“(1) If a person (other than an authorised person) – 30 (a) is a party to a contract with an authorised person (“his principal”) which- (i) permits or requires him to carry on business of a prescribed description, and (ii) complies with such requirements as may be prescribed, and 35 (b) is someone for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing, he is exempt from the general prohibition in relation to any regulated activity comprised in carrying on that business for which his principal has accepted responsibility. 6 (2) in this Act “appointed representative” means – (a) a person who is exempt as a result of subsection (1), or …. (3) The principal of an appointed representative is responsible, to the same extent as if he had expressly permitted it, for anything 5 done or omitted by the representative in carrying on the business for which he has accepted responsibility. (4) in determining whether an authorised person has complied with- (a) a provision contained in or made under this Act, or 10 … anything which a relevant person has done or omitted as respects business for which the authorised person has accepted responsibility is to be treated as having been done or omitted by the authorised person. (5) “Relevant person” means a person who at the material time is or was an 15 appointed representative by virtue of being a party to a contract with the authorised person.”
“A firm must pay due regard to the interests of its customers and treat them fairly.”
“(5) In the case of a disciplinary reference or a reference 5 under section 393(11), the Tribunal must determine what (if any) is the appropriate action for the decision-maker to take in relation to the matter, and on determining the reference, must remit the matter to the decision-maker with such directions (if any) as the Tribunal considers appropriate for giving effect to its determination. 10 (6) In any other case, the Tribunal must determine the reference or appeal by either- (a) dismissing it; or (b) remitting the matter to the decision-maker with a direction to reconsider and reach a decision in accordance with findings of the 15 Tribunal. (6A) The findings mentioned in subsection (6) (b) are limited to findings as to- (a) issues of fact or law; (b) the matters to be, or not to be, taken into account in making the decision; and 20 (c) the procedural or other steps to be taken in connection with the making of the decision. (7) The decision-maker must act in accordance with the determination of, and any direction given by, the Tribunal.”
“39. If, having reviewed all the evidence and the factors taken 5 into account by the Authority in making its decision, and having made findings of fact in relation to that evidence and such other findings of law that are relevant, the Tribunal concludes that the decision to prohibit is one that is reasonably open to the Authority then the correct course is to dismiss the reference. 10 40. Alternatively, if the Tribunal is not satisfied that in the light of its findings that the decision is one that in all the circumstances is within the range of reasonable decisions open to the Authority, the correct course is to remit the matter with a direction to reconsider the decision in the light of those findings. For example, that course would also be necessary were the Tribunal to make 15 findings of fact that were clearly at variance with the findings made by the Authority and which formed the basis of its decision. That course would also be necessary had there been a change of circumstance regarding the applicant which indicated that the original findings made on which the decision was based, for example as to his competence to undertake particular activities, had been 20 overtaken by further developments, such as new evidence which clearly demonstrated the applicant’s proficiency in relation to the relevant matters. Such a course would not usurp the Authority’s role in making the overall assessment as to fitness and propriety but would ensure that it reconsidered its decision on a fully informed basis. In our view such a course is consistent with the policy 25 referred to at [31] and [32] above as it leaves it to the Authority to make a judgment as to whether a prohibition order is appropriate.”
“I am really pleased with your performance and the delivery of compliance which is your role. Now that you have a first-class team alongside you I hope that you can concentrate on developing the process for the IFAs. We know that 40 you are a first-class manager of people, now I would like to see you also develop your creative side to work on the mechanics of what we do. Currently we are in the compliance business, but strategically we should be developing as an advice 30 business. I would like to see you continue to develop our business in advice terms, rather than compliance terms. All those “can I have a silver bullet?” questions respond to the old days of as acting as pure compliance – we need to move the business on from there. The process needs endless and continual improvement 5 and nothing should detract us from the goal of being the best network in the UK. You are clearly the single most important member of the team. Unlike all the rest of as you have almost unlimited resources to improve process. If you need something done all of us directors will give way to your pre-eminence. A compliant advice process 10 is key to it all.”
“… suddenly [seen] steve bell as a weakness… Steve is probably out of his depth: he is reacting to punches and is not on the front foot with his agenda. That is something I will have to deal with over 2012 and one way or another bring it to a conclusion. In the short term I need to get him on the front foot before the 25 arrow and get him on top of his agenda and getting the FSA to back off…. I have admired him and worked with him for 5 years and then in one very long meeting (basically 8 hours…) he let his guard slip, probably as he became tired…”
“Customers can be confident that they are dealing with a firm where the fair treatment of customers is central to the corporate culture.”
