Platforms of glass


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The FSA have provided consolidated feedback on the proposals for Platforms and their use, disclosure, provider payments and cash back to consumers. Where do your thoughts take you on this emotive subject?

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Platforms of glass

  1. 1. Platforms of Glass?The FSA and PlatformsThe FSA have provided consolidated feedback on the proposals for Platformsand their use, disclosure, provider payments and cash back to consumers.Where do your thoughts take you on this emotive subject? Lee Werrell CEI Compliance Limited
  2. 2. Platforms of Glass?The FSA produced a consultation paper CP10/29 (innovatively entitled “Platforms: Deliveringthe RDR and other issues for platforms and nominee-related services”), the proposals in thispaper took into account feedback on the options set out in the initial Discussion Paper DP10/2 entitled “Platforms: Delivering the RDR and other issues”.There was some degree of support for the majority of proposals even though the FSA had,as appropriate, made amendments to recognise the concerns of industry. Typically themost controversial issues were payments by providers to platforms, and cash rebates byplatforms to consumers. The position on these points is set out in this, their latest paper.The thrust of the paperThe PS covers the issues of defining a platform and distributing products through a platform,which also includes the definition of platform service and what the FSA expects of adviserswhen using a platform.The FSA state that “As it is the adviser that is providing advice, the suitability rules apply tothe adviser and they need to ensure the fund they are recommending is suitable for theirclient." The FSA added that platform providers could decide what funds to distribute andwere not required to hold or refuse to hold any particular funds.A spokesman for the FSA was quoted as saying that platforms were under no obligation todisclose regulatory action taken against any funds offered. Ascentric had taken this stanceindependently; they had published details of the regulatory concerns regarding Castlestoneon its adviser website but has not stopped investments.In what was probably the most contentious part, the FSA has laid out their proposals onpayments to platforms and consumers, on how platforms are paid and the Adviser Charging-related issue of rebating product charges to consumers. In respect of incentives, the FSA hasdecided that it would be desirable, in principle, to ban both cash rebates from productproviders to investors and product provider payments to platforms. However, given thepotential impact of these changes on the business models of platform service providers, the
  3. 3. FSA has concluded that further research is needed to ensure that the implications forconsumers are fully understood before proposing new rules.Sheila Nicoll, the FSA’s director of conduct policy said that; “The rules published today aredesigned to enable consumers to understand the services they are being offered byinvestment firms, and what they are paying for. “With more and more business being conducted through platforms, it is important that customers are clear who is charging for what, and for what service. It is also important that customers and their advisers can move their investments quickly and easily, particularly if they are dissatisfied with the service they receive.“We also believe that it is likely to be in the best interests of consumers that productprovider’ payments to platforms and cash rebates from product providers to investorsshould be banned. But we need to analyse the impact on consumers and on firms’ businessmodels before we propose any new rules.”ReregistrationTwo areas that the FSA were looking at regarding re-registration were in specie registrationfor all nominee companies and that re-registration is done in a timely mannerThere were no major issues or objection in these areas and on the matter of timeliness,there is a Tax Incentivised Savings Association (TISA) initiative that the FSA is supporting andso it may well be prudent to await their proposals to determine whether prescriptive rulesare required.Capital AdequacyIn a common sense move, the FSA has adopted the same capital adequacy standards as forLimited Licence Investment Firms (LLIFs) which is simplythe minimum capital resource requirements being thehigher of:• the base requirement; or• the sum of credit risk, market risk and FOR.The limited activity categorisation may be available tothose firms that do trade on their own account and whosepermissions ensure that they meet the requirements ofBIPRU 1.1.27.
