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Compliance Manual

Version 1.27 2017 Updated: 20/03/17

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Contents

1

Compliance Manual ............................................................................................................... 1

Version 1.27 2017 .................................................................................................................. 1

1 Sales Process & Documentation ................................................................................... 6

Sales Process Summary ................................................................................................... 7

Introduction and Overview ................................................................................................. 7

Initial Contact .................................................................................................................. 7

Telephone Contact ......................................................................................................... 8

Basic paperwork for Customers ..................................................................................... 8

Fees ................................................................................................................................ 8

Identifying Customer Needs (Completing a Fact Find) ...................................................... 9

Fact Find (Point of Sale system) .................................................................................... 9

Affordability ................................................................................................................... 10

Customer Credit Report ................................................................................................ 11

Recording Attitude to Risk ............................................................................................ 11

Duty of Care .................................................................................................................. 12

Identifying Products (Research) ...................................................................................... 12

Presentation and Recommendation ................................................................................ 14

Illustrations .................................................................................................................... 14

Key Facts Document (KFD) .......................................................................................... 15

Decisions in Principle ....................................................................................................... 15

Application ....................................................................................................................... 16

Oral Disclosure ............................................................................................................. 17

Documents ....................................................................................................................... 17

Document Certification Wording ................................................................................... 18

Product Confirmation ....................................................................................................... 19

Reason Why Letter (Mortgages) .................................................................................. 19

General & Non-Investment Insurance Reason Why Letter (RWL) ............................... 20

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Administrator Rights ......................................................................................................... 21

Reporting ......................................................................................................................... 21

2 Advice Guidelines ........................................................................................................ 22

Standards ......................................................................................................................... 22

Fundamental Concepts .................................................................................................... 22

The Fundamental Process ............................................................................................... 22

Customers in special circumstances see also (Potentially Vulnerable Customers) ........ 22

Mortgage Repayment Method (Residential properties) ................................................... 23

Capital & Interest Mortgages ........................................................................................ 23

Interest Only, where Repayment vehicles(s) are in place ............................................ 23

Interest only where repayment vehicle(s) is not in place .............................................. 24

Mortgage Repayment Method (BTL Properties) .............................................................. 24

Re-Mortgage Cases ......................................................................................................... 25

Further Advances ......................................................................................................... 25

Product Transfers ......................................................................................................... 26

Porting ........................................................................................................................... 26

Lender Legal Incentives ................................................................................................ 26

Mortgages beyond clients intended Retirement Age ....................................................... 27

Mortgages Beyond State Retirement Age .................................................................... 27

Debt Consolidation (Re-Mortgage or Simultaneous Sale & Purchase) ........................... 27

Debt Consolidation during a house move or upcoming house move (Non-simultaneous Selling and Purchasing) .......................................................................................................... 28

Adverse Customers ......................................................................................................... 28

Customers with arrears ................................................................................................. 28

Fact Find and Reason Why Letter (RWL) for customers with adverse credit .............. 28

Proof of Deposit ............................................................................................................... 29

Concessionary Purchases ............................................................................................... 29

Off-Panel Recommendations ........................................................................................... 29

High Loan to value – 85% and above .............................................................................. 29

Non-Regulated Advice ..................................................................................................... 29

Buy-to-Let Mortgages ................................................................................................... 30

Referral of 2nd Charges .................................................................................................... 32

FCA Regulated Bridging Finance - Referral .................................................................... 32

Packaged Cases .............................................................................................................. 32

Post Sale changes to advice - Mortgages ....................................................................... 32

Equity Release ................................................................................................................. 33

Authorisation to advise on Equity Release ................................................................... 33

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Documentation .............................................................................................................. 33

Key Areas to Address ................................................................................................... 33

Involving Third Parties .................................................................................................. 34

Home Purchase Plans (Sharia Compliant Mortgages) .................................................... 35

Sale and Rent Back schemes (SARBs) ........................................................................... 35

Foreign Currency Mortgages ........................................................................................... 35

General Insurance ........................................................................................................... 36

Building and Contents Insurance .................................................................................. 36

Accident, Sickness & Unemployment Insurance/MPPI ................................................ 37

Pure Protection ................................................................................................................ 37

Income Protection (IP/PHI) ........................................................................................... 37

Term Assurance ........................................................................................................... 38

Critical Illness Cover (CIC) ........................................................................................... 39

Serious Illness Cover (SIC) .......................................................................................... 40

Whole of Life (Non-Investment) .................................................................................... 40

Gift Inter Vivos .............................................................................................................. 40

Re-Broking Cases ......................................................................................................... 40

Business Protection Insurance ........................................................................................ 41

Relevant Life Plans ....................................................................................................... 41

Private Medical Insurance (PMI) ...................................................................................... 42

Post Sale changes to advice - Insurances....................................................................... 42

Own Cases & Cases for Direct Relations,Colleague’s/Employees or Business Partners……. ................................................................................................................................. 42

Execution Only Cases/Non-advised sales ....................................................................... 42

Reporting ......................................................................................................................... 42

3 Financial Promotions ................................................................................................... 43

Definition .......................................................................................................................... 43

‘Real Time’ Promotions .................................................................................................... 43

Unsolicited ‘Real Time’ Promotions .............................................................................. 43

Solicited ‘Real Time’ Promotions .................................................................................. 43

‘Non-Real Time’ Promotions ............................................................................................ 44

Approval Process .......................................................................................................... 44

Exempt promotions ....................................................................................................... 44

Warning Notices ........................................................................................................... 45

Websites & All Social Media ............................................................................................ 45

Referral Business ............................................................................................................. 46

Reporting ......................................................................................................................... 46

4 Complaint Handling Procedures .................................................................................. 46

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Definition of a Complaint .................................................................................................. 46

Procedure for Complaints ................................................................................................ 47

Oral Complaints ............................................................................................................... 47

Investigation Process ....................................................................................................... 48

Complaint Resolution ....................................................................................................... 48

Training ............................................................................................................................ 49

Reviews ........................................................................................................................... 49

Subject Access Requests (SAR) ..................................................................................... 49

Reporting ......................................................................................................................... 49

5 Business Stationery ..................................................................................................... 50

Wording Requirements .................................................................................................... 50

Letterhead, Websites and email footers ....................................................................... 50

Business cards ............................................................................................................. 51

Facsimile Headers ........................................................................................................ 51

Email Signatures ........................................................................................................... 51

Reporting ......................................................................................................................... 51

6 Monitoring and Controls .............................................................................................. 52

Disclosure of Significant Information ............................................................................... 52

T&C Supervision Activity ................................................................................................. 52

Compliance Audits ........................................................................................................... 52

Breach Registers for Larger Firms ................................................................................... 53

Financial Audit ................................................................................................................. 53

Fit and Proper Review ..................................................................................................... 53

Disciplinary Procedures ................................................................................................... 54

The Disciplinary Process .............................................................................................. 54

7 Money Laundering ....................................................................................................... 55

Verification of Customer Identity - Mortgages ................................................................. 55

Verification of Customer Identity - Insurances ................................................................. 56

Verification of Customer Identity – At a distance ............................................................. 56

Expats ........................................................................................................................... 57

Financial Sanctions Checks ............................................................................................. 57

Proof of Deposit ............................................................................................................... 57

Appointed Representative Responsibilities ..................................................................... 57

Reporting Suspicions ....................................................................................................... 58

Responsibilities of the Compliance Department .............................................................. 58

8 Mortgage Fraud ........................................................................................................... 59

Occupation & Income Evidence ....................................................................................... 59

Undisclosed Below Market Value (BMV) ......................................................................... 59

Proof of Deposit ............................................................................................................... 59

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BTL as residential or residential as BTL .......................................................................... 60

Reporting ......................................................................................................................... 60

9 Bribery, Hospitality & Gifts ........................................................................................... 61

10 Incentives..................................................................................................................... 62

11 Handling Customer Money .......................................................................................... 62

12 Holding Customer Assets ............................................................................................ 62

13 Referrals & Leads ........................................................................................................ 63

Creating an Introducer relationship .................................................................................. 63

Obligations to the customer ............................................................................................. 63

Non-mortgage and insurance referrals ............................................................................ 64

Leads ............................................................................................................................... 64

Reporting ......................................................................................................................... 64

14 Record Keeping ........................................................................................................... 64

Customer Files ................................................................................................................. 64

Complaints ....................................................................................................................... 65

New Business .................................................................................................................. 65

Reporting ......................................................................................................................... 66

15 Treating Customers Fairly (TCF) ................................................................................. 66

16 Data Security & Business Continuity ........................................................................... 66

Data Security ................................................................................................................... 66

Customer Files .............................................................................................................. 66

Sensitive Information .................................................................................................... 67

Data on the move ......................................................................................................... 67

Technology ................................................................................................................... 67

Business Continuity ......................................................................................................... 67

Locum arrangements .................................................................................................... 68

Reporting ......................................................................................................................... 68

17 Appendix ...................................................................................................................... 69

Compliance Manual Overview

This Manual details the Compliance standards expected by the Network and will be reviewed at least annually in line with the Compliance Monitoring Plan.

1 Sales Process & Documentation

It is the responsibility of all Appointed Representative Firms to ensure that the rules of the

Financial Conduct Authority (FCA) are adhered to and customers are Treated Fairly at all times

by its advisers. The Network sales process detailed in this manual reflects the FCA’s rules and

must be followed at all times.

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Sales Process Summary

Once a potential customer has been identified the sales process, which must be adopted by

Appointed Representatives, has the following stages:

Introduction and Overview

Identifying Customer Needs

Identifying Products (Analysis)

Presentation and Recommendation

Validation of documentation from provider/lender

The Appointed Representative’s adviser must ensure that all information is provided to customers in plain language avoiding jargon whenever possible. Where it is necessary to use jargon, advisers must ensure the customer fully understands the meaning and implications of the arrangement they are making.

The sales process must be completed at a pace appropriate to the customer and an explanation given at the earliest opportunity of the level of service offered. The customer must be given adequate time to consider the recommendation and the costs associated with the mortgage application and all additional services and products provided by the Appointed Representative before making a commitment.

The sales process must be followed in all cases where an adviser makes, or intends to make, a personal recommendation and when they make, or intend to make, an alteration to an existing contract.

Appointed Representative Principals are expected to ensure that their advisers adopt the following practice as a compliant sales process. Responsibility for this lies jointly with the Principal and the adviser.

Introduction and Overview

Once a potential customer is identified there are certain basic requirements that must be met so that the customer is aware of who they are dealing with and what they can expect from those dealings. This section highlights the minimum disclosure requirements and goes on to explain how these requirements are affected when initial contact is not made in a face-to-face meeting.

Initial Contact

Advisers are required to cover the following during the initial customer meeting and prior to making any recommendations:-

State to the customer the name of the adviser, the name of the Appointed Representative firm and that the firm is an Appointed Representative of the Network who are authorised and regulated by the Financial Conduct Authority.

Advise the customer of the level of service that is being offered. If an adviser is intending to discuss both mortgage and insurance then a combined IDD should be issued. This is regardless of whether the insurance recommendations are to be done after the initial mortgage advice.

Inform the customer that they will be provided with advice and a written recommendation.

Establish with the customer the basis on which the Appointed Representative will be remunerated. If a fee is agreed then this must be confirmed to the customer in writing prior to any work for which the fee is intended taking place. Please refer to Section 1.2.4.

Advise the customer that any recommendation given will be for the most suitable product and that the reason for recommendation will always be confirmed in writing.

Advise the customer of their right of access to personal records under the Data Protection Act. For example:

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“Under the Data Protection Act any information you provide is confidential and will not be shared with any third parties without your written authorisation. You also have a right of access at any time to any information I hold about you.”

Advise the customer of the procedure to follow in the event that they wish to make a complaint and make them aware that a copy of the complaint procedure can be provided if required.

Provide a list of the lenders on the Networks panel. (Should any customer require a list of lender procuration fees, this list is available in the Proc Fee section under Mortgage products on Brokerzone).

NB. A number of the points above are covered in the Disclosure Document, which can be found on the point of sale system and which must be provided to the customer during the initial contact stage before any formal Fact Finding is conducted.