“This means that we will be looking to engage more with consumers, gather more feedback from them and rely less on auditing compliance solutions as a method of improving customer outcomes. Instead we will look more closely at 35 our IFAs business models and their holistic advice shape and seek to influence the look of that advice. In practical terms this means that we can expect to see more control over the investments recommended. This may mean that customer money is invested in fewer but larger firms that have perhaps a greater perceived control over the risks they may take with a customer’s money.” 40 181. This theme was reiterated later in the plan where it was stated that the Group wanted “to be closer to our end consumers and to engage more in the end solution that 41 is delivered face-to-face by our IFAs”
“…the place [the Group is] most exposed is in relation to TCF MI (endcustomer satisfaction/number of clients per RI & firm,/5 product line spread by percentage by individual etc …). Lack of end customer MI is likely to leave you exposed to [Authority] criticism at ARROW – they are bound to ask how you can demonstrate embedding of TCF principles and are likely to aim that question at the NEDs” 10 “Reading all of the papers there is an underlying theme of being critical/ of the [Authority] and driving that point home time and again – suggest you change tone of Board minutes (and other docs) to reflect factual information only followed by considered response and then Board decision (leave all rhetoric or ancillary comment out of the equation as it suggests an anti- 15 [Authority] culture)…”
“ The Network does not set clear procedures and standards of business for Appointed 25 Representatives (ARs) to follow. Upon joining the Network, ARs are permitted to follow their own sales practices, which could be wide and varied across the Network. The risks with this approach are exacerbated by the following: – [the Group] does not take sufficient steps to assess a new AR’s business model and business practices to determine whether or not they are likely to 30 deliver good customer outcomes; – [the Group] does not provide timely and comprehensive training to ensure that advisers understand the minimum standards they are expected to meet; and – Upon joining the Network, [the Group] does not carry out a suitable 35 assessment of an adviser’s knowledge and skills in order to determine their development needs before they begin to advise customers. We have found that key standards for advisers have been set too low and that monitoring and supervision of advisers lacks sufficient intensity. 47 – The standards for obtaining a licence do not require advisers to demonstrate their ability to produce good quality records which fully evidence the suitability of their advice; – The methodology used to determine whether a licence should be withdrawn is not sufficiently sensitive to trigger a timely 5 review. There is a risk therefore that a licence is not withdrawn despite a down-turn in performance; – The metrics used to determine the risk rating of advisers do not take into account all relevant performance factors and are not based on recent 10 performance information. As a consequence, an adviser’s risk rating might not actually reflect the risk they pose. This in turn might result in the adviser being subject to lower levels of supervision than they should be; – Until recently, where an adviser did not hold a licence for high-risk products they were permitted to give advice before the advice was checked 15 by the Central Monitoring Team. We have identified a number of weaknesses in the file checking process. Although [the Group] has recently made some improvements, which we support, the changes do not go far enough: – The level of checking carried out historically was too low and did not 20 ensure that a sufficient spread of the adviser’s business would be checked. While some improvements in this area have been made, weaknesses still exist; – Levels of checking are not sufficiently risk-based as they are not influenced by the risk rating of the adviser and do not ensure that a spread 25 of high-risk products is checked. We believe the new levels of checking would only be appropriate for competent advisers that exhibit good standards of compliance and TCF; – There are weaknesses in the file review methodology that make file checking less reliable and there is an increased risk that file checking 30 might not deliver a robust assessment of suitability. From sampling, we identified a number of instances where we did not find the file check to be sufficiently robust, as we did not feel suitability had been fully evidenced. We found that the supervision of the advisers lacks sufficient intensity and, on the whole, to be ineffective because: 35 – The monitoring carried out by Regional Compliance Managers (RCMs) in the past has not been sufficiently challenging. This is due to both the design and execution of monitoring activity; – Through sampling, we identified a high proportion of instances where RCMs had failed to analyse information on adviser performance, to 40 identify development needs and to take appropriate action; 48 – Generally, there appears to have been a reluctance or inability to undertake appropriate supervisory activity outside of the normal monitoring/supervisory cycle, which for some advisers can be very infrequent. Overall, we feel there is insufficient contact between advisers and Supervisors for the supervision 5 to be effective.”
“ Regarding risk management, the Risk Management Framework within [the Group] 10 is not sufficiently embedded. The main issues are: – Whilst there is some evidence historically of risk management activity, the Risk Management Framework (RMF) defined by [the Group] in January 2013 has not been fully embedded. The focus of senior management in recent months has been on dealing with risks and issues 15 that have already materialised such as past business reviews and the Risk Mitigation Program issued by the [Authority] in 2012. In our opinion this is taken focus and resources away from developing the firm’s risk management arrangements. This has resulted in key aspects of the framework not being successfully 20 implemented. Currently [the Group’s] management information is not sufficient to enable senior management to identify and monitor risk effectively; On a more positive note, we believe that the recent appointment of a new Risk and Compliance Director and 3 new Non-Executive Directors (NEDs) has had a 25 positive impact on the governance of the firm. There is greater awareness of the weaknesses in the firm’s systems and controls and evidence of challenge by the NEDs. We are however concerned about whether these individuals have sufficient capacity to drive through the improvements needed.”
“ From a cultural perspective, we believe that [the Group’s] focus has historically been on serving the AR (adviser) rather than the AR’s customers. All of the new NEDs confirmed to us their view that in the past [the Group] had lost sight of who 35 the customer is and in the more recent past the firm has been working to ensure there is a more appropriate balance in respect of serving the AR and meeting its obligations to the underlying customer. [The Group’s] business model creates an environment where advisers are afforded a high degree of flexibility and as a consequence the Network has lower levels of 40 control. We believe a lack of resources to be a key contributor to the weaknesses set out in this report. We are of the view that the design of some of [the Group’s 49 process and controls have been constrained and influenced by limited resources. It is clear that recent remedial activity has put further strain on resources and as a consequence some of the firm’s internal controls have been weakened, for example quality assurance of the file checking ceased in May 2012 due to a lack of resources. We believe that [the Group] will require additional 5 resources to address the issues set out in this report; however we are concerned that it is not able to commit the financial resources it is likely to need.”