PIMFA WEEKLY NEWS BULLETIN
10 July 2023
Consumer Duty Corner
Deliverability for 31 July 2023
Based on an insightful presentation from our Associate Members Beyond, below are areas to consider in enabling delivery of Consumer Duty implementation.
1. Evaluate your implementation plan
It may be helpful for firms to assess their progress to date and ensure a plan is in place for 31 July
e.g.:
a. Ensure your focus aligns to the FCA’s key priorities for 31 July – be clear on what is needed and what is being done with board level support
b. Ensure you have done enough to be materially compliant and make sure you evidence it – e.g. fair value assessments, measuring and monitoring outcomes, appropriate segmentation and consideration of vulnerabilitiesarticulate time and resource devoted to implementation
c. Be proportionate on what must be done by 31 July – focus on areas of highest risk by prioritising changes that impact fair value and
2. Ensure alignment to Consumer Duty and prioritise the FCA’s expectations
• Following the FCA’s fair value framework review and Sheldon Mill’s speech (10 May 2023) – firms should consider the FCA’s areas of focus (consumer protection, outcomes and data, a customer centric approach, reducing harm, delivery of good outcomes) and their intention to prioritise serious breaches
• Key areas of focus include fair value (especially vulnerable and low income consumers given the cost of living crisis) and approaches to monitoring data and differential pricing
• Firms should consider governance, benchmarking, pricing and margins and
consumer outcomes, and the types of data required to evidence compliance
Post 31 July 2023, firms should ensure all actions and decisions are in place, documented, and agreed by the board/leadership to sign off on 31 July (inclusive of subsequent milestonesmonitoring and controls for Consumer Duty obligations and annual attestation).
3. Enable monitoring and evidencing of outcomes
variation across groups and distribution channels
• The FCA’s aim to be a data led regulator raises their expectations on firms’ use of data and technology to demonstrate compliance – the FCA regard monitoring and evidencing outcomes as an area of continual improvement
• Firms need a suitable authority that can understand and analyse all the elements that impact the consumer – this will allow the collection and analysis of relevant data across the firm
As monitoring and evidencing outcomes is a critical component of the Duty, firms need to consider:
1. Providing robust challenge to fair value assessments, collecting and monitoring evidence to demonstrate fair value
2. Ensuring clear oversight and accountability for remedial action where needed
3. Analysing the distribution of outcomes and fair value across consumer groups
As we approach the 31 July, firms are advised to:
• Stay focused on areas where there is greatest risk to consumers – consider the purpose of the Duty, prioritise areas that have the biggest impact on delivering good outcomes
• Embed change throughout the firm with leadership from the top – as highlighted by the FCA, senior leadership is fundamental for the cultural change required
• Listen and react – ensure your actions are aligned to FCA stated priorities and areas of focus – consider the fair value review findings and the 10 questions highlighted by the FCA (e.g. testing the effectiveness of communications, data, MI and providing fair value)
• Demonstrate change – it is critical to show material changes undertaken to meet Consumer Duty obligations (e.g. data use to monitor outcomes) instead of relying on existing processes and policies
• Document organisational changes (e.g. remuneration/ incentives to facilitate a customer centric mindset) – clearly set out all steps taken for Consumer Duty implementation
PIMFA/CPS launch new Report
The Centre for Policy Studies (CPS), in partnership with PIMFA, have launched a new report, entitled Retail Therapy: Making the case for wider share ownership.
Most recent statistics show that the proportion of shares held by UK residents was just 12% compared to more than 50% in the 1960s. The FCA believe that there are 9.7 million people with investable assets of over £10,000 in the UK, mostly or entirely in cash. There is estimated to be £1.8 trillion of cash in savings accounts up and down the country. The total holdings in Cash ISAs in the UK comes to just shy of £300 billion. The pattern of saving is hugely unequal – those with the smallest savings are the most likely to take out Cash ISAs, and get the lowest returns.
The report highlights that many people do not receive the advice or guidance they should when it comes to investment opportunities. The opaque language of financial services and a lack of financial literacy on the part of many potential investors, as well as a limited risk tolerance of policymakers in their perception of what an acceptable level of risk for its population actually is, are the main barriers contributing to a low level of retail investment in the UK.
The report can be downloaded HERE
Read the findings in full and download the report here
New PIMFA/ Alpha FMC Report – ESG Investing Approaches
PIMFA, in collaboration with Alpha FMC, are delighted to launch a new report on the impact of upcoming UK regulation on Environmental, Social and Governance (ESG) investing, based on the findings of a survey of PIMFA member firms.
PIMFA responds to HMT consultation on Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers
In our response we support HMT’s proposal to introduce a regulatory framework for ESG ratings providers. ESG ratings impact the way the market functions and contribute to investor confidence in ESG products. Providing clarity around the structure of ESG ratings will help avoid misleading claims on ESG performance, and in turn benefit consumers and help them understand how their investments can achieve ESG goals.
Any future regulatory framework for ESG ratings providers should ensure transparency of the methodology used by ESG rating providers, provide clarity around what is captured by ESG ratings, and deliver improvements in reliability and comparability of ratings and avoidance of potential conflicts of interest.
Future regulation should be extended to include data providers too. There is an issue of data liability to be addressed and dependency on third party providers for ESG related data by financial institutions and responsibility within the overall value chain. As ESG ratings providers operate globally, it is essential to coordinate efforts with international regulatory bodies and align the proposed regulatory framework with existing international standards.
The full response can be read here
Industry group launches Code of Conduct for ESG Ratings and Data Product Providers
A provisional voluntary code of conduct for ESG ratings and data product providers has been launched by the ESG Data and Ratings Code of Conduct Working Group (DRWG) and supported by the International Regulatory Strategy Group (IRSG) and the International Capital Market Association (ICMA). The code aims to enhance consistency, transparency, and accountability in the financial services industry to ensure that the market is able to have confidence in the integrity of ESG Ratings and Data products.
The Code of Conduct sets out key best practice principles: good governance, systems and controls, conflicts of interest and transparency. The provisional code is open for consultation until 5 October 2023.
Financial services data collection
The Bank of England and the Financial Conduct Authority are working together with industry to transform data collection from the UK financial sector through a joint transformation programme. In this publication the regulators provide an update on the joint transformation programme since their previous communication (March 2023) including updates on:
• the delivery of the phase one recommendations
• the progress of the phase two use cases
• the Data Standards Review
• the future of Transforming Data Collection
• and our forthcoming Town Hall event on Thursday 13 July
FCA - Upcoming changes to Firm Reference Numbers (FRNs) and Product Reference Numbers (PRNs)
The FCA currently use six-digit Firm reference Numbers (FRNs) to uniquely identify firms, and six-digit Product Reference Numbers (PRNs) to uniquely identify funds. They are likely to reach the six-digit limit (999999) as early as July 2023, given the volume of applications and notifications they receive and are planning a move to seven-digit FRNs and PRNs for all newly registered firms and funds.
Firms that already have a six-digit FRN or PRN will keep that number. They will not change. Seven-digit numbers will start to be allocated for new applications and notifications once their six-digit range is exhausted. They will not be skipping any numbers. As they use the same number sequence for firms and funds, 999999 could be allocated to either a firm or a fund. It is possible that the number will be allocated to a non-public record and will not be published.
If you have any questions on these changes, please contact FRNPRNchanges@fca.org.uk
HMT publish a consultation on AML/CTF supervisory reform
On the 30 June the Treasury published a consultation on reforming AML/CTF supervision in line with a commitment in the Economic Crime Plan 2.
Currently, the AML/CTF supervisory system is made up of three statutory supervisors - the Financial Conduct Authority, the Gambling Commission and HMRC - and 22 professional body supervisors (PBSs) who supervise the legal and accountancy sectors. The consultation sets out four possible models for a future AML/ CTF supervisory system and is seeking views regarding the potential benefits and disadvantages of each potential reform model.
The Closing Date for responses is 30 September. If you have any views or comments, please get in touch with AlexandraR@pimfa.co.uk
PIMFA Index Series Questionnaire
PIMFA would like to gain a deeper understanding of how your firm is using the PIMFA Index Series, so we have constructed a brief questionnaire, featuring mainly multiple-choice responses, which should take no more than 5-7minutes to complete.
To access the survey, simply click here or scan the QR code below using your mobile device.
Your response is important to us and we very much appreciate the time taken to provide this information.
The FCA publishes its regulated fees and levies for the year 2023/24, alongside feedback on CP23/7
In the Policy Statement, the FCA confirm that the revenue from financial penalties is at £52.5m which was previously estimated to be £50.3m in the CP23/7. The FCA are freezing minimum fees, flat rate fees and application fees to encourage competition and support firms but expect to resume their policy of inflationary increases from next year. The FCA had also allocated cost recovery between fee-blocks and the details can be found in Chapter 2.
To read the response in full, please access it on the FCA WEBSITE
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21 September | 09:00 - 17:00
PIMFA COMPLIANCE CONFERENCE
Hear from leading industry experts on the key issues facing compliance professionals in the investment management and financial advice world.
Bringing together a high-level audience who can engage with the experts, this conference will facilitate fruitful discussions with opportunity for questions and networking.
14 February | 09:30 - 12:30
PIMFA WEBINAR: CONSUMER DUTY: THE FINAL COUNTDOWN
In this webinar, PIMFA associate member firm, Bovill, reviews the regulator’s questions and explains the steps firms can still take to identify and act on areas to help demonstrate the delivery of good customer outcomes.
