA is consulting on a second proposed package of remedies from the retirement outcomes review. These are the following proposals that it raised for discussion in CP18/17: n  Introduction of investment pathways (chapters 5 to 8) . Firms offering drawdown to non-advised consumers will be required to provide a range of ready- made investment solutions (described as investment pathways) to help consumers select investments that meet their broad objective for their pot in drawdown. In summary, larger providers will be required to offer single investment solutions that correspond to each of four objectives, while smaller providers will be able to refer consumers to a drawdown comparator tool provided by the Single Financial Guidance Body (SFGB). The FCA’s proposals on choice architecture will ensure that the provider’s investment offerings are presented in a clear, structured way.

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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.

9 | Regulation Matters - February 2019

Policy Statement 19/1 – Retirement Outcomes Review: Feedback on CP18/17

The final rules and guidance are set out in the Conduct of Business Sourcebook (Retirement Outcomes Review) Instrument 2019 (FCA 2019/4), which is contained in Appendix 1 to PS19/1. The changes to wake up packs, retirement risk warnings and reminder changes and the annuity information prompt will come into force on 1st November 2019. Changes that cover making the cost of drawdown products clearer and comparisons easier will come into force on 6th April 2020. WHAT SHOULD FIRMS DO NOW? Firms should be aware that illustrations and annual statements will be changing and ensure that they can explain the content to consumers. Advisers should revert to the issuing provider for an explanation of any area they require a greater understanding of.

The FCA received 54 responses to CP18/17, most of which supported its consultation proposals. It is, therefore, proceeding largely on the basis on which it consulted, with some refinements in places to reflect the feedback and recent developments. In particular: n  Retirement risk warnings (chapter 2) . It has included additional guidance to help firms prioritise the retirement risk warnings (chapter 2). It has also provided clarification for firms that the current value of the fund should not include any deductions, such as exit charges, and firms should highlight this to the consumer. n Annuity prompts (chapter 3) . For annuity prompts, it does not consider that it would be appropriate for it to give firms a set of questions to ask consumers to establish eligibility for an enhanced annuity. However, following feedback, it has added guidance at COBS 19.9.6B G. This will set out a number of major health and lifestyle areas that firms may consider asking questions on to assess eligibility. n  Drawdown information (chapter 4) . It has clarified its approach to the requirement to include key front page summary information within the key features illustration (KFI) that consumers receive on entering drawdown. n  Communication to clients (ongoing information) (chapter 4) . It is clarifying its approach to the annual information that firms must send consumers in annual statements. Firms will now be required to invite clients to consider reviewing their pension product choices and their investment choices, and consider the option of taking regulated advice or seeking independent guidance.

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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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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 Fully outsourced T&C implementation n One-to-one visits, file reviews, observations/role plays 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 Outsource the handling of client complaints

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 n Full paraplanning service including data gathering research, analysis and client report 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 BUSINESS SUPPORT SOLUTIONS Paraplanning

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

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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