Broker Breakfast Briefing 24th November: Wind-Down Planning, TPR firm applications, Consumer Duty, and Mergers & Acquisitions

In addition to being represented at, and supporting, industry body seminars and webinars, UKGI listens to a variety of opinion on matters of regulatory importance.  Accountancy and audit firm, PKF Littlejohn, held a breakfast briefing aimed at insurance firms on Thursday 24th November 2022.  We listened in and noted some key takeaways under the four topics covered.

Wind-Down Planning:

  • The FCA is allegedly less than happy with the standard of wind-down plans it’s seen so far (from sample of ten brokers)
  • Issues include a lack of identification of wind-down triggers, and narrative to go with the financials
  • The FCA is continuing to review GI intermediaries’ wind-down plans between now and 2025; any broker could in theory be selected by the FCA to send in its wind-down plan for review

Temporary Permissions Regime firms

  • The Netherlands seems to be the easiest EU regulator to deal with, particularly for firms with UK branches that want to handle client money (under Dutch regulation, not CASS 5 – as the FCA won’t give client money permission to EU firms)
  • The Italian regulator blows hot and cold depending on the case officer – some understand, some don’t
  • The Greek regulator appears particularly unhelpful.
  • The German regulator considers that its interest ends where EU borders end (so not really interested in UK branches of German firms)
  • Some EU regulators don’t have any sort of client money regime and appear not to understand the concept

Mergers and Acquisitions

  • The Consumer Duty and pricing practices compliance failures are ‘really hurting’ some deals (buyer pulling out as culture needs too much shifting)
  • VAT causes issues in 50% of acquisitions, particularly when there are holding companies / groups
  • Many client money firms have been reporting clean client money audits; PKF indicated that, on review, a third of them were so bad they have resulted in reports going in to the FCA about adverse findings. The FCA, however, seems to see it as a positive that the issues have been identified and are being remedied, and have been fairly supportive (for information, only 4-5% of client money audits carried out by PKF are ‘clean’)

The Consumer Duty

  • Products and services governance outcome – firms must embed robust consideration of a product’s target market needs, characteristics and objectives in order to deliver good outcomes; there was, though, no mention of the existing PROD rules and that GI firms (which were the firms the seminar was aimed at) should already be more than half-way there if they’ve done their PROD work on time
  • Price and value outcome – the FCA does not set detailed requirements for the fair value assessment.  Instead, it proposes to set out the factors firms must consider, as a minimum, to assess value.
  • Consumer understanding outcome – firms need to put themselves in their customers’ shoes
  • Consumer support outcome – firms need to ensure that consumer support is “designed and delivered to an appropriate standard such that consumers do not meet unreasonable barriers when they want to pursue their financial objectives”. As part of those “unreasonable barriers” the FCA includes unreasonable additional costs.

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