Telephone Contact

If initial contact is made by telephone then the points in Section 1.2.1 above must be covered during the first telephone conversation. When initial contact is made by telephone it is necessary to forward the customer a copy of the Disclosure Document within three working days. This can be done in any durable format (e.g. Post, fax, e-mail).

Where an adviser is conducting the advice process entirely over the telephone, it is vitally important that all customers are provided with the necessary information in order that they may reach an informed decision and that the adviser can produce evidence that all relevant information was obtained and explanations provided to all customers. To allow this it is important that all paperwork described above and later in this manual is provided to the customer in advance of discussions and advice that is being provided (e.g. sending an Illustration to a customer in advance so that they can review, consider and formulate any questions prior to a discussion with the adviser).

NB. In the case of joint applications, all information must be sent to both parties. This can be achieved by any correspondence being jointly addressed.

Basic paperwork for Customers

Advisers must provide the customer with a copy of the Disclosure Document during the initial contact stage, which must be before any Fact Finding is conducted. A Business Card can also be provided at this stage if required. When initial contact is not face to face then the Disclosure Document must be sent in a durable medium (e.g. post, fax, e-mail) within 3 working days.

When creating a new review for an existing customer the adviser will be prompted by the point of sale system to complete a new Disclosure Document before providing a new service.

TIP - It should be noted that where the sale involves regulated and non-regulated products the TOBL will need to be created and saved first, once this has been done you can return to the Disclosure Document section, remove reference to TOBL and enter the Disclosure Document details and again create that document. Both documents will then be saved in the point of sale system to form an audit trail.

Fees

Prior to starting any work for a customer an adviser must agree on the basis of remuneration for any work that they intend to conduct. Whenever a customer begins a transaction that may involve a client fee a Fee Agreement should be signed prior to any work being undertaken.

A compliant Fee Agreement template can be found on Broker Zone.

This document can be amended by the Appointed Representative but any changes will need to be approved by the Compliance Department prior to the agreement being used.

A copy of the signed Fee Agreement must always be saved or scanned and attached into The Key.

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Where a fee is charged this must be clearly stated in the Disclosure Document, as well as in any illustration provided to the customer and the subsequent mortgage offer. Care must be taken to ensure that any fee is fair and reasonable and that the firm can justify the amount in relation to advice and administration given to the customer.

Identifying Customer Needs (Completing a Fact Find)

As the first stage of the advice process, it is essential that customer needs are identified correctly. It is important to understand and know both the hard facts (e.g. name, address and date of birth) and the soft facts (e.g. willingness to take risks and attitude towards income protection cover). Finding a mortgage is an emotional and stressful time for many customers and care must be taken not to influence the fact-finding process through beliefs or assumptions on the part of the adviser.

Fact Find (Point of Sale system)

All advisers must complete the Fact Find in full either during a one-to-one meeting with the customer or over the telephone if the transaction is being conducted at a distance. It is possible for advisers to use the paper based version of the Key Fact Find (held under Broker Zone> Compliance/Resources) to collect customer information if this is their preferred method for collecting data. However, if this is the chosen method then the adviser must ensure that their paper version contains enough information to fully satisfy the Fact Find on their point of sale system and that all data is accurately transposed from the paper version on to the point of sale system prior to continuing with any further stages of the advice process. In the case of landlords with multiple BTL properties (5+) it is acceptable to scan a document (e.g. A spreadsheet) into the POS System that contains details of the properties rather than completing the ‘existing mortgage details’ section of the Fact Find.

The Fact Find should normally be completed in full. However, where a customer declines to provide any information, a comprehensive explanation must be documented in the notes section of the point of sale system and, where a recommendation is subsequently made the declination must be confirmed to the customer in writing. If the omission of information makes it impossible for an adviser to make a suitable recommendation then the adviser should not proceed with the case.

NB. Completion of the Key is mandatory for all cases. It is therefore essential that all cases are “closed” accordingly once the case is completed to ensure prompt payment of procuration/commission fees.

Multiple Mortgage Sales

For new residential, Consumer Buy To Let, or BTL mortgage business with an existing customer, it is compulsory that the existing Fact Find is closed (if not already done so) and a new case must be added to the existing customer record. The majority of details (excluding the product requirement and agreed budget) from the previous Fact Find will automatically transfer to the new case for review and editing.

When a customer has multiple BTL properties and is re-mortgaging a number of these at the same time, one Fact Find can be used for all mortgage requirements. In this instance one product requirement should be created, with notes added to the Fact Find providing details of the additional mortgage requirements. It should be noted that if the customer also has residential mortgage requirements that these should be created under a new case.

Soft Facts

The structured sections throughout the Key Fact Find allow you to enter ‘hard facts’ (date of birth, mortgage amount etc.) relating to your clients. However, it is also important to use the notes section of the Fact Find to record ‘soft facts’ and any other useful background information that cannot be recorded within the main sections of the Fact Find. This is important as the

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information provided can be used to support the advice you have given and demonstrate conversations you have had with the client. There are many different examples of soft facts and we would expect all cases to require some level of notes to accompany the hard facts provided in the Fact Find. The following non-exhaustive list provides some common examples of when ‘soft facts’ are needed:

Lending past state retirement age: Details of whether this is feasible (based on job type), the customers health and aspirations regarding their retirement plans

Extended mortgage term: Details to clarify why a mortgage term has been extended, despite the customer having a sufficient budget for a shorter term. Is the customer going on maternity leave soon? Are there other upcoming expenses such as new car planned?

Low expenditure figures: Details of why the customer’s expenditure looks unusually low. Do they stay in a lot as they have just had a child? Do they have small house and hence heating cost is lower? Do they cycle to work and not drive?

Lender conversations: Details of any conversations held with lenders regarding the client and their circumstances.

Affordability

All advisers must ensure that the costs of any recommendation are affordable to the customer now and in the foreseeable future. Special attention should be given to the discussion of affordability after any discount/fixed rate or special deal (if applicable) comes to an end or when the customer has taken out a reviewable premium protection policy. These discussions should be fully documented in the Reason Why Letter to show how the customer intends to continue payments after the specific period.

The key to affordability is to produce a budget planner that is accurate, detailed and evidenced. This should include all outgoings such as utilities, Council Tax, Energy Bills, and Insurances etc. Where the customer pays pension contributions or childcare vouchers etc. from their gross salary then we would expect these budget planner fields to show as zero and the cost to be reflected in the net salary figure. If this is the case then notes should be added for additional clarification. It is vital that all fields of the budget planner within the Key are completed as this aims to match as closely as possible the lenders budget planners. It may be beneficial to send a paper version of the budget planner to your customers in advance of your first meeting with them, a copy of which can be found on BrokerZone. This will give them time to collate data and make the meeting more focussed and easier to conduct. The client should disclose all outgoings and be aware of the potential impact on their application if affordability needs to be re-assessed. In the case of a first time buyer, estimates should be made relating to food, council tax utility bills etc. in order that a true budget is calculated.

Obtaining this information is mandatory in all insurance (excluding Buildings and/or contents ONLY sales), residential mortgage, Consumer Buy to Let and first time landlord cases, meaning that the Expenditure section of the point of sale system is to be fully completed for all these customers.

NB. Completion of a full budget planner is not expressly mandatory for experienced Buy to Let customers (defined as non-first time landlords) but consideration must be given to the customer’s liabilities to the mortgage if the property cannot be let etc. A full budget planner does, however, become compulsory and subject to the above guidelines if associated protection policies are also sold.

Verifying the customer’s income and expenditure is essential in ascertaining affordability and

therefore justifying the adviser’s recommendation. For all residential mortgage, Consumer Buy

To Let and first time landlord recommendations it is mandatory that proof of income (3 month’s

most recent payslips for an employed person OR 2 years accounts drawn up by a

professional person/SA302 form covering 2 years for a self-employed person) plus the last

3 months bank statements (corresponding with the customers income) for ALL current

accounts for ALL parties (showing the client’s income AND expenditure) are also required

regardless of whether the client is employed or self-employed. Where original documents

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have been seen, copies should be certified as true copies of the original, scanned and

attached to the POS System, regardless of whether the lender has requested this or not.

All advisers should carefully check bank statements to ensure that the figures provided are

accurate and that all commitments have been disclosed e.g. credit card payments. To enable this

bank statements are required for ALL current accounts. If in any doubt then customers should be

advised to obtain a copy of their credit report.

All bank statements should be complete, with all transactions visible and should not be altered in

any way. E.g. Items crossed out or pages missing.

NB. Online Documents - More institutions now issue bank statements, payslips etc. online. This can lead to a higher risk of fraud and you should be particularly diligent in your approach to online documents.

In the case of online bank statements, payslips and other documents such as savings account balances it is first of all a requirement to check exactly what a lender will require. If the lender does not require certified copies of online documents then un-certified copies are acceptable by the Network. This is because of the difficulty in defining an ‘original’ document. However if the lender requires certified copies you can only certify online documents if the client has logged into the relevant site in your presence. If the client is unable to comply with this request then you should speak to the lender for further guidance. When guidance is provided by the lender detailed notes should be added to the Key to confirm the outcome.

All copies and/or prints produced and then scanned must be clear, legible, certified as true copies (if appropriate) and of a good quality. All records must be stored indefinitely unless permission is given by the Compliance Department for their removal.

If a lenders affordability calculator has been completed please ensure that a copy of this is attached within the Key.

The Business Assurance Team and Compliance Department will closely monitor for cases where a full customer budget planner has not been completed or proof of income not obtained. If the process is not followed then it is likely to result in advisers having to re-visit customers to confirm budgets and in the case of regular offenders it will lead to further action being taken against the adviser.

Customer Credit Report

A copy of the customer’s credit report must be obtained & attached to the Key if the client has a history of adverse credit or if there are concerns over the customer’s credit history. It is also strongly recommended that this is done in other mortgage cases to help ensure that accurate information is provided to a lender. This could identify any adverse history or undisclosed credit commitments before an application is submitted to the lender and therefore avoid any delays and/or declines. You should also ensure that you carefully check the client’s bank statements to determine affordability and identify any credit commitments/arrangements.

Recording Attitude to Risk

Notwithstanding the more straightforward personal information and circumstances of the customer, a key area for potential problems is the customer’s attitude to risk when related to repaying capital debt and interest rate fluctuation. Not only is it important to obtain the customer’s view but this view must be consistent with the rest of the Fact Find. For example, it would be very difficult, if not impossible, to defend a complaint where a customer has been recommended an interest-only mortgage but it was clear from other information that they were not inherent risk-takers – whether or not the customer was made ‘aware’ of what was happening. In the event of any inconsistencies an appropriate explanation must always be fully documented.

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Duty of Care

There can be instances where a customer arranging a mortgage may be reluctant to address certain areas of protection or does not want to address them immediately. It is important in these circumstances to note exactly what the customer is expecting from the adviser. If a Disclosure Document has been issued saying that protection advice will be given then there is a duty of care to do so and record this. It is possible to discuss only the customer’s mortgage arrangements at the first meeting but it is vital that, where protection is a requirement, the sales process that is adopted allows time for protection business to be advised on and placed ‘on risk’ prior to exchange of contracts.

Where protection does not go ahead, for whatever reason, the adviser must include details of this within the RWL. Below are some examples of scenarios and suggested wording:

Situation 1 - Customer states upfront that they are not interested in looking at protection and only want mortgage advice. In this situation a Mortgage only Disclosure Document should be issued.

Situation 2 - Customer decides later in the process (after combined DD has been issued) that they do not want protection advice. Once the combined DD has been provided to the customer the adviser is stating that he intends to offer advice in the areas stated on that document (i.e. Protection) and therefore the adviser must analyse the customer’s protection needs by completing a full Fact Find. If the customer decides during the sales process that they do not want to receive protection advice then the following option must be selected in the RWL:

During our initial discussions I indicated that I would give advice and make a recommendation in respect of your insurance needs. However, you have now stated that you do not require advice in this area. I strongly recommend you review your insurances to ensure that you, your mortgage, your home and your family are adequately protected. Please let me know should you wish to review your insurance provisions.

