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Financial services regulation and ethics


FCA consults on allowing legacy cash rebates to continue

Sam Macdonald

The Financial Conduct Authority (FCA) is to consult on draft guidance for the treatment of cash rebates for legacy business in an attempt to answer industry queries following the FCA’s platform policy statement.

A note sent to trade bodies on 30 July confirms that the draft guidance, due in September, will set out the regulator’s intention to allow cash rebates to continue on legacy business ‘indefinitely’ where there is no change made to the investment after the ban on cash rebates for new business comes into force in April next year.

The FCA’s platform policy statement , published in April, confirmed a ban on cash rebates above £1 on new business from April 2014. Unit rebates were permitted to continue but with a tax charge applied. It also banned all legacy payments between fund managers and platforms from April 2016, but it did not say whether it would ban cash rebates to clients on legacy business.

The note says: “The new guidance will set out in more detail our policy intention, which is that cash rebates to retail clients on legacy business can continue indefinitely, unless a change to the legacy investment on or after 6 April 2014 (such as a fund switch involving the sale of all or part of the investment and purchase of different funds) requires the investment or part of the investment to be placed in funds which do not allow for cash rebates (other than those permitted by COBS 6.1E.10R(2) and COBS 6.1E.11G).”


S166 costs soar due to interest rate swap review

Natalie Holt

The total cost of skilled persons reports soared to over £176 million in 2012/13 in the wake of the Financial Services Authority’s (FSA) review into interest rate swap misselling.

Skilled persons reports, also known as section 166 reports, check for weaknesses or failings in a firm’s practices. The FSA’s final annual report, published last week, shows the number of s166 reports remained flat in 2012/13 at 113, compared to 111 in 2011/12. But the total cost to firms jumped a massive 465%, from £31.2 million in 2011/12 to £176.4 million in 2012/13. Costs per report ranged from £6,475 to £40 million, compared to a range of between £2,975 and £3 million in 2011/12.

S166 report costs were pushed up by the FSA’s review into interest rate swaps, which is forcing ten banks to review their sales of these products and pay redress where they have been missold.

Excluding interest rate swap cases, total s166 costs rose 12% from £31.2 million to £34.9 million. The reports focused on concerns such as past business reviews and quality of advice, systems and controls and financial crime.

Separately, the annual report also reveals the FSA missed a third of its business “milestones” which measure how the regulator delivered on key priorities. Six out of 18 milestones were not delivered, and related to the MMR, Solvency II, and a delay to rules on platform charges.

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