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Regulatory Training Module 3

Regulatory Training Module 3. Objectives. Money laundering Complaints & Compensation Retail Distribution Review Fit & Proper Treating customers fairly. Money Laundering. Money Laundering. To prevent the use of financial systems for money laundering purposes

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Regulatory Training Module 3

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  1. Regulatory TrainingModule 3

  2. Objectives • Money laundering • Complaints & Compensation • Retail Distribution Review • Fit & Proper • Treating customers fairly

  3. Money Laundering

  4. Money Laundering • To prevent the use of financial systems for money laundering purposes • 1989, the Financial Action Task Force on Money Laundering (FATF) was created • An international body dedicated to the fight against criminal money, 30 members including the European Commission and many of the EU member states

  5. Money laundering can be defined as ‘Terrorist property’ • Money or other property that is likely to be used for terrorism purposes or proceeds of the commission of acts of terrorism • Proceeds of acts carried out for the purposes of terrorism

  6. Definitions Money Laundering can be defined as • the process of filtering the proceeds of criminal activity • through a series of accounts • or other financial products • in order to give it apparent legitimacy • or to make its origins difficult to trace

  7. Legislation Proceeds of Crime Act 2002 • Deals with the laundering of the proceeds of all forms of crime - drug money is no longer separate • The Act extends the obligation to report suspicions about money laundering of proceeds of all forms of crime - previously restricted to drugs or terrorism offences

  8. Three main areas to address: 1 - Concealment or disguise • The true nature, source, location, disposition, movement, rights with respect to or ownership of property, • knowing that such property was derived from criminal activity or from an act of participation in such activity

  9. 2 - Acquisition, possession or use of property • Knowing, at the time of receipt, that such property was derived from criminal activity or from an act of participation in such activity

  10. 3 - Participation in, association to commit • Attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions mentioned

  11. Two important definitions, in order to clarify the definition of money laundering: • Property • Assets of every kind, tangible or intangible , movable or immovable, as well as legal documents giving title to such assets • Criminal activity • A crime as specified in the Vienna Convention • (the United Nations Convention Against Illicit Traffic in Narcotic Drugs) • and any other criminal activity designated as such by each member state

  12. Money Laundering offences Three principal money laundering offences: • Concealing criminal property • Arranging • Acquiring, using or possessing These lead to procedures designed to ensure that persons working in the financial services industry do not become ‘involved’ in money laundering

  13. Report suspicious circumstances • Refrain from alerting persons being investigated • Give regular training to staff about what is expected of them under money laundering rules including consequences of failure to comply

  14. Appoint a money laundering reporting officer This post is a controlled function, and must be filled by a person of ‘appropriate seniority

  15. Requisition a report at least once in each calendar year from the money laundering reporting officer. This report must assess the firms compliance with Money laundering procedures and provide information about reports of suspected money laundering incidents submitted by staff during the year

  16. The Financial Action Task Force • Established in 1989 - To co-ordinate the international fight against money laundering • Main office in Paris • Similar bodies around the world also operate as Associate members of the FATF or have observer status with the FATF

  17. Serious Organised Crime Agency (SOCA) • Public body sponsored by the Home Office • Has law enforcement powers • Responsibility to reduce the impact of serious organised crime on people and communities • Includes pursuing and recovering the proceeds of crime

  18. Offences Two particularly relevant to financial advisers • Failure to disclose • All suspicions of money laundering must be reported to the authorities. • The proceeds of Crime Act 2002 introduced the requirement for a person to disclose information about money laundering if they have reasonable grounds for knowing or suspecting that someone is engaged in money laundering.

  19. Tipping off • It is also an offence to disclose to – or tip off- a person who is suspected of money laundering that an investigation is being, or may be, carried out

  20. Client identification Most important element in the action against Money Laundering. Evidence of identification is required in the following cases: • When entering into a new business relationship (new account, investment or policy) • In the case of all new customers

  21. ID must be obtained in every case and where there is a suspicion of money laundering Acceptable forms of ID include: • Current passport • National identity card with photograph • Driving licence with photo • Entry on electoral roll • Recent utility bill or council tax bill

  22. Financial exclusion What if a client can not produce ID? • In such circumstances the FSA considers that a firm may accept , as evidence of ID • A letter or statement from a person in a position of responsibility • i.e. Solicitor, doctor or minister of religion who knows the client

  23. Record-keeping requirements Institutions must keep appropriate records for use as evidence in any investigation into money laundering. This means that • Evidence of ID must be retained until at least five years after the relationship with the customer has ended • Supporting evidence of transactions (in the form of originals or copies admissible in court proceedings) must be retained until at least five years after the transaction was executed

  24. Reporting procedures • Each firm must appoint a MLRO • All members of staff must make a report to the MLRO if they know or suspect that a client is engaged in money laundering • The MLRO will then determine whether to report this to SOCA using known information about the financial circumstances of the client and the nature of the business transacted