Situation 3 - After protection advice has been given the customer rejects the advice. The customer may have numerous needs in the area of protection but may choose not to address them despite advice from the adviser. In cases like this you would be asked to demonstrate full research showing how the recommendation was given and why. The protection RWL should lay out the customer’s areas of need in full and should confirm the recommendations made. It should then clearly state why they were rejected and the impact of this.

Identifying Products (Research)

Once completed, the Fact Find will enable the adviser to source the most appropriate product(s) to suit the customer’s needs. The products selected will need to be suitable and appropriate for the customer based on their unique circumstances and must be affordable. If a suitable product cannot be found then no recommendation should be made.

Customers wishing to borrow additional monies MUST BE MADE AWARE of the alternative options that could be considered at this point, such as unsecured borrowing, a second charge or further advance from the customer’s existing lender. There is no requirement to advise if these are more suitable than a re-mortgage but the customer must be aware of the options.

If a re-mortgage is evidently unsuitable for the customer but a second charge may meet their needs then customer details should be passed to the Networks Master Broker (Positive Lending) ), the Key should be updated and the customer issued with the referral letter available in the Key. Positive Lendings 360 Sourcing software can be used to obtain an indication of the cost of a second charge but cannot be used to provide advice to customers on second changes. The customer must consent to their details being passed to Positive, who will advise ONLY in the arena of second charge loans. Please see Second Charge Lending Guide available under Compliance resources on Broker Zone for examples.

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The Appointed Representative’s sourcing tools via the point of sale system must be used to select a suitable product. In all cases evidence of the research undertaken should be stored within the Key under the correct customer record. If for any reason a standalone system has to be used then a copy of the selected Illustration/Statement of Price and evidence of research must be attached. This must be attached at the time the research is initially conducted to ensure the appropriate deals are shown.

When conducting research you must use the relevant sourcing system(s) that match the level of service stated in your Disclosure Document:

LEVELS OF SERVICE

Mortgages:

Mortgage Brain/Trigold = Comprehensive range of lenders

Pure Protection:

SolutionBuilder = Whole of Market or PRIME

Whole of Market should be selected if you use the Whole of Market Panel

Limited Panel should be selected if you use the PRIME panel

Directly to a single Provider website = Single Provider (for all customers at all times with the same single provider)

General Insurance:

General Insurance advice can only be provided on a Single Provider basis via

Paymentshield/Paymentshield (Home & Protect). If Paymentshield cannot provide cover for a

client then the Appointed Representative should contact Broker Desk to discuss placing the case

elsewhere in the Towergate Group.

For commercial GI business a referral option is available within the Towergate Group via Berkeley

Alexander.

Unless using a single provider (compulsory for GI) research should be sorted and stored in the

correct order showing the top (based on relevant criteria) lenders/providers in order to evidence

why a particular lender/provider was chosen. The research should not be in alphabetical order

nor should it be filtered to show just the one lender/provider.

Care should be taken in all cases to check that all research has been returned to the point of sale

system, if it has not, then this should be attached manually to the product record.

The adviser should be able to select a single product that is suitable for their customer. However,

if more than one suitable product is identified then the adviser will need to make a decision on

which they deem to be the most suitable and this will be based on the elements that the customer

sees as important. As a result of research conducted for mortgages, the elements important to

the customer may result in the least expensive product being selected, however, other factors

can be taken into account i.e. early repayment charges, arrangement fees, the overall cost of the

product, the length of discount available, or the underwriting procedures adopted. For protection,

research critical illness definitions, underwriting procedures or other additional features may be

the elements that are important to the customer and these should be considered thoroughly.

Whenever the situation arises that the reason for making a recommendation is not that it is the

least expensive product then a thorough explanation must be provided in the Reason Why Letter

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confirming why an alternative has been selected and evidence must be retained to demonstrate

the additional benefits of the recommended product and lender/provider.

Presentation and Recommendation

Once a product has been selected the adviser will need to present a recommendation to the customer. The presentation is the key component to a compliant sales process as it is at this point that the customer should be made aware of all the details regarding the selected product and the reason for the recommendation that is being made. Advisers should take great care to ensure that the customer is clear about all aspects of the recommendation and provide them with ample opportunity to question anything that they do not fully understand. It is important that the recommendation given is as a result of the experience and knowledge applied by the adviser and not from having ‘taken orders’ from the customer.

A Recommendation Checklist is available within the Compliance/Resources section of BrokerZone. This can be printed off and used as a guide to help the adviser confirm that all areas have been covered with the customer at the point of recommendation. The customer’s signature is not a mandatory requirement but advisers may like to use the checklist to confirm that the customer understands the points detailed during their discussions.

Illustrations

It is a requirement in all cases that the customer is provided with an accurate illustration for the recommended product. It should be noted that it is entirely the adviser’s responsibility to ensure a compliant illustration is produced. Customers must be given time to consider the illustration and advisers must fully explain to the customer the importance of reading and understanding the document. The illustration must be provided at the point a recommendation is made (or within three working days if a recommendation is made by telephone) and must also be done prior to any commitment by the customer to enter into a specific contract. For the purposes of this requirement, a commitment to enter into a contract is not just the signing of an application form but also, for example, the paying of a product related fee and the commissioning of a valuation or receipt of the customer’s verbal authority to process an application. The Network accepts ESIS/KFI plus/Statement of Prices produced by MBL, Trigold, SolutionBuilder or the lender/provider. If an illustration is obtained outside of the point of sale system for any reason then evidence of the research undertaken must be saved and attached into the system as should a copy of the illustration. For mortgage illustrations advisers must identify the separate components of all fees and charges and not combine them together. These must be broken down within the sourcing tool and the RWL. Customers should also be advised of the implications of adding fees or other items to the mortgage (e.g. the cost of the additional interest for the full mortgage term) and whether the amount borrowed might breach thresholds that cause additional costs such as a higher interest rate or a higher lending charge. This should be discussed with the customer in full and detailed in the RWL by selecting the appropriate wording and personalising it appropriately.

Please ensure that the appropriate section of any Illustration provided to your client states your company name, the name of the network and the names of any other party who will be in receipt of a split of the procuration fee. It is mandatory under FCA rules to disclose the names of all parties that will be in receipt of any part of the procuration Fee (including packagers). Ideally the commission split for each party should be shown, but as a minimum, the full procuration fee payable and each party who will benefit must be documented. For the majority of lenders when you produce an illustration, the ‘Names(s) of any third parties’ and ‘amount payable’ is automatically populated by Mortgage Brain. When installing Mortgage Brain, the ‘Fee is payable to:’ field is blank so it is important to enter these details at registration stage so that the system pre-populates the illustration to ensure it is compliant. Under no circumstances must an adviser make a recommendation without an illustration or Statement of Price. If these cannot be obtained the adviser must contact the Compliance Department or their Business Assurance Manager. Additionally, an illustration alone

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cannot substitute the obligation that the adviser has to personally explain their recommendation to the customer. For protection recommendations, advisers must ensure that the illustration, and any additional Statement of Price document produced, is clearly presented to the customer and covers areas including, but not limited to, the term of the policy, cancellation rights, the policy benefits/exclusions and the total premium over the term.

Additional Illustrations

The customer should only be provided with an illustration for a product that the adviser is happy to recommend. Additional illustrations can be discussed and, where appropriate, provided to the customer but it is important that, when providing more than one illustration, the adviser is aware that each illustration provided is a suitable recommendation and can only be provided after a full Fact Find has been completed. Examples of circumstances where additional illustrations may be used might include a customer who, after a full Fact Find has been completed, is unable to confirm if they want a fixed or discounted mortgage. When discussing additional illustrations with a customer an adviser should take great care to ensure that the customer is aware what the final recommendation is and should also clearly document how that decision was reached. In most circumstances it would be expected that the Fact Find completion had been done to a standard that allows just a single illustration to be provided.

“Quick Quotes”

Advisers may only provide ‘hard copy’ quotes in the pre-prescribed illustration format and clearly showing the customer name(s). This means that if an adviser uses “Quick Quotes” they can only be shown to the customer on a computer screen and under no circumstances should be printed out and handed to or emailed to the customer.

Key Facts Document (KFD)

It is a requirement in all cases that the customer is provided with an accurate Key Facts Document (KFD) for the recommended product. Customers must be given time to consider the information provided and advisers must fully explain to the customer the importance of reading and understanding the document. The KFD must be provided at the point a recommendation is made (or within three working days if a recommendation is made by telephone) and must also be done prior to any commitment by the customer to enter into a specific contract. The KFD can be obtained from the individual providers Website.

Decisions in Principle

Decisions in Principle (DIP)/ Agreements in Principle (AIP) are common features of the mortgage market. It is possible for advisers to obtain DIPs/ AIPs for their customers, once the full sales process has first been followed, but there are important considerations that need to be addressed prior to conducting any of these.

It is important to note that a DIP must not be obtained until all documents (bank statements, payslips, proof of address/ID, credit reports etc.) have been obtained and scrutinised. All advisers should carefully check bank statements to ensure that the figures provided are accurate and that all commitments have been disclosed e.g. credit card payments.

Lenders will vary in the degree of checks they carry out when a DIP/ AIP is run for a customer. This will affect the ‘footprint’ left on a customer’s credit report. Some may leave a ‘hard’ print and others a ‘soft’ print. Such activity is recorded on a customer’s credit report and will impact on the customer’s credit score. Where a ‘hard’ print is left, this will be visible to future prospective creditors. Although footprints in isolation should not have any significantly impact on a credit report, multiple checks within a short period of time (e.g. 6 months) can lead to the refusal of credit.

Advisers must fully and clearly explain the above to a client and obtain their agreement before proceeding with a DIP/AIP in their name. The best way to evidence that this has been explained to the customer is to ask them to sign a DIP Agreement Form. (Alternatively agreement can be

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held in the form of a letter or email). Confirmation of agreement should be attached to the POS system.

Care should be taken regarding the number of DIP’s that are done that subsequently do not proceed to application and then completion as lenders carefully monitor this activity and measure quality.

Where sales are conducted over the phone, written confirmation (email, fax or letter) from the customer agreeing to the DIP/AIP can be obtained.

Application

After the customer has considered the recommendation and illustration then an application form should be completed.

In the case of mortgage applications the information for the form can be input by either the customer or the adviser depending on the customer’s preference. Once complete, the adviser must ask the customer to check the details thoroughly and read the declaration carefully. In the case of paper applications the customer must then sign and date the application form (the adviser must never date the form). The application pack can then be forwarded for processing.

In the case of insurance applications the customer should be encouraged to fill in the form themselves, or to use a provider’s tele-underwriting service. If the customer is unable or does not wish to fill in the form themselves then particular care should be taken to read the questions carefully to the customer to ensure they understand fully. Under no circumstances should advisers use generic medical questionnaires or not use the exact questions provided by the recommended provider.

On-line applications are now more common and it should be noted that where an adviser inputs information on behalf of the customer it is their responsibility to ensure that:

information is input with care and attention to ensure accuracy

they check any lender/provider documents are accurate if information from them is added

the customer is advised to check that the information is correct prior to the application being submitted if this is possible

For certain contracts it is imperative that applying for the contract is done in a timely manner. For example, it is not acceptable to leave life and/or critical illness cover until after a mortgage has been arranged - advisers should take all reasonable steps to ensure cover starts at the same time as the need (e.g. exchange or completion). If cover is not arranged on time it is essential that the implications of not being protected along with reasons why the cover is not in place are documented by issuing a separate letter or including an explanation in the RWL. In the example of life/CI cover above, failure to arrange cover in good time could prove expensive if the customer becomes ill before the cover is in force, leaving the adviser open to a claim for negligence. The same applies to other forms of protection. However it should be noted that MPPI/ASU cover cannot be applied for until the latter of 7 days after the mortgage offer (with no significant exclusions) has been produced or the MPPI/ASU quote has been given to the customer.

A copy of the application must be retained in all instances and scanned into the POS System.

When submitting business it is imperative that you use your own individual agency code. You must never use someone else’s code or allow someone else to use yours.

