Banning commission won’t stop mis-selling – say CFA Institute 

The CFA Institute, the global association of investment professionals, has released a new report that concludes that a majority of investment professionals think a regulatory ban on sales inducements and commissions is unlikely to prevent mis-selling of investment products.  The key takeaways of the survey are: 

•  Linking remuneration to the sale of specific financial instruments or their sales volume does not encourage distributors to provide services in the clients’ best interests. The two most desirable regulatory reforms to address the mis-selling issue are toto mandate clearer  and full disclosures of all commission and fees paid and to improve product  information, including cost structures, to clients. 
• A complete ban on inducements paid to financial advisers is not seen as a solution. Such a measure could have a negative impact on the variety of products offered to clients. In particular, distributors may stop (or reduce) offering third-party products. 
• Regulators should focus on the enhancement and clarification of standards on cost disclosures, similar  to the standards that are  in place for performance information. 
• Strengthening investor education is a priority and should be the regulators’ main focus before introducing new regulatory measures. 

More Dear CEOs on Consumer Duty   

The Financial Conduct Authority (FCA) has once more stressed the importance of the forthcoming Consumer Duty regime with a series of letter to CEOs/Directors of debt advice portfolios, payments firms and debt purchasing, debt collecting and debt administration services.   

For the first of these three entities, the letter states: “[Consumer]Duty applies to products and services offered to retail customers, and to all firms who determine or have a material influence over customer outcomes – not just those with a direct customer relationship…This includes consideration as to whether your debt counselling and/or debt adjusting products and/or services are designed to meet the needs of your intended customers, provide fair value, support customer understanding, and support customers’ needs throughout the lifespan of the product or service.” 

For payments firms: “The Duty applies to products and services offered to retail customers, including to microenterprises and small charities with an annual turnover of less than £1 million, and to all firms who determine or have a material influence over consumer outcomes – not just those with a direct customer relationship. It is important that you consider how the Duty applies to your firm in light of its business model, customer characteristics and influence over consumer outcomes.” 

Finally the debt purchasing portfolio: “The Duty applies to products and services offered to retail customers, and to all firms who determine or have a material influence over customer outcomes – not just those with a direct customer relationship… This also includes specific consideration as to whether you are carrying out debt collections or debt purchasing activities.” 

The Consumer Duty regime comes into force on 31 July 2023 for new and existing products or services that are open to sale or renewal and on 31 July 2024 for closed products or services. 

SEC charges hedge fund and obtains final judgement against fraudulent individuals  

The SEC has charged investment advisory firm HITE Hedge Asset Management LLC for violating an SEC Rule by purchasing stock in a public offering for five private fund clients after selling short the same stock, during a period when the SEC Rule prohibited those purchases The funds involved have agreed to disgorge the profits received from HITE Hedge Asset Management’s unlawful trading, totaling approximately $111,000, plus prejudgment interest. The settlement is subject to court approval. 

Elsewhere the SEC has obtained a final judgement in the case of two individuals, Graham R. Taylor and  William T. Kaitz for their roles in fraudulent schemes that generated hundreds of millions of dollars from unlawful stock sales and caused significant harm to retail investors in the United States and around the world. Among other relief, the judgment orders Taylor to pay more than $4.9 million and Kaitz to pay more than $1.3 million. 

ABI conference:  Economic Secretary highlights growth   

 At the Association of British Insurers’ Annual Conference UK Economic Secretary Andrew Grifith MP spoke about the recent Edinburgh Reforms citing reform of: “reform of bank ring fencing, holding the regulators to account for improving the speed of authorisations, reforming MiFID streamlining the senior manager regime and removing the pensions charge cap. Just some of around 30 measures to make us more competitive.  The speech also touched on Solvency II and the UK’s recent announcement to move away from the EU directive: 

• “We are 100% committed to delivering the reform package we have announced to let you use your investment firepower to deliver as an engine for national dynamism whilst maintaining policy holder protection. 
• “Reducing the risk margin will unlock currently unproductive capital, opening up the potential of lower product prices and higher annuity yields. 
• “Broadening matching adjustment eligibility will make it easier to invest for the long term in projects even when there is a construction phase – whether building housing, wind farms or town centre regeneration.” 

ASIC brings criminal charges in Ponzi scheme 

ASIC has charged David Sipina with criminal offences relating to alleged misconduct at the Courtenay House group of companies.  He is the third individual to face criminal charges after former director Tony Iervasi and former contractor Athan Papoulias were both charged. Mr Iervasi and Mr Papoulias have both pleaded guilty. 

The charges relate to the Courtenay House group of companies, where it is alleged that nearly 600 investors paid more than AUS$180 million based on representations that their funds would be traded in the Forex and Futures markets when in fact only a small proportion of funds were traded. Instead, it is alleged that the majority of new investor funds were used to pay older investors, a classic Ponzi scheme. Mr Iervasi was the individual responsible for the Ponzi scheme and has been charged with and pleaded guilty to offences relating to his role.