  25. Training requirements Firms are required to • Take appropriate measures to make employees aware of money laundering procedures and legislation • Provide training in the recognition and handling of money laundering transactions

  26. ANY QUESTIONS?

  27. Complaints and Compensation

  28. Complaints and compensation • Consumers in the UK today are better protected than they have ever been • However the FSA does recognise that they cannot be given 100% protection • They should take some responsibility for the purchasing decisions that they make • ‘Secure an appropriate level of protection’ is one of the FSA statutory objectives

  29. One step towards this objective is to make it easier for clients to know how to complain if they feel they have been badly treated. • Customers who are not happy with a firms response can refer the matter to a dedicated independent ombudsman • They can receive compensation

  30. Complaints Procedure The FSA conduct of Business rules contain specific requirements for the way in which firms handle complaints

  31. Important to remember that complaints can be verbal (in person or telephone) or written • Both should be treated equally Complaints can be divided into two types • Hard complaints • financial loss, material distress, or material inconvenience have occurred as a result of the action leading to the complaint • Soft complaints • Those that do not carry such allegations

  32. Timescales – Hard complaints must be dealt with within a specified time • Written acknowledgement promptly after receipt • The acknowledgement should provide summary details of the firms complaints procedure • Firms are expected to have dealt with almost all complaints by resolution or a final response within 8 weeks of receipt • if a delay to this time, need to write to customer to explain why and how long likely to be to resolve. Also their right to refer to Financial Ombudsman if not happy with delay

  33. Record of complaints must be kept for three years • Soft complaints are no subject to these timescales • The firm must produce a report on hard complaints to the FSA every six months

  34. The Financial Ombudsman Service (FOS) • An ombudsman is and independent organisation whose role is to help resolve complaints against a public body or commercial organisation • Established as a result of the FSMA 2000

  35. FOS is divided into 3 sections dealing with different sectors of the industry • Banking and loans • Insurance • Investment • FOS is free to individuals and small businesses • All firms authorised under the FSMA must be members • Available to complainants who have exhausted a firms internal procedures and are not satisfied

  36. Complaints to the FOS must be made within the later of six years from the event that led to the complaint, • or three years from the date when the complainant should have become aware that they had cause for complaint

  37. The ombudsman can direct a firm to take steps in relation to the complainant and the complaint. This covers a wide range of non-financial actions. • The ruling can involve both a financial reward and a direction regarding steps to take • Any ruling by the FOS is binding on the firm • The complainant is still free to pursue the matter through the courts if they wish

  38. The Financial Services Compensation Scheme (FSCS) • Designed to protect customers who have lost money as a result of a firm becoming insolvent or defaulting • Not an alternative to the FOS • However of it is a complaint against a firm that has become insolvent or defaulted the FSCS will provide compensation where appropriate

  39. Activity How would you deal with a complaint?

  40. Retail Distribution Review

  41. RDR rules and requirements Ethical behaviour and social responsibility: • Ethics refers to conscious decisions and actions taken by individuals and groups of individuals based on moral standards • Right from wrong and choosing to do right • Business ethics attempt to apply a set of principles to ethical problems that arise in a business environment

  42. Advantages to Ethical behaviour amongst Financial firms • Enhanced reputation • Consumer trust and confidence in the business to do “the right thing” • Trusts produces loyalty • A perception of professionalism • Those more wary of financial products will be more likely to consider buying products and seeking professional services

  43. Ethics and the Regulator The FSA approach to regulation is based on two sets of principles: • The Principles for Business • The Principles for Approved Persons

  44. Ethics and the adviser Ethical advisers will gain more referral business and see lower lapsed business As part of the RDR, the FSA has proposed a Code of Ethics that advisers must agree to follow, which will become obligatory from 1st January 2013.

  45. Professionalism The RDR resulted in the FSA issuing the final rules on professional standards Qualifications • All advisers must obtain the QCF level 4 qualification (Diploma in Financial Advice) by December 2012.

  46. New entrants who started the role after July 2009 but have to be deemed competent have 30 days from the date they began the activity to attain the qualification • Advisers starting the role from 1st January 2011 are required to pass an appropriate qualification within the 30 months

  47. Activity: We have a new Statement of professional standing: • What is this? • How would you address this as an adviser? • What actions are required?

  48. Statement of Professional Standing (SPS) From 1st January 2013, advisers will be required to obtain an annual statement of professional standing (SPS) from an accredited body. This will provide evidence that the adviser is appropriately qualified, has subscribed to a code of ethics and has up-to-date knowledge.

  49. The code will contain: • The adviser’s name • The name and contact details of the accredited body and a named signatory to the statement • The end date of the verification (max 12 months from the original verification) • Confirmation that advisers hold a verified qualification • Confirmation the adviser has signed an annual declaration that their knowledge has been kept up to date and that they adhere to the standards of ethical behaviour. ** Handout

  50. What is “fit and proper”? Honesty, Integrity and Reputation Judged under a variety of: • Criminal record • Disciplinary proceedings • Known contravention of FSA regulations; or involvement with companies that have contravened regulation

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