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Oral Disclosure

In order to comply with FCA rules and meet TCF principles 3 and 5 when selling protection policies, advisers must ensure their customers are able to make an informed decision about any policy they are taking out.

The adviser’s responsibility when making a protection sale is not limited to explaining how a policy works solely in written documentation. In every sale, whether over the telephone or face-to-face, advisers must provide customers with adequate verbal explanations of the policy, which are clear, fair and not misleading to ensure they understand what they are buying.

Advisers do however need to be careful not to overload customers or obscure key information.

Information that should be orally disclosed when making a recommendation includes, but is not limited to:

How the policy works (particularly for more complex products, such as CIC or PHI);

The cost of the cover, frequency of premiums, whether premiums may change;

Whether benefits are paid as a lump sum or a monthly income;

Key exclusions and limitations that would tend to affect the customer’s decision to buy the policy;

The cooling off period (14/30 days) and the customer’s right to cancel;

The consequences of non-disclosure of material facts; and

How to make a claim.

It should be remembered that every customer will have differing levels of experience and knowledge, which need to be catered for when providing explanations. In all cases the adviser should check the customer’s understanding of the information given and not simply assume their explanations have been sufficient.

Ultimately, failure to provide sufficient oral explanations will inevitably lead to a poor understanding of the policy taken out. This could in turn give rise to customer detriment. Customers may find they are unable to claim under a policy or fail to claim altogether for a condition which is covered. They might put a different value on their cover or make poor choices about other kinds of protection.

In addition to the above, a lack of understanding of the protection they have in place may increase the likelihood of a customer cancelling what might otherwise be suitable and valuable cover, exposing them to undesirable risk and the adviser to an unwelcome commission clawback.

Documents

The Network requires that you should have all required documents in place prior to submitting

the case to the lender/provider. Ideally these documents should all be added to the Key

immediately after submission to the lender/provider. However it is appreciated that this may not

always be possible and therefore a three day tolerance is permitted. As soon as all documents

are added to the Key, the application date must also be added.

The table below shows the required documents for the most common mortgage cases:

Pro

of of

Identity

/Add

ress

Pro

of of In

com

e

Bank

Sta

tem

ents

Fin

ancia

l

Sanctions

Illu

str

ation

Researc

h

Applic

ation

***

Offer

Pro

of of D

eposit

Com

ple

ted

Budg

et P

lanner

Fe

e A

gre

em

ent

(If charg

ed

)

DIP

Form

(If

do

ne

)

Residential/NON Experienced

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Landlord Purchase/ Consumer BTL

Residential/Non Experienced Landlord Re-Mortgage/ Consumer BTL

*

Residential/Non Experienced Landlord Product Transfer/Consumer BTL

**

*

Residential/Non Experienced Landlord Further Advance/Consumer BTL

Experienced Landlord/Ltd Co BTL Purchase

Experienced Landlord Ltd Co BTL Re-Mortgage

*

Experienced landlord Ltd Co BTL Product Transfer

**

*

Experienced Landlord Ltd Co BTL Further Advance

*If additional funds are being used in addition to equity

** If available

*** When required by the Network, the application form must be attached to the Key. When the lender

advises that the document is not available then the adviser must not proceed without Network

authorisation.

For all Ltd Company BTL’s a copy of the Companies House record showing the Ltd company

details and also director details will need to be added to the Key.

For all insurance cases you must have the following:

Product Research

Illustration

Application

Terms

Completed Budget Planner (Unless B&C Only) If the premiums are to be paid via a third party then proof of ID & Address must also be provided. Any document that has been redacted by the client, must not be accepted by the adviser. If a

customer does not want to show full information then you should not deal with them.

The above lists for both mortgage & insurance business cover the most common documents, however additional documentation may be required dependent upon individual cases.

Document Certification Wording

When you have seen the original documents, all copies of these should be certified. The

required wording is as follows.

For proof of identity that contains a photograph:

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This document has been certified as a true copy of the original & is a true likeness of the client. Signed: Adviser Name: Date: If it is a distance sale and you have not seen the client face to face, then photo ID should be certified as below.

For other documents:

This document has been certified as a true copy of the original. Signed Adviser Name: Date:

In the case of online bank statements, payslips and other documents such as savings account balances it is first of all a requirement to check exactly what a lender will require. If the lender does not require certified copies of online documents then un-certified copies are acceptable by the Network. This is because of the difficulty in defining an ‘original’ document. However if the lender requires certified copies you can only certify online documents if the client has logged into the relevant site in your presence. If the client is unable to comply with this request then you should speak to the lender for further guidance. When guidance is provided by the lender detailed notes should be added to the Key to confirm the outcome.

Product Confirmation

Reason Why Letter (Mortgages)

Ideally, the RWL should be issued immediately after the case has been submitted to the lender. However a RWL must, in all cases, be issued no later than 3 working days after submission to the lender.

If a case is no longer proceeding, an offer may or may not have been produced but all advisers must ensure that a RWL is still completed and provided to the customer to cover the recommendation that has been made.

In all cases the RWL must clearly demonstrate why the recommendation is suitable with specific reference to the customer’s current circumstances. A template for the RWL is automatically generated in the point of sale system, however this must be edited and personalised to make it relevant to the individual customer. It is important that the RWL provides details of the customer’s circumstances, highlights any high risk areas and also any unusual aspects of the case. It should also make it clear to the customer why a particular scheme and lender has been recommended and how this relates to the customers individual circumstances. Further guidance on this is detailed in the Case Checking Bulletins but must make reference to, amongst others:

Affordability, now and once a special rate period has finished (if appropriate)

Repayment type, justification for this and any comparison figures

Any requirements to repay the debt early

Justification for the term of the loan

Impacts of any interest rate changes with regards to tracker, discounted or variable products recommended

Any flexible features requested by the customer

Justification for the lender recommended

Implications of any money added to the loan such as fees or consolidation of debts

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The above is not an exhaustive list so the firm must ensure that all advisers are kept up to date with Case Checking and Compliance Bulletins which are distributed through Skills Serve and the Business Assurance Managers.

The wording of the RWL must be kept simple and easy to understand without the use of jargon. The declaration section can be signed by the customer if an adviser wants to confirm that the letter has been received. This procedure is encouraged by the Network although all advisers must be aware that a signature from the customer does not mitigate responsibility for the suitability of the advice given.

Where changes may have taken place on the case after the RWL has been produced, it is a requirement that an addendum letter is sent to the customer detailing all changes rather than amending the original RWL. This letter must be attached into the point of sale system under the customer’s record. If however the product changes completely then a new RWL should be issued.

General & Non-Investment Insurance Reason Why Letter (RWL)

Once the adviser makes a personal recommendation they should provide the customer with a

RWL in plain English, which should clearly demonstrate as to why the recommended product(s)

is viewed as suitable taking into account the customer’s demands and needs. Ideally, the RWL

should be issued immediately after the case has been submitted to the provider. However

a RWL must, in all cases, be issued no later than 3 working days after submission to the provider

and always before the policy is on risk.

A template RWL statement is automatically generated in the point of sale system and this must be edited and personalised to the individual customer. In addition to stating why the particular product is suitable for the customer, the adviser must also confirm:

the sum assured, term and premium

how the sum assured was calculated

why a particular provider was selected - examples of reasons could include that particular features were available, the cost of the product or the service levels of the provider

details of any additional features - for example waiver of premium, critical illness benefit

deferment periods where applicable for income protection/ASU/MPPI or waiver of premium options

details and features of guaranteed/reviewable rates

any exclusions that the customer may not reasonably be expected to be aware of i.e. critical illness definitions not covered

full details of any cancellations along with the rationale for cancelling an existing policy - a further note should be included highlighting the inherent risks of cancelling an existing plan for example medical history, differing levels and forms of cover, guaranteed insurability options etc. The customer should always be advised that it is their responsibility to cancel the existing policy and they should not cancel the policy until the new policy is in place.

NB. If an adviser is recommending that an existing policy is to be cancelled then the Discontinued Plans Form must be completed, before an application is made and full details added to the RWL explaining any differences between the new and old policy (policy definitions can be found in the KFD documents). Prior to submission on the Key the completed (but not necessarily signed) DPF must be attached to Key. Prior to a policy going on risk and completion on Key the signed DPF must be attached to Key. The form can also be found within the Compliance/Resources section of BrokerZone, which if used must be attached to the Key.

Care must be taken when cancelling critical illness policies to ensure that all definitions and benefits between the existing policy and the new recommendation are cross referenced. In the case of a joint policy this should be carried out for both clients. This is particularly relevant when considering gender specific CI definitions. Where any existing cover could be potentially lost then

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this must be explained fully to the customer and further detailed in the RWL. It should be noted that it is not permissible to cancel an existing CIC policy without full policy details. Further guidance on personalising a RWL and the guidelines for re-broking CIC can be found in Case Checking Bulletins.

A recommendation and RWL can only be produced after the adviser has sought sufficient information about the customer that is likely to be relevant, and this is done by way of a fully completed Fact Find. The adviser must take into account all readily available information, such as previously arranged insurance and must make the customer fully aware of the implications of failing to disclose all information to the provider when making an application.

The RWL includes a section that can be signed by the customer if an adviser wants to confirm that the letter has been received. This procedure is encouraged by the Network although all advisers must be aware that a signature from the customer does not mitigate the suitability of the advice given. Where an existing policy has been cancelled and the new policy being taken has a loading or exclusions following underwriting, then a letter should be sent to the customer clearly outlining the loading/exclusions and detail why they were prepared to accept this. This is in addition to the Discontinued Plans Form which must have been completed prior to an application being made. This is to ensure that, following the loading/exclusion, it is still appropriate to cancel the existing policy and that the customer understands the impact of this.

Where changes have taken place on the case after the RWL has been produced then the existing RWL can be amended making clear that it is an updated version or better still an addendum letter can be written to the client outlining the changes.

When the client has not accepted your ‘ideal world solution’ then the ‘insurance recommendation summary form’ can be used. This enables you to detail all cover the client should have, together with the compromised solution. However it is important to note that the RWL must still cover in full the recommendations made and the reasons behind them.

Administrator Rights

It is permissible for an administrator to perform administrator functions such as: copying paper Fact Finds onto the Key or drafting Reason Why Letters from the notes the adviser has created. However, it must be noted that the adviser should ALWAYS complete fact finds, make recommendations and finalise the case and sign off anything the administrator has written on their behalf as the adviser will retain full responsibility for the advice given at all times. An administrator must never give advice, or certify any documents, and must pass the case to the adviser if any advice is required.

Reporting

If you have any concerns regarding the customer or their circumstances, such as the legitimacy of the information they are providing you with or if you have discovered any ‘breaches’, such as the late issue of a RWL, then you must ensure that these are reported to the Compliance Department immediately. A breach form can be found on Brokerzone under Compliance/Resources. Failure to notify the Compliance Department of concerns or breaches could lead to further action being taken.

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2 Advice Guidelines

Standards

The concept of quality is often overlooked or ignored. It relies upon a common understanding of an acceptable standard and achieving or exceeding that standard will demonstrate good quality, falling short will be associated with poor quality. The work of any individual can affect the standing of an Appointed Representative firm and everyone else within what is a large and widespread organisation. It is the responsibility of all Appointed Representative Principals and advisers to maintain their own good name as well as that of other Network members and the Network.

It is important to set the quality level at a point which protects the customer and at the same time allows businesses to succeed. In any good business these two objectives are not mutually exclusive and will be achieved together.

Fundamental Concepts

Remember that most, if not all, of the mis-selling scandals of the past have occurred because fair consideration was not given to the alternatives and the rationale for a particular choice was not clearly documented.

Advisers with the Network work for the customer and not for the company. They should record the thought process behind their advice – not just the sale. The compliance regime in many companies tends to have been different - advisers are generally expected to record what they are told to record. The Network expects an adviser to record what happened. If a sale relies on a fact being disclosed to the customer, then an adviser should ensure that it is on the file and on the point of sale system - if it is not recorded then it did not happen.

The advice given must match the customer’s circumstances and not just the beliefs of the adviser.