  4. 4. Nominee AccountsLastly the investing through platforms for nominee accounts demonstrates concern thatcustomers may be disadvantaged in not receiving important information from Platforms andother nominee companies on authorised fund investments. This information could be short-term fund reports, accounts, notice of changes affecting the fund etc and even though theconcern was largely focused on Platform operators, it could also include ISA and SIPPproviders too.A definition of ‘intermediate unit-holder’ has been created for a firm that is named on theunit-holder register but is not the beneficial holder of the units. This could, technically havealso included Discretionary Investment Managers but the FSA has clarified that it is notthere intention to do so. It has been deemed necessary for the intermediate unit-holder to forward certain documents and notifications that they receive from an authorised fund manager and this should be done in a timely manner. In recognition of the administration effort and cost, the FSA is looking to allow firms to use e-mail, secure messaging and hyperlinks to document libraries for customers to access relevant information. The FSA has also provided guidance on the timingan frequency of providing information – eg three monthly, quarterly and six monthlydepending on what it is.So what is the meaning of all this?Undoubtedly this is a progressive document and clarifies a number of areas of the FSA’sthinking and proposals on Platform related issues. Unfortunately there are also a number ofunresolved key items and a few more new views introduced. In usual fashion these will takefurther time and effort to assess and consult upon before final rules can be promulgated.There are also areas that will remain open to interpretation and the reality is that ambiguitycarries risk. Potentially trying to please too many people could be a disadvantage to the endcustomer. One area is clear and that the adviser is responsible for assessing suitability of aproduct distributed through a platform, and this then leads onto the discussion that a singleplatform offered by an IFA may not be totally suitable and comparisons may need to bemade.What has to be remembered is that the Platform market isan evolving and dynamic aspect of UK Financial Services thatcan be of benefit to the customer and it can also present arisk to the adviser and consumer if mis-managed at any time.Additional costs by Platforms in meeting the suggestedstandards of information dissemination may make all but
  5. 5. they very large platforms uncompetitive and ultimately collapse. Large Platforms will stillhave their challenges in finding scalable systems and controls around their data distributionand evidencing that they have complied. Ultimately, being totally definitive is onerous andoften unpopular so it is impossible to please all of the people all of the time.Oh, and by the way, the new rules will be implemented on 31 December 2012. Companies we have been involved with in the last 10 years; CEI Compliance can help provide a full compliance support service, reducingrequired management time, ensuring all areas are up to date and working for your firm’s long term benefit. Call 0800 689 9 689 today or go online at This whitepaper was written by Lee Werrell FInstSMM Chartered MCSI Cert PFS, founder of CEI Compliance Limited. Avoid S166 Skilled Persons Reports – download our free guide here
  6. 6. How to Choose a Compliance Consultant(Acknowledgements to Alan Weiss, financial services business occasionally needs outside help. Even well-run giants such as RBS, Lloyds,Aviva, Barclaycard, and many other firms deliberately choose to bring in compliance consultants on a regularbasis. For smaller businesses, an outside consultant can offer the following advantages:  Objective advice, not geared toward political advancement or promotion  Frame of reference and best practices from other clients  Models and methodology to gain results more quickly than internal trial and error  Permanent transfer of skills to internal people The problem, however, is that those external consultancies can create as many problems as they solve. (One definition of a consultant: someone who comes to fix a problem and remains to become a part of it.)These include:  Threatening employees by the mere presence of an “outsider”  Reliance on “off-the-shelf” fixed methods which don’t fit the current client very well  Lack of sensitivity to the client’s business, culture, and environment (a financial adviser practice is not run the same way as an accountancy practice)  Solutions that worked for large organisations cannot always be simply scaled down  “Ideal” solutions not really practical for the client’s business and have limited or no real valueI’ve been in consulting since 2000 and, to my astonishment, I find currently that about 50% of those callingthemselves “consultants” don’t really know what they’re doing, but what is worse is that almost 90% of thosebuying consulting services don’t know how to tell the difference! To remedy that, here is a primer on how tohire the best possible consultant for your needs:A good consultant frames an issue quickly but doesn’t suggest solutions too quickly, because they realise thatthey don’t know what they don’t know until they begin to gather more data.A good consultant will not promise the moon and the stars, and will never base an approach on tests orinstruments that are purchased for a few pounds from other companies. (You get what you pay for.)A good consultant is someone you’ll hate to see go when the project ends on time, and who you’ll want toinvite back at the first appropriate new challenge.CEI COMPLIANCE works on an alternative basis by collaboration and does not charge per hour, day or week. Call CEI on 0800 689 9 689 to make your first appointment.