Financial Crime

If you are a new firm to regulation and applying for FCA authorisation you must take note of the rules and guidance in the system and controls rulebook 6.3.

If the rules are applicable to your firm then you must ensure that you have policies and procedures established to include processes that:

Enable your firm to identify, assess, monitor and manage money laundering risk.
Are comprehensive and proportionate to the nature scale and complexity of your business.
All financial services firms are at risk of being used to launder the proceeds of crime and in doing so you may find you are in breach of your legal requirements. So that your business can understand its risks you must carry out a regular risk assessment, this helps you to:

Understand the risks to your business.
Monitor the adequacy of your internal controls framework.
When you carry out your risk assessment you should consider the following key points:

•        Your customer profile
•        Products and services
•        Distribution channel
•        Complexity and volume 
•        Processes and systems

Remember you may also have additional requirements to meet the Terrorism Act 2000, Proceeds of Crime 2002 and the Money Laundering Regulations as well as the FCA systems and controls.

Before the FCA approve your application they want to know that you have adequate controls to:

• Train all your staff
• Management information for reporting to senior management
• Risk management policies and procedures
• Risk assessment
• Know your customer
• On going monitoring

Your business may need to allocate a Director or senior manager overall responsibility for establishing an effective anti money laundering framework. For further information the FCA provides guidance on the steps you can take to reduce the risk of financial crime, please see Financial Crime a guide for firms.

The Customer Journey

Understanding the customer journey is important to all firms, not just those who need to evidence to the regulator that they are treating customers fairly (TCF).

To understand the journey you must map out the end to end process, this helps you to identify all customer touch points and understand the potential key risks along the way. This can be done by considering the following:

1. Divide the journey into the following core theme areas.

Product design
Marketing and promotions
Sales process and advice
Application process
Provision of service
Fees and charges
Reward and remuneration
Culture
After service claims and complaints

2. Identify the key risks throughout the customer journey, capture the impact and probability of the risk materialising.

3. Identify and implement key controls to mitigate these risks, check whether they are appropriate and also if they are operating effectively.

4. Align the framework to the FCA customer outcomes:

Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard.
Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
5. Develop relevant, timely and appropriate management information, ensuring this goes to the people who need to know.

6. Align to your compliance monitoring plan, test and report any findings and recommendations to senior management.

It is important that management information (MI) can demonstrate that your firm understands root cause analysis and performance trends, and that tolerances are designed to capture the true situation as it stands.

We can help you develop the customer journey, key risk indicators, management Information and compliance monitoring, so that you can fully understand the customer outcomes.

The Road to Regulation

The MCD comes into effect from 21st March 2016, impacting mortgage lending for first charge, second charge and also some bridging finance, with second charge intermediaries seeing the biggest impact. Some second charge brokers need to decide when they want to submit their FCA application for approval. See the slide for options The Road to regulation

Appointed Representatives Regime

Appointed Representative (AR) is a firm that carries on regulated activities under the supervision of another firm that is directly authorised. Make sure you understand the requirements, otherwise you may be in breach of the rules

You will not be able to be a principal for another firm’s consumer credit activities while you have interim permission – you must wait until you are fully authorised before accepting leads and introductions.

please see the attached for further details Appointed Representative Regime

Fee charging credit brokers

The FCA have implemented new rules from the 2nd January 2015. The new rules impact any broker charging fees to customers and cover new requirements around disclosure, website statements and regulatory reporting.

The FCA has raised concerns about the practices of some credit brokers, particularly in the high cost short term credit (HCSTC).

Their key concerns are:

* Consumers not realising they are dealing with a broker rather than a lender

* The lack of informed consent to the taking of fees

* Consumers being mislead as to the purpose of giving their payment details

* Firms passing on customer details without informed consent

* Consumers facing difficulty in identifying the firm that has taken a payment, and in obtaining a refund from the firm or a response to their complaint

See the attached document for guidance on the new rules. PS 14-18

Regulatory Business Plan

Systems and control 3.17 requires firms to have and maintain a documented business plan. This document should be updated regular to take into account changes in the firms strategy and business model. Business plan

Senior management systems and controls

Many firms are struggling to understand the requirements of the systems and controls rulebook. Throughout the authorisation process the FCA will want to know that firms have organised and established systems and controls in line with SYSC 3.1. A firm must take reasonable care to establish and maintain such systems and controls appropriate to its business Senior management systems and controls

Mortgage Credit Directive (MCD) and the impact on brokers

The Mortgage Credit Directive  (MCD) will come into force on the 21st March 2016 impacting first and second charge lending and also some bridging finance. Second charge Intermediaries will face the biggest impact in this sector, see the following keys points to help future strategy planning MCD Impact

Regulatory questions

Before submitting your application to the FCA consider the following questions. If you can answer them all positively them you are ready to be regulated. Regulatory questions

Top tips in preparation for authorisation

Top tips for landing straightforward authorisation

With impending FCA approval regulations just around the corner, the question on many lenders, brokers and car dealer’s mind is ‘how do we get through the authorisation process?’

Since the FCA took responsibility of the consumer credit regulation in April this year, lenders, brokers and dealers are now required to obtain authorisation to continue selling or providing finance. From a previously lighter touch regulatory framework, the unfamiliar process of authorisation is proving to be quite an obstacle for many providers.

Gordon Docherty, Risk and Compliance Director at Internal Control Ltd, has therefore highlighted four key pointers for a straightforward authorisation process.

Tip 1 – Decide what type of authorisation you want to apply for

Through the FCA’s new rules, there are three ways to apply for authorisation:

• Becoming directly authorised;
• Joining a network and becoming an Appointed Representative; or
• Becoming an introducer

Deciding which application best suits your business is the key first step and whether you will require full or limited permissions. Make sure you know the allocated landing slot for your chosen application type. The overall authorisation process opens on 1 October and lasts until 31 March 2016, however, within this period there are different landing slots for each application type which last for only three months, and slightly different slots depending on your location.

Tip 2 – Prepare

The authorisation process can be lengthy so preparation is vital. This means, sort out all supporting documentation for your application, including ownership credentials, financial information and policies and procedures, understanding your business risks and how you will monitor compliance. The more supporting evidence you can provide at the start, the more likely your application will pass through successfully.

Tip 3 – Anticipate on-going challenges

The FCA has six months to authorise applications once a landing slot has closed. In this time the regulator can make on-going requests for additional evidence and information; it is always useful to be prepared for this as well as requests for business visits. It is best to be open and honest from the word go; if you fail to provide sufficient evidence, your application can be declined, therefore, the more prepared you are the easier the process will be.

Tip 4 – Be ready for when authorisation is given

Once your business is authorised it is, by law, a regulated entity and the firms approved persons will be responsible for ensuring that business is conducted in an appropriate manner and in line with the FCA’s business rules. It is necessary to maintain levels of reporting to the regulator, in particular to show that the business is treating customers fairly.

The FCA will only authorise firms that they believe are ‘Ready, Willing and Organised’. For further details or if you require support through the authorisation process, see the website www.internalcontrol.co.uk or contact Gordon to discuss. Click for document Top tips for landing straightforward authorisation