The Fundamental Process

There are three fundamental, high level stages to the advice process. The three stages are:

Establish the need

Compare the alternatives

Select the most suitable outcome

A genuine evaluation of each of these stages will result in compliant advice and a good sale. It should be noted that many upheld complaints will be because an adviser has failed on one of these points.

It is the duty of advisers to give advice whether or not the customer ultimately decides to follow or ignore this. The sales process was described in Chapter 1 whilst the rest of this chapter is devoted to specific requirements depending on the type of product being advised on and its relative features and risks.

Customers in special circumstances see also (Potentially Vulnerable Customers)

See also Potentially Vulnerable Customers Policy, on Broker Zone, under Compliance > Resources.

Where an adviser encounters a customer with a disability or who does not speak fluent English, care must be taken to ensure that the customer fully understands the advice that you are giving.

Requirements under the Disability Discrimination Act oblige all firms to give equal access to their services irrespective of any disability. Where a customer may have vision or hearing difficulties then consideration must be given to providing documentation in Braille or arranging for friends/relatives of the customer to be present wherever possible.

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For those customers not fluent in English the firm must engage the services of an interpreter, professional or otherwise, ideally from within the local community to assist with the meeting. The interpreter must be present at all times and the documentation provided by the firm to be in English and, if requested by the customer, an agreed foreign language.

In any of these circumstances the firm is expected to fully document the situation and measures taken in the Fact Find notes and the RWL. If the customer has executed a Power of Attorney then a copy of this must also be retained on the customer file. In all cases confirmation from any third party confirming that all required information has been conveyed to the customer and fully understood by them must also be retained by the firm.

Mortgage Repayment Method (Residential properties)

Advisers are expected to make an appropriate recommendation on whether the customer should have a repayment or interest only mortgage. Advisers should always make a recommendation based on the customer’s background, attitude to risk and general situation. It is the duty of the adviser to recommend the most appropriate repayment method regardless of whether or not the customer ultimately decides to follow or ignore this.

Capital & Interest Mortgages

A number of scenarios are detailed below. However, the fundamental underlying principle is that it would be considered that, all things being equal, capital & interest mortgages would be the most suitable repayment method for the vast majority of customers. For some examples of where capital & interest may not be the most suitable please refer to Sections 2.5.2 – 2.5.3.

Interest Only, where Repayment vehicles(s) are in place

Where a customer has an existing repayment vehicle (e.g. Endowment or ISA) in place that they wish to utilise in conjunction with a mortgage then this should be taken into account when considering the most appropriate method of repayment.

You will need to request documentation from the client e.g. a statement that clearly shows the repayment vehicle is in force. This document must be scanned and attached to the POS System. Further you will need to demonstrate in the Budget Planner and the Reason Why Letter that it is affordable for the client to pay a sufficient amount into the investment vehicle to have a realistic possibility of repaying the mortgage in the specified timescale.

Please be advised that adviser’s permissions do not cover advice on investment products and hence advice on the products, their projections and general suitability should not be provided by any Network adviser. If a customer wants advice on any of these areas they should in all cases be referred to an IFA.

An adviser encountering this scenario should ask the customer to provide details of current projections and use this information to consider the potential split between capital & interest repayment and interest only.

Also to be included is a detailed discussion of the risk associated with this route and in addition to the discussion of the particular customer’s circumstances the RWL should also detail the following:

An explanation of the potential shortfalls on the mortgage if returns are not as expected.

A recommendation to regularly monitor actual returns and projections to see that they remain ‘on target’ to repay their mortgage.

An explanation of how the customer intends to cover any shortfalls that arise.

A recommendation to speak to an IFA if the customer has any concerns about the suitability of their repayment vehicle or the projections they have been provided with.

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The alternatives that were considered, including cost comparisons with capital and interest, and extended term if applicable.

That the amount owed on the mortgage will not reduce and hence the customer will need to ensure that the proceeds from the repayment vehicle will be sufficient to repay the mortgage at the end of the term

That the total cost of interest payments over the term will be greater with an Interest Only mortgage than with a Capital & Interest repayment mortgage and that the customer understands this.

The interest only declaration form is no longer mandatory, although advisers can continue to use it should they prefer. A copy can be found within the Compliance/Resources section of BrokerZone.

NB. All advisers must ensure that the application made to the lender is an accurate reflection of details discussed with the customer. This means that an application form cannot confirm that a repayment vehicle is in place, for the purposes of underwriting, unless such policy is in force and evidence of it has been obtained and held on file. Furthermore an application form should not state that an investment vehicle is to be taken out unless a realistic budget is in place to maintain this.

Interest only where repayment vehicle(s) is not in place

It should be noted that in today’s climate the vast majority of lenders would not allow an interest only mortgage without a suitable repayment vehicle. However, at the current time there are a small number of lenders that would consider the sale of a property as an appropriate repayment strategy, dependent upon various criteria relating to level of equity. There are a number of conditions that the lender is likely to stipulate such as a low ‘loan to value’. If the adviser is recommending an interest only mortgage stating that the sale of the property is the repayment strategy then all other options MUST be considered and costs covered in full in the RWL.

A RWL must be produced explaining why the final recommendation was made and, as a minimum the letter will need to fully explain;

o The alternatives that were considered, including cost comparisons with capital and interest, and extended term if applicable. The simple reason for this is that a customer needs to be clear, and an adviser needs to be able to prove, that other options were considered and found to be inappropriate for that customer’s particular circumstances

o That the amount owed on the mortgage will not reduce and hence the customers will need to sell the property or find alternative means of repayment on or before the end of the mortgage term. The customer’s intentions with regards to selling the property this should be documented in detail

o That the total cost of interest payments over the term will be greater with an Interest Only mortgage than with a Capital & Interest repayment mortgage and that the customer understands this.

o That there is an increased risk of negative equity as the outstanding mortgage balance is not reducing.

o The interest only declaration form is no longer mandatory, although advisers can continue to use it should they prefer. A copy can be found within the Compliance/Resources section of BrokerZone.

Mortgage Repayment Method (BTL Properties)

It is understood that the majority of BTL mortgages will be taken out on an interest only basis. However, it is still necessary to make the customer aware of the risks associated with an interest only mortgage:

A RWL must be produced explaining why the recommendation was made and, as a minimum the letter will need to fully explain:

o The amount outstanding will not reduce throughout the term

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o It is the customer’s responsibility to ensure the full outstanding amount is repaid at or before the end of the term, regardless of any potential shortfall in the proceeds of the sale of the property

o By taking the mortgage out on Interest Only the customer will pay more in interest over the term

Re-Mortgage Cases

When a customer’s current mortgage comes to the end of an initial rate period it is always advisable for them to review the current mortgage to ensure that they still have the most appropriate product to meet their needs. Advisers will often be approached, or take pro-active action (in the interest of good business practice and Treating Customers Fairly), to review a customer’s mortgage at this point. Often it can be shown that a customer would be well advised to re-mortgage for a better rate.

When analysing whether it is appropriate for a customer to re-mortgage there are a number of key areas that an adviser should consider and document to justify the advice given. Examples of some of the key considerations are detailed below:

Are there any early repayment charges on the existing mortgage? If so, how much are they and does this affect the re-mortgage decision?

Care should be taken on completion dates in relation to repayment charges. Wherever possible these costs should be eliminated.

Can the customer switch to another deal with the current lender?

Does the customer require additional funds or a longer mortgage term? If so, then a thorough analysis should be conducted to ensure that the implications of this are fully understood by the customer.

Is the customer aware of any additional fees (e.g. Valuation Fee) that will need to be paid to re-mortgage? When taking these fees into account does the advice still remain suitable? Any early repayment charges that will be incurred should be re stated in the RWL for clarity.

Is the customer re-mortgaging to raise capital? If so the availability of a further advance with the existing lender must be discussed with the client. Details of this discussion must also be added to the Reason Why Letter. It may also be appropriate to consider other avenues of finance.

When recommending a re-mortgage an adviser must be able to demonstrate that the customer is in a better position following the recommendation.

Further Advances

When an adviser is giving advice regarding a Further Advance, a full sales process must be completed as standard using the Fact Find to collate all relevant information. The suitability of an advance must be determined to ensure that this is the route that best matches the customer needs and expectations. Research must be retained to support the recommendation and an illustration obtained and presented to the customer.

If the main purpose of the advance is to consolidate debt the adviser must take into in account the following considerations (also see Section 2.9):

The costs associated with increasing the period over which the debt is repaid

Whether it is appropriate for the customer to secure a previously unsecured loan

If the customer is in financial difficulties consider referring to a debt specialist

It is important to remember that a further advance is not a re-mortgage and the new borrowing can differ significantly from the main mortgage in terms of interest rate, repayment type and term. The different elements of the total borrowing should be clearly explained to the customer and documented in the RWL. Second charge loan referrals should be considered as an option where a further advance, or re-mortgage are considered unsuitable.

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Product Transfers

At points in the economic and competitive cycle some lenders offer attractive retention deals to encourage the customer to retain the mortgage with them. When considering the research of alternatives the adviser should ensure the advice remains the most suitable for the customer and that a full sales process is followed in every case.

Where an adviser is giving advice on a product transfer, a full sales process must be completed as standard using the Fact Find to collate all relevant information. The suitability of the product transfer must be determined to ensure that this is affordable to the customer and fully documented in the RWL. Research must be retained to support the recommendation and an illustration (or offer) obtained and presented to the customer. It is necessary to demonstrate that the client can afford the new mortgage even if they have previously paid the existing mortgage for some time.

Whilst it is appreciated that the client’s situation may have changed since they took out the original mortgage, proof of affordability must still be evidenced in full. This should be in the form of the last 3 months bank statements for ALL current accounts. This only applies to straight product transfers, where the customer is not borrowing further monies. Up to date ID and address verification will not be required for any product transfer case for an existing customer of the adviser who has previously been identified and address verified.

Please note that for any new customer (including those for whom a product transfer is best advice) identification and address verification are always required. The income proof should demonstrate that the customer can afford the mortgage being recommended and a comprehensive budget planner demonstrating affordability should support this. If it cannot be demonstrated that the mortgage is affordable then a recommendation should not proceed.

Porting

When the client is keeping their existing mortgage and ‘taking it with them’ to their new property the

RWL must document fully why this was deemed the most appropriate option. Research must also

be attached to the Key to back this up even if it appears obvious why porting the existing mortgage

was the most appropriate option e.g. a large ERC. An Illustration should be obtained from the lender

that shows the existing mortgage and a new Illustration showing the additional borrowing should also

be attached to the Key. If the client is not selling and purchasing simultaneously then again this

should be documented in the RWL. Lenders have different rules surrounding the length of time the

new mortgage needs to complete within, so this should always be checked with the individual lender

concerned.

Lender Legal Incentives

When free legals, or legal incentives are offered by lenders, it is expected that this incentive would be used in the vast majority of cases. There will be occasions (customer undertaking multiple transactions in one go for example) where it would not be appropriate to do so, but these would be the exception rather than the rule. If this is the case then full notes should be added to confirm the reasons why. We would expect only a small percentage of an advisers business to be done on this basis.

Guarantor Mortgages

Where a guarantor is being utilised, the lender will often assess the affordability of the customer and the guarantor. The guarantor must be party to all advice discussions so that we can be confident that they understand their obligations.

We would expect to see full notes in respect of this situation on the point of sale system. It should be noted that whilst the fact find should be completed on the mortgage holders, the Reasons Why Letter must include the paragraph available in respect of the guarantor’s obligations and they should be provided with their own copy.

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Mortgages beyond clients intended Retirement Age

Where a mortgage term past the intended retirement age is recommended and agreed with the customer, affordability must be considered and documented with particular care.

When the customer has less than 10 years remaining until their intended retirement age then full details of all retirement provisions must be detailed in the Fact Find along with a clear explanation of how the recommendation will be affordable now and following retirement. This should include evidence of pension provisions and maturing investments plans etc.

When the customer has in excess of 10 years until their intended retirement then full details of all retirement provisions must be detailed in the Fact Find along with a clear explanation of how the recommendation will be affordable now and following retirement. However, documentary evidence of those provisions is not mandatory. Appropriate consideration should be given as to how the mortgage payments will be maintained at this stage of life along with details of the loan that will be outstanding.

