The Financial Conduct Authority (“FCA“) has ordered firms to write to some complainants with previously rejected PPI complaints to tell them they may now be able to make a new complaint about alleged mis-selling.
English High Court dismisses US $45 million fraud claim where proceedings already up and runnning in a Court in another jurisdiction
Where a claimant has already issued related Court proceedings in another jurisdiction, the English Court is unlikely to be the appropriate forum for the trial of a claim, according to the recent High Court decision in Punjab National Bank (International) Ltd v Srinivasan and others [2019] UKHC 89 (Ch).
FCA consults on the regulation of ‘crypto firms’
The Financial Conduct Authority (“FCA”) has published a consultation paper (“Guidance”) providing guidance on the regulation of cryptoasset activities.
Can English law insurance policies cover ICO fines imposed on financial institutions under GDPR?
When the General Data Protection Regulation (“GDPR“) passed into English law on 25 May 2018, one of the headlines that heralded the new legislation was the Information Commissioner Office’s (“ICO“) new power to impose fines of up to €20million, or 4% of global turnover (whichever is the higher) on organisations that breach the GDPR.
And, given the dramatic increase of the ICO’s power to impose fines, one of the big questions asked by insureds, brokers and insurers was whether the fines could be covered by insurance?
The question was repeated earlier this month following on from the announcement of the fine of €50million imposed on Google by the French data regulator for breach of GDPR.
Happy New Year from the FCA. First fines of 2019 confirm the largest ever for an individual
After a relatively quiet year for fines in 2018, the Financial Conduct Authority (“FCA“) has already published two Final Notices this week confirming the first fines of 2019 that total over £79 million.
FCA warns firms about misleading financial promotions for unregulated products
Last week, the Financial Conduct Authority (“FCA”) published a letter addressed to the CEOs of all regulated firms concerning financial promotions. In particular, the FCA highlighted its concerns over financial promotions that falsely implied that all of a firm’s activities were regulated by the FCA or the Prudential Regulation Authority (“PRA”), when in fact they were not.
New Disclosure Pilot Scheme – Now In Force
Think of a fairly common situation; you receive an email from a third party with three colleagues in copy, you forward this email to your colleagues with comments, one responds and you then reply to the third party. Later, a dispute between your company and the third party arises.
When you consider that this short exchange alone created more than 15 documents between you and your colleagues it begins to explain how the disclosure exercise in an electronic age is so time consuming and costly; even utilising the increasing numbers of electronic tools available to reduce and streamline the process.
The mandatory Disclosure Pilot Scheme (the “Pilot”), which came into force on 1 January 2019, aims to make the disclosure process more efficient, flexible and therefore more cost effective. It provides a new mindset for the disclosure process and will require both litigants and practitioners to revise their approach to documents when a dispute arises.
FCA – “Unacceptable” Low Levels of Suitable Pension Transfer Advice
The FCA’s latest update on its review of pension transfer advice does not make for happy reading.
The stats
As part of its ongoing review of the pensions transfer industry, the FCA reviewed advice on 154 transfers made by 18 firms (out of a total of 48,248 potential transfers advised on by these firms in the period under review). Just over 50% of the total transfers advised on resulted in actual pension transfers, though the FCA has made clear that it “expect[s] advisers to start from the position that a pension transfer is not suitable”.
Of the advice analysed, the FCA found that:
- 48.1% were suitable (74);
- 29.2% were unsuitable (45); and
- 22.7% were unclear (35).
The FCA acknowledged that a part of these figures came from four firms who have subsequently ceased providing pension transfer advice or varied their business models, and that the review is not representative of the whole market, being targeted at particular firms. Leaving those four firms out improves the statistics somewhat (60% of advice being found to be suitable), though it still leaves considerable room for improvement.
It remains to be seen from the next phase of the FCA’s review work whether these statistics are borne out across the industry as a whole.
What does the FCA say is going wrong?
The FCA says it observed the following key issues:
- Firms failing to identify and mitigate risks associated with pensions transfer business.
- Senior management lacking understanding of the business or failing to adequately oversee advisers’ activities.
- Insufficient understanding and management of conflicts of interest caused by charging structures.
- Risk management and resources lagging behind increased volumes of work.
- Firms adopting commoditised processes and so taking inadequate account of individual customer needs.
Where the proportion of suitable advice was low, the FCA identified this was driven by the following:
- Failing to obtain sufficient information about clients’ needs and circumstances.
- Failing to consider clients’ needs and objectives alongside one another, and using generic objectives which were not sufficiently specified to the client.
- Making inadequate assessments of the risks clients were willing to take.
The FCA’s update also gives a number of more specific examples of how the advice it reviewed fell short.
The FCA also highlights failings in disclosures to and communications with clients. This comes partly from firms adopting inadequate standard documentation, notably in the way fees are communicated. It also stems from using unclear, emotive, or, in some cases, misleading language.
However, where firms had recognised the higher risks of defined benefit pension transfer business and put in place additional controls, the FCA saw a higher rate of suitable advice.
What next?
Pension transfer advice is set to remain an FCA focus for some time to come.
The FCA has published a significant amount of guidance over the past year or so on its expectations for firms operating in this area and detailing how some firms are currently failing to meet expectations. This provides a roadmap to avoiding non-compliance.
Data has already been requested by the FCA from all firms with permissions to advise on defined benefit pension transfers. The FCA has indicated that it “will not hesitate” to use its investigatory powers where there are findings of serious misconduct and that “serious consequences” can be expected where the FCA’s concerns are not taken on board.
To avoid attracting negative attention from the FCA, firms should be taking steps now to review existing systems and controls in the light of the FCA’s latest findings and guidance. We are continuing to advise a number of firms in this area.
FCA reminds senior managers to take an active role in AML procedures
Last week the FCA published a Decision Notice which imposed a fine of £76,400 on the former CEO of Sonali Bank (UK) Ltd (“SBUK“), Mohammed Ataur Rahman Prodhan (“Mr Prodhan“), for “acting without due skill, care and diligence and for being knowingly concerned in a breach by SBUK of its obligations to maintain effective anti-money laundering (AML) systems”.
The FCA’s decision is a sobering warning to all senior management figures at FCA regulated businesses that they must take an active role in anti-money laundering (“AML“) policies and procedures.
This follows on from the £3.25 million fine that the FCA imposed on SBUK in December 2016 for serious AML systems failings and the £17,500 fine imposed at the same time on its former MLRO.
Lenders’ discretion and the limitation of the Braganza duty
Where a lender has the absolute discretion to do something under a loan, their position will be protected according to the recent High Court decision in UBS AG v Rose Capital Ventures Limited, Dr Vijay Mallya, Mrs Lalitha Mallya, Mr Sidartha Vijay Mallya [2018] EWHC 3137 (Ch). The Court provided some comfort to secured (and possibly, by extension, unsecured) lenders by confirming that the “Braganza duty” will not generally apply where a lender is entitled to perform a unilateral act at their own discretion.