In all cases advisers must demonstrate appropriate justification for all terms considered and be aware that mortgage terms of 25 years, for example, may not be suitable to a customer’s circumstances or needs.

Mortgages Beyond State Retirement Age

If a client states that they intend to work beyond their applicable state retirement age then care should be taken to determine whether this is plausible. Ask the clients for evidence and/or strategy that supports their view that working beyond their state retirement age is realistic. For example is it feasible that someone carrying out a heavy manual job will be able to continue this until the age of 75? Evidence of these discussions should be clearly documented in the Fact Find.

Debt Consolidation (Re-Mortgage or Simultaneous Sale & Purchase)

Debt Consolidation is a route that could be considered for customers with unsecured debt but it should be clear whether it is in their best interests to do so. The reduction of monthly outgoings is not usually justification alone for converting short term unsecured debts and care needs to be exercised when considering this option.

It should be noted that care should be taken if any of the debts to be consolidated have less than 12 months to the end of the term. It is appreciated that terms are difficult to establish for credit card debts however with regards to loans the increased cost of consolidating the loan should be discussed fully with the customer, and reiterated in the RWL.

Care must be taken to explore all other options for consolidating the debts, especially if the customer stands to lose a good existing mortgage rate by re-mortgaging. Other options could include, for example, a secured loan.

Before a recommendation is made to consolidate debts detailed information must be collected on all current liabilities. This will include details of monthly payments, remaining term and current interest rate. This information should then be used to make an appropriate recommendation to the customer.

Where the loan involves any amount of debt consolidation it is important that an adviser considers the following points:

Whether it is appropriate for the customer to switch from unsecured to secured debt

Where there have been previous debt and repayment problems, whether it is more suitable for the customer to negotiate a settlement with their existing creditor(s)

All costs including the total amount payable on the mortgage both with and without the debt consolidation as well as any reduction in monthly outgoings

If, after careful consideration, the recommendation made to a customer is to consolidate their existing debts then the appropriate debt consolidation wording must be selected and edited within the Reason Why Letter.

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One of the main considerations in ensuring customers are treated fairly is that advisers must take into account affordability now and in the future. They should also ensure that consumers have a better understanding of the risks they may be exposed to and that any advice is appropriate and suitable to their needs.

Debt Consolidation during a house move or upcoming house move (Non-simultaneous Selling and Purchasing)

There have been occasions in the past when customers have sold an existing property and used the equity to repay existing debts and then put a smaller amount down as a deposit on the new property. In the event of non-simultaneously selling, repaying debts and purchasing a new property then the same procedure as adding the debts to mortgage (as referred to in Section 2.9) should be followed. The main implication being that the customer has reduced the amount of equity they may use as a deposit which may in turn affect interest rates and higher lending charges.

Adverse Customers

The ability to provide a recommendation to some adverse customers has diminished considerably following the “credit crunch” and the significant reduction of products available to this type of customer. Where it is still possible to service these customers then all advisers must follow the procedures detailed below.

Customers with arrears

Advisers dealing with customers who are in arrears should take great care to ensure that all options have been considered and documented. Lenders have certain obligations when dealing with customers who are in arrears and customers should always be advised to discuss any problematic situations with their lender prior to any alternative recommendations being made. Please note that if you actually become involved in negotiating with the lender on behalf of your customer, as opposed to advising them to discuss the problem with their lender themselves, you would need to hold appropriate FCA permissions directly.

Fact Find and Reason Why Letter (RWL) for customers with adverse credit

The Fact Find must always contain full details of a customer’s credit situation. This should be obtained in full prior to advice being given and documented in the relevant section of the Fact Find. It is mandatory that a copy of the customer’s credit report is obtained & attached to the Key if the client has a history of adverse credit or if there are concerns over the customer’s credit history. You should also ensure that you carefully check the client’s bank statement to determine affordability and identify any undisclosed credit commitments/arrangements. It is however acknowledged that in some instances adverse credit only comes to light after an application has been through a Decision in Principle process. Where this is the case the adviser must always go back to the Fact Find and document any new findings in the notes section as well as obtaining a credit report on the customer where necessary. To avoid finding undisclosed adverse credit information it is important that advisers clearly explain to customers the need to disclose all information to them and that non-disclosure could seriously impact their ability to obtain a mortgage. Advisers should take time to carefully check bank statements for any non-disclosed credit commitments and/or any indications of financial difficulty. If in any doubt then customers should be advised to obtain a copy of their credit report.

In addition to the usual requirements to produce a detailed and customer specific RWL the following should always be addressed when dealing with customers with adverse credit:

Customer specific details as to why the case is deemed as adverse lending

A detailed explanation of the customers’ plans to improve their credit situation in the future

The RWL must contain wording to demonstrate the customer’s individual circumstances.

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Proof of Deposit

Appointed Representatives are required to verify their clients deposit by obtaining an original document. The document should be scanned into the POS system. This applies to all residential and BTL cases. For full details please refer to section 7.5

Concessionary Purchases

When the client is purchasing a property and is receiving a gifted deposit from the vendor/builder then this must be clearly documented in the Reason Why Letter and disclosed to the lender. It is imperative that the lender is 100% clear as to the structure of any deal and that advisers and customers are fully transparent with them.

Help to Buy Equity Loans

Some customers may be in a position to consider repaying their Help to Buy Equity Loans due to an increase in the equity within the property. Whilst the Key does not have a specific place to record whether an existing mortgage was obtained using the Help-to-Buy scheme, notes should be made on the case to explain why all of the existing equity is not being utilised for their onward purchase.

Help to Buy Cash ISA for first time buyers

The Help to Buy cash ISA is available to first time buyers. The main advantage of the Help to Buy ISA is that a 25% bonus on the balance of the account, which may include interest, is paid by the government between exchange and completion. There is a minimum amount that needs to be saved to qualify for this bonus. There are limitations on opening or contributing to any other cash ISA within the same tax year and also the price of the property inside and outside of London. The bonus can be beneficial to first time buyers already proceeding with a house purchase.

Whilst advice should not be given on the merits of the scheme, first time buyers should be directed to the Government Help to Buy website ISA FAQs and to their consumer factsheet.

Off-Panel Recommendations

We realise that in exceptional circumstances, where driven by criteria, there may be occasions where you may need to recommend a lender that is not on the Network panel.

If, after the research and analysis stage of the sales process, you identify that an off-panel provider is offering the most suitable product for your customer then you should contact the Broker Desk. Broker Desk will discuss the case with you, looking for an explanation as to why the off-panel product has been sought and ensure that there is not a more suitable provider on panel. Advice must not be given on off-panel products without confirmation from the Broker Desk.

One additional point to consider when making off panel requests is that you will need to check with the lender/provider that they are able to pay the Network directly and will allow the adviser to conduct business with them.

High Loan to value – 85% and above

Customers need to be aware of the risk and implications of negative equity. Further justification should be added to the RWL in order to support your recommendation. When creating the RWL you will need to select the option ‘LTV Risk Warning’ and this will ensure that appropriate wording (that should be edited to demonstrate the customer’s individual circumstances) is generated.

Non-Regulated Advice

Certain loans will not fall within the FCA’s definition of a regulated mortgage contract. Examples of these include mortgages secured on a foreign property, buy-to-let mortgages (see section 2.15.1 for further information), and mortgages secured against commercial properties (where no greater than

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40% of the property is used for residential purposes). It can occasionally be difficult to define exactly what is classed as a non-regulated mortgage and therefore when there is any doubt an Appointed Representative should always contact the Compliance Department for clarification.

The Network requires that all business is conducted with the same duty of care regardless of whether it is classified as regulated or non-regulated. However, advisers must ensure that when advising on non-regulated business they do not give the customer the impression that they receive protection from the FCA or FOS. In order to ensure this there are two important differences for non-regulated business:

A prominent statement must be included in all letters sent in connection with non-regulated sales to make it clear that the advice being given is not regulated.

Disclosure Document must not be issued. A separate Terms of Business, with no reference to the FCA must be issued.

TIP - It should be noted that where the sale involves regulated and non-regulated products the point of sale system does not generate both by one input into the Disclosure Document Creation screen. The adviser should produce the TOBL, update and then go back to the Disclosure Document creation screen to produce the IDD for regulated business. Both documents will then be saved in the point of sale system to form an audit trail.

Professional Indemnity Insurance is arranged by the Network and covers potential claims on regulated mortgage contracts, non-investment insurance contracts and buy to let business only. There is no PI cover for additional business written which will cover areas such as secured loans/overseas mortgages/personal loans. Should Appointed Representatives wish to write this business they must ensure separate PI cover is obtained as necessary.

Buy-to-Let Mortgages

The Network requires that all BTL business, even when it is not regulated by the FCA, is conducted with the same duty of care. Therefore when advising on buy-to-let mortgages all advisers must follow the Networks sales process and ensure that the case is fully documented on the point of sales system.

Completion of a full budget planner and proof of income (unless required by the lender) is not expressly mandatory for experienced Buy to Let customers (defined as non-first time landlords) but consideration must be given to the customer’s liabilities to the mortgage if the property cannot be let etc. A full budget planner does, however, become compulsory and subject to the above guidelines if associated protection policies are also sold. Please refer to section 1.3.2 for full details on income and affordability requirements.

In addition to the usual areas that need to be addressed with a standard mortgage recommendation there are certain factors that are unique to buy-to-let recommendations. In particular an adviser must make it clear to the customer that they are advising on the most suitable mortgage for a buy-to-let property and not on the suitability of buy-to-let as an investment.

Due to historical house price increases many customers may consider that a buy-to-let mortgage is a relatively low risk investment. It is therefore important that customers are also made aware of the potential downsides to this type of investment, in particular an adviser should discuss:

On-going Affordability – How long can a customer continue to pay the mortgage if the property is unable to be let, if tenants refuse to pay or if income yields are lower than expected?

House Prices – If house prices fall the customer needs to be aware that they may have problems selling their investment or re-mortgaging the property.

The key reasons behind the recommendation should, as always, be detailed in the RWL letter along with the potential affordability and house price risks. A BTL mortgage should never be taken out on a property that the client intends to live in themselves.

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BTL Tax Treatment

In April 2016 buy to let purchases (as an additional property) begun to attract an additional 3% in Stamp Duty. For full details refer to: https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties

Further changes to tax relief on buy-to-let properties will start to take effect in 2017. This will be a gradual process cutting tax relief from 40 or 45 per cent to 20 per cent by April 2020. Currently landlords are allowed to deduct their costs, including mortgage interest, from their profits before they pay tax. They are also able to deduct maintenance costs from the total taxable revenue. This will see landlords lose a quarter of their higher-rate relief each year until 2020, when it will be restricted to 20 per cent on all mortgage interest.

Ltd Company BTL

Landlords can still claim full interest relief by taking out a buy-to-let mortgage as a limited company.

Interest payments would then qualify as a business expense and would therefore qualify for tax

relief. Whilst incorporating a business as a limited company is an option, this should not be

embarked upon without taking advice from a tax specialist.

It is essential that all landlords are made aware of these changes and advised to speak to a tax

specialist regarding all tax changes before proceeding with a BTL purchase or re-mortgage.

For a Ltd Company BTL, the Key FF must be completed using the Director’s details. Details of the

Limited Company are to be recorded under the Self-employment section of the Fact Find. Also,

under the product section, you should record that the recommendation is to a Limited Company.

Ltd Company BTL’s will always be treated as an experienced landlord and therefore proof of

income and the budget planner will not need to be completed. However, a copy of the Companies

House record showing the Ltd company details and also director details will need to be added to

the Key for ALL Ltd Company BTL cases.

Consumer BTL

Where a customer is classed as an 'accidental landlord' they will fall under specific FCA regulation in relation to consumer BTL.

This will apply to customers who have 'not entered into a BTL arrangement wholly or predominantly for business purposes.'

This could include a customer who inherits a property from a deceased relative or undertaking a let to buy transaction.

Proof of income and a completed budget planner will be required for ALL Consumer BTL mortgages.

Please refer to the BTL Decision Tree on BrokerZone for further clarification.

2.15.1.4 Pension Reform

As a result of the 2015 pension reform you may see pensioners in search of a secure income

looking to invest in buy-to-let property.

Appointed Representatives are not authorised to give pension advice under the Network and anybody wanting to release monies from their pension to invest in property must be referred to an IFA. Unless an IFA has provided the initial advice to release the funds (evidenced by way of letter) then our advisers should not be involved in arranging a mortgage for using released pension funds as a deposit.

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Referral of 2nd Charges

Customers wishing to borrow additional monies must be made aware of the alternative options that

could be considered, such as unsecured borrowing, a second charge or further advance from the

customer’s existing lender. There is no requirement to advise if these are more suitable than a re-

mortgage but the customer must be aware of the options.

If a re-mortgage is evidently unsuitable for the customer but a second charge may meet their needs

then customer details should be passed to the Networks Master Broker (Positive Lending), the Key

should be updated and the customer issued with the referral letter available in the Key. The

customer must consent to their details being passed to Positive, who will advise ONLY in the arena

of second charge loans. Please see Second Charge Lending Guide available under Compliance

resources on Broker Zone for examples.

FCA Regulated Bridging Finance - Referral

Bridging Finance is defined as short term borrowing of 12 months or less. A first charge bridging

loan on a main residence is FCA regulated and must be arranged under the Network. Bridging can

be a good solution in certain circumstances but care should be taken to ensure that a customer fully

understands the product and the associated risks. It should be noted that Bridging is not considered

suitable as a means of raising finance for customers in an adverse financial situation. I.e. Bridging

whilst customer hopes to clear up credit record and then get mainstream mortgage. Neither is

bridging suitable for raising the deposit to fund a residential/BTL purchase.

Firstly the adviser must have previously considered and discounted all other standard

mortgage options. If the customer is looking for bridging finance and is potentially suitable then you

will need to provide the customer’s details to the bridging specialist. The network use Positive

Lending as our preferred partner. If you want to use an alternative route you should discuss this with

the Compliance Department. The bridging specialist will be responsible for speaking to the customer,

recommending the correct product and describing the risks etc. The customer should be added to

the Key together with a basic Fact Find and a Key generated referral letter should be issued to the

client. This letter must confirm that you have passed their case to the Bridging Specialist, the reasons

behind this and the fact that the Bridging Specialist will be providing the advice.

Packaged Cases

You are free to use packagers on the Network panel. When using a packager, as with all mortgages it is vitally important that full research is conducted to establish the most appropriate lender. The adviser should remember that the responsibility for the product selected remains solely with the adviser and hence they should obtain full details to satisfy themselves that they are recommending an appropriate product. A record of the research carried out by the packager should be retained.

Off-panel packagers (including Positive Lending) may not be used without confirmation of this course of action from Broker Desk.

Post Sale changes to advice - Mortgages

It is appreciated that changes to the lender, loan amounts or rates can occur at any point up to the completion of the mortgage.

If during the sales process the application is changed and placed with a different lender, a new product MUST be created for the new lender. Under no circumstances should the existing product be changed as this will result in a delay in processing the procuration fee as we may insist that a new product is created before payment can be made.

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If the loan amount, property value, rate etc. have changed, it is acceptable to amend these in the product as long as the post-submission change is documented when closing the sale.

In the event of the offer being changed post illustration and issue of RWL the adviser is not required to issue a revised illustration as the offer replaces this. However, an addendum letter must be issued to the customer, or an amended RWL produced, outlining the changes and confirming that the new terms still remain the most suitable for the customer’s circumstances. This document must then be attached within the point of sale system.

Equity Release

There are two types of Equity Release scheme designed to allow older home owners with shortfalls in capital and/or income to ‘unlock’ some of the value of their homes without having to move house.

Firstly there are Lifetime Mortgages which are mortgages secured on a customer’s home with either interest payable being ‘rolled-up’ whilst the plan is in force, or the customer having the ability to pay the interest during the plan. Secondly there are Home Reversion schemes which allow a customer to sell, at a discount, a percentage of their home to the provider in exchange for a lump sum and/or income. Both types of transaction are considered higher risk than standard mortgage transactions and the potential for unsuitable sales is higher than normal.

Authorisation to advise on Equity Release

In order to protect the Network, its Appointed Representatives and the customer, all Equity Release advice may only be given by specifically authorised advisers. The exact requirements for authorisation in this area are detailed in the T&C Scheme but, broadly speaking, the adviser will need to be able to demonstrate that they have sufficient knowledge to advise in this area, have appropriate qualifications and be able to produce a certain level of Equity Release business. The Compliance Department will issue a letter confirming an adviser’s authorisation when appropriate and this should be retained on the Record of Achievement file (ROA).

In addition, all Equity Release transactions must be referred to the Compliance Department for approval before a recommendation is made. The Compliance Department will check the proposed advice and, if satisfied, will provide written confirmation that the adviser is able to proceed with their recommendation.

Documentation

The documentation requirements for Equity Release products are similar to those detailed for standard mortgages. The notable exception to this is that a different Disclosure Document (Disclosure Document), specific to Equity Release, must be provided to the customer rather than the standard Disclosure Document.

In addition, the Network provides a specific Fact Find which is to be completed by the adviser with the customer and then referred to the Compliance Department for pre-recommendation checking. A copy of this Fact Find should then be attached into the Key.

Key Areas to Address

As explained above Equity Release is considered higher risk than standard mortgage

recommendations and therefore it is imperative that all possible options are discussed with the

customer and the recommended product is clearly explained. The customer must be made aware of

all the potential risks associated with the product and the adviser must ensure that documentation of

the advice is both detailed and clear.

Authorised advisers are limited to recommendations from only those lenders who are registered

under the Equity Release Council which provide a no-negative equity guarantee. Should an adviser

wish to make a recommendation from a non-Equity Release Council member they must first refer to

the Compliance Department. In all cases where an Equity Release product is being considered, the

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following information must be considered, fully explained to the customer and detailed in the Fact

Find and Reason Why Letter:

Customer Requirements: o Does the customer require additional capital, income or both? o What are the additional funds required for? o How much does the customer need to borrow?

Customer Details: o What are the customer’s future plans? o What is the customer’s current state of health and life expectancy? o What are the customer’s plans for their estate upon death?

Customer Options: o Has the customer discussed the plans with the beneficiaries of their estate? o Is the customer prepared to sell a portion of their home or do they want to take out a loan

against the property (Home Reversion Scheme Vs Lifetime Mortgage)? o Is the customer eligible for a Local Authority Grant?

Tax Situation: o Will the customer’s age related allowances be adversely affected? o Is the customer currently entitled to means tested benefits that may be adversely affected

following the recommendation?

Product Details: o Do any interest payments need to be made while the scheme is in place? If so, are they

affordable? o Can the loan be repaid early and what are the financial consequences of doing this? o Is the interest rate variable, fixed or capped and how it will operate? o What are the costs and fees associated with the scheme (e.g. valuation fees, arrangement

fees, legal fees etc)? o What happens if the customer, or their partner, moves house or has to go into care? o What happens if a new person moves into the property (e.g. a new partner or a carer)? o Does the lender offer a ‘no negative equity’ guarantee? o Under what circumstances can the home be repossessed? o Does the customer have to take any specific insurance with the Equity Release Scheme? If

so, do they have to be arranged with the provider?

Other Important Factors: o Does the customer understand how interest will be added to the loan and that the amount

outstanding will increase over time? o Does the customer understand how any change in the future value of their house might affect

the amount that will be left to pass on as an inheritance?

Involving Third Parties

The decision to enter into any mortgage contract is an important one for any customer. When that customer is elderly and making a lifetime commitment then it can be argued that the decision is even more important. It is for this reason that it is vital that other parties are included in the process. The key people who may need to be involved are as follows:

Solicitor – This is a prerequisite for all Equity Release Council members and therefore it would not be possible to complete a case without the solicitor being involved. As the Equity Release Council code of practice confirms, the solicitor will be provided with full details of the benefits and will be required to sign a certificate to the effect that the scheme has been explained to the customer. Best practice is to ensure that the customer’s solicitors are involved in the process as early as possible to identify any beneficiaries, existing trusts or other rights to the property etc. which can all have implications on the advice given by the adviser.

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Estate Beneficiaries – Advisers must strongly encourage the customer to involve their beneficiaries in the decision making process. In addition it is advisable for all customers to be accompanied by at least one close relative during the adviser meetings.

Tax/Benefit Experts – It is a requirement for all equity release mortgage recommendations that an adviser assesses whether a customer’s tax and benefit situation will be adversely affected by the advice being provided. The FINTAL system can be used to check this, however if the adviser does not have sufficient information to assess this then they must refer the customer to a professional (e.g. Citizens Advice Bureau, Pension Service or HMRC) before making a recommendation.

Investment Experts – Where the recommendation is to raise a lump sum to generate an income by investment then it is a requirement to involve an authorised investment adviser in the process. Advisers must not make a recommendation to raise a lump sum for investment until they are provided with information on how that lump sum is to be invested. In addition to this it should be noted that it is highly unlikely to be best advice to use the proceeds from an Equity Release product to invest in an investment product.

Advisers must ensure that all of the above individuals are consulted during the process and the documentation must include details of who was involved and what their views were.

Home Purchase Plans (Sharia Compliant Mortgages)

Appointed Representative advisers of the Network are not authorised to give advice in the area of Sharia mortgages. Any adviser encountering a customer who wishes to enter into this type of mortgage contract should refer the customer to an authorised individual in this area.

Sale and Rent Back schemes (SARBs)

Permissions of the Network do not extend to include advice and recommendation in the area of Sale & Rent back mortgages or schemes. This means that Appointed Representatives of the Network also do not hold the appropriate permissions and therefore business cannot be conducted in this area.

Foreign Currency Mortgages

A mortgage contract is considered a foreign currency mortgage when that mortgage is to be repaid wholly or in part from income received or assets held in another currency.

The alternative currency referred to is the currency in which the customer primarily receives income or holds assets from which the mortgage is to be repaid. This would be as indicated at the time an income and affordability assessment is being undertaken.

The Networks affordability evidencing requirements and other documentation requirements will be exactly the same as for any other mortgage contract. Therefore income evidence is required for all incomes that are used to support the mortgage application.

If the client is engaged in business activities connected to any high risk countries then additional checks may be required. (Refer to Enhanced Due Diligence Policy on BrokerZone)

Disclosure Requirements

Lenders have to take extra steps to protect customers from the potential risk of exchange rate movement. Lenders must ensure that either:

the customer has the right to convert the foreign currency mortgage into an alternative currency under specific conditions or

there are other arrangements (such as a cap) in place to limit the exchange rate risk to the customer

Lenders must also ensure that they regularly update customers who have a foreign currency mortgage , when exchange rates vary by more than 20% or more from the rate applicable at the time the mortgage completed.

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The lenders illustration must detail various aspects of the contract including the exchange rate used, an illustrative example of the impact of a 5% change in the value of sterling and a prominent risk warning about exchange rate movements.

All advisers making recommendations on foreign currency mortgages should be aware of the contents of the illustration and should explain the risks clearly to their customer when making a recommendation. The RWL should also include the correct warnings regarding the risks of exchange rate movement.

General Insurance

Advisers are expected to make an appropriate recommendation based on the customer’s background, affordability and unique situation. It is the duty of the adviser to recommend an appropriate policy regardless of whether the customer decides to take the policy out.

Building and Contents Insurance

A buildings and contents policy is an insurance contract which gives protection against damage to the policyholder’s house and the damage or theft of contents contained within it. When recommending such a policy the main consideration should be on the terms of the contract and the cost of the policy. Consideration should be given to all aspects of the policy taking into accounts exclusions or limitations (e.g. a policy that does not cover flooding would be of limited use to a customer living in an area where there is a high risk of flooding).

Buildings & Contents insurance can only be provided on a Single Provider basis via Paymentshield/Paymentshield (Home & Protect). If Paymentshield cannot provide cover for a client then the Appointed Representative should contact Broker Desk to discuss placing the case elsewhere in the Towergate Group. For commercial GI business a referral option is available within the Towergate Group via Berkeley Alexander The following lists details the broad product categories under each brand:

Paymentshield:

Home & Contents

Buy to Let

MPPI

Incomeshield (ASU)

Paymentshield (Home & Protect):

High Net Worth

Non-Standard

BTL Portfolios

Holiday Homes

Flood Plains

Underpinned

Berkeley Alexander:

Commercial Insurance

Referral for standard B&C where the adviser does not wish to give the advice themselves

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Accident, Sickness & Unemployment Insurance/MPPI

MPPI and ASU can only be provided on a Single Provider basis via Paymentshield. The Paymentshield MPPI product allows your clients to protect their mortgage repayments and mortgage related premiums, should they be unable to work due to an accident, sickness or unemployment. The Paymentshield Income Insurance, IncomeShield (ASU) is a standalone insurance product, which is not tied to a mortgage, loan or any other credit agreement. Income insurance allows your clients to protect their income should they be unable to work due to an accident, sickness or unemployment. Both the MPPI and Income Insurance may include accident and sickness alone, redundancy alone, or can cover both. When recommending such a policy the adviser should take note of any existing cover, the benefits offered through the customer’s employer, their health and also consider the risk of unemployment within the customer’s occupational field. All of these factors should be carefully documented in the Fact Find. The adviser must make the customer aware that this type of policy is underwritten at the point of claim and the potential implications that this could carry. This must be further documented in the RWL as an acknowledgement that the customer is aware of this. The adviser should ascertain whether short term cover or long term cover is required as it may be more suitable to recommend an Income Protection policy (See 2.23.1). When recommending any form of ASU/MPPI the following statement must be made to the customer:

“This Payment Protection Insurance is optional. There are other providers of Payment protection Insurance and other products designed to protect you against loss of income.

ASU or MPPI must not be sold before or at the time of a mortgage sale Where ASU/MPPI/is recommended alongside a mortgage there will be a 7 day period during which advisers are not able to submit an ASU/MPPI/ application. This 7 day sale prohibition period will end on the later of: • 7 days after a mortgage offer (with no significant conditions) is issued • 7 days after the consumer receives their personal ASU/MPPI quote The impact of the above is that no MPPI/ASU can be applied for until at least 7 days after the mortgage offer is issued and only then if the illustration had been provided at least 7 days previous. If an offer has significant conditions attached the prohibition may continue for longer. It should be noted that there is an exclusion if a customer independently* contacts the adviser prior to the end of the 7 days period. It is expected that this will only happen on a very limited number of occasions and detailed records must be kept to demonstrate when this does occurs. *Section 14.1 of the Manual states that it is necessary to have a record of conversations held with the client. In the case of MPPI/ASU sales this is particularly important if the client independently contacts you to go ahead with a policy before the end of the 7 day period.

Pure Protection

Income Protection (IP/PHI)

An Income Protection or Permanent Health Insurance (PHI) policy is a contract taken out to supplement a customer’s income in the event of not being able to work due to illness or incapacity. On this type of policy a percentage of the customer’s income plus, in some cases, state benefits is payable in the event of a claim being made. Unless the policy is a group policy then all benefits paid are currently tax free and are paid until the customer returns to work or until the end of the term of the policy whichever is the sooner. The following factors should be taken into account, recorded in the Fact Find and documented in the RWL:

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Is short term cover or long term cover required? If short term cover, then other options should be considered, i.e. accident, sickness & unemployment insurance may be more suitable (See 2.22.2) or income protection plans which have limited payment periods.

What other measures has the customer got in place to cover illness (e.g. work provision or other sickness protection policies)?

What deferred period is most suitable?

What are the definitions on the policy (e.g. own occupation or any occupation)?

Is the policy affordable, now and in the foreseeable future?

Can additional benefits be added to the policy (e.g. hospitalisation benefit, state benefit option)?

What percentage of income is payable?

What definition of income is used?

Underwriting – weighting on premiums due to health?

Are Guaranteed or Reviewable Premiums more appropriate?

Term Assurance

A term assurance policy is often used to protect a mortgage and only pays out on death (or on diagnosis of a terminal illness) during the term of the policy. There are different types of term assurance and care should be taken to select the most appropriate/suitable to the customer’s needs. When recommending a term assurance policy the adviser should take into account, as a minimum, the following factors and give a rationale as to why:

What is the term assurance to be used for?

How much cover is needed? Is this in relation to a mortgage?

Is a higher benefit amount needed based on family protection?

Has CIC been included? And why?

Have product features been discussed?

Has it been confirmed why the provider was chosen?

Is the sum assured to remain level, decreasing or increasing? And why?

Has waiver of premium been included?

Is the policy to be on joint or single lives?

Does the policy need to be put into trust?

Who is the intended beneficiary of the policy?

Are any extra benefits being added to the policy, e.g. waiver of premium?


Are the premiums guaranteed or reviewable?

Is a lump sum or a regular payment (i.e. Family Income Benefit) required (see section 2.23.2.1 below)?

All of the above items, where relevant, must be explained and detailed in the RWL.

Family Income Benefit

A Family Income Benefit (FIB) is a type of term assurance that, on death will pay a regular income until the end of the policy term. When recommending a FIB the adviser should take into account the following factors and give a rationale as to why:

How much cover is needed on a monthly basis and how has this been calculated?

What is this cover designed to protect?

Why has the term been selected as the most appropriate?

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Have product features been discussed?

Has it been confirmed why the provider was chosen?

Will the sum assured increase with the Retail Price Index (RPI), or by a fixed amount each year?

Has waiver of premium been included?

Is the policy to be on joint or single lives?

Does the policy need to be put into trust?

Who is the intended beneficiary of the policy?

Are any extra benefits being added to the policy, e.g. waiver of premium?


Are the premiums guaranteed or reviewable?

Trusts

When life policies are sold it is important to be aware of how benefits will be paid and who they will be paid to. In relation to this the issue of writing policies in trust must be considered. As a very general rule the following can be used as guidance:

1. Joint life policy – Payments will normally go to the surviving policyholder and hence trusts are unlikely to be relevant.

2. Life of another policy – A single life policy where another person owns the policy. On the death of the life assured the proceeds would be paid to the policy holder and would not form part of the deceased’s estate.

3. Single life policy, customer married – Dependent on level of cover then proceeds may go fully to spouse. However, note should be made of intestacy rules that were updated in February 2009 (see www.hmrc.gov.uk for more information).

4. Single life policy, customer not married - Trust is very important to ensure correct distribution of payout according to customer’s wishes.

All of the above are very general and specific thought needs to be given to each individual customer circumstances. Advice can be sought from legal helpdesks of product providers. If in any doubt then an adviser must advise the customer to seek legal advice and record this in the RWL.

Critical Illness Cover (CIC)

A critical illness policy can be a stand-alone policy or be added as a benefit to a life assurance policy. Care should be taken when selecting a critical illness policy as over the past few years the definitions of Critical Illness within these plans has changed greatly. In some cases definitions are now reviewable even after the policy has been put into force. Another important development has been the trend away from guaranteed premiums with some providers completely removing their guaranteed rates.

Due to the ever changing Critical Illness market advisers should, when recommending a particular policy, ensure that the factors listed in section 2.25.2 are considered as well as the following additional factors:

What are the definitions of a critical illness?

Are the critical illness definitions reviewable?

What is the survival period once a critical illness is diagnosed?

It is perfectly acceptable to recommend a critical illness policy based on factors other than cost (as opposed to pure life cover where the cheapest policy will usually be the most suitable). When this is the case the reasons for the recommendation must be clearly documented with an explanation of how the specific features/benefits are relevant to the customer.

http://www.hnrc.gov.uk/

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Serious Illness Cover (SIC)

Serious illness cover should not be confused with critical illness cover. Serious illness cover is currently only provided through Pru Protect. In the event of a serious illness the policy will pay out a percentage of the sum assured proportionate to the severity of the illness, however the policy will remain in force albeit with a reduced sum assured in place for any eligible future claims. When recommending SIC it is necessary firstly to select the appropriate wording in the RWL. However, it is also appropriate to clarify why SIC was considered more appropriate than CIC. Please also include details of the type of plan that has been recommended (Primary/Comprehensive) and refer the client to the Key Facts Document (KFD) for full details.

Whole of Life (Non-Investment)

Appointed Representatives of Mortgage Intelligence and Mortgage Next are only authorised to sell non-investment whole of life policies. A non-investment whole of life policy basically works in the same way as a term assurance in that the sum assured is determined at inception and it is that figure that would be paid on death. A non-investment whole of life policy is generally only considered appropriate for modest sums (Circa £10-£20k) to provide for things such as funeral costs. Consideration should be given to the effects of inflation on the sum assured and care should be taken to ensure that the funds are likely to be sufficient in x number of years. To ensure that the policy proceeds are payable to the correct person on death it would usually be appropriate to place the policy in trust.

A non-investment whole of life policy is not generally considered appropriate in order to mitigate an inheritance tax liability. However in the case of a referral from an IHT expert (IFA, accountant etc.) who has reviewed all options and believes that a non-investment whole of life policy with £x sum assured would be the most suitable IHT solution then you are able to proceed with the recommendation and focus entirely on the protection element. However, a letter from the specialist confirming all details of their recommendation must be seen and scanned within the Key.

Gift Inter Vivos

Gift Inter Vivos Life Insurance is a form of Term insurance to cover the potential Inheritance Tax (IHT) liability that can be created when someone gives a sum of money away.

We do not expect advisers to come across these policies very often and advice should only been given if a customer has previously sought advice from an IHT specialist. If you do wish to make a recommendation in this area then prior authorisation is required by Compliance.

Re-Broking Cases

Advisers should take great care when re-broking cases (i.e. cancelling existing policies in favour of new policies) and should be aware and consider any implications that could arise as a result of re-broking an existing policy. For example, re-broking a policy where the original policy had guaranteed premiums and the new policy has reviewable premiums would be unlikely to be seen as good advice, in the same way as re-broking a non-smokers plan for somebody who has subsequently taken up smoking would also be unlikely to be seen as good advice. It is also unlikely to be deemed appropriate to re-broke a policy every few years unless there have been fundamental changes in the clients situation. The Fact Find should fully reflect the reason for any cancellation and be further supported in the RWL.

For all cancellations of insurance policies (excluding GI policies) a Discontinued Plans form must be

completed before an application is made and full details added to the RWL explaining any

differences between the new and old policy (policy definitions can be found in the KFD documents).

If an existing CI, or SIC policy is being cancelled and replaced then particular care should be taken

specifically in terms of CI/SCI definitions. Prior to submission on the Key the completed (but not

necessarily signed) DPF must be attached to Key. Prior to a policy going on risk and completion on

Key the signed DPF must be attached to Key

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The Discontinued Plans form is held within the Compliance/Resources section of BrokerZone. A completed and signed form must be held on The Key prior to the policy going on risk.

Full detailed consideration should be given to medical history, level and type of existing cover, additional benefits and any guaranteed insurability options. The following questions should be considered:

Has a full comparison been conducted and why is the policy being cancelled?

Is the amount of cover the same? – if different then reasons should be stated

Was there any investment element within the original policy? – If so a recommendation cannot be made to cancel the policy

Are applicable deferment periods the same?

Are benefit periods the same?

Are levels of cover the same (additional options such as Children’s cover, House move option etc.)?

Have there been any health issues since inception of the policy?

A copy of the client’s original policy documents should be attached to the POS system. If the customer does not have the paperwork relating to their existing critical illness policy or serious illness policy then it is NOT permissible to proceed with re-broking the policy until such time as the details have been received and reviewed.

Business Protection Insurance

Those advisers wishing to give advice and recommendation in respect of Business Protection Insurance, sometimes referred to as Key Man Insurance or Shareholder Protection, must contact the Compliance Department to obtain authorisation. Authorisation will only be given if the adviser is able to demonstrate past and recent experience in this area or has passed the (JO3) Tax & Legal Aspects of Business exam. Business protection cases must not be conducted unless approval has been given by the Compliance Department.

The Key must be completed for each case with the inclusion of a manual Fact Find tailored specifically to obtain the information required in order to conduct research. The Fact Find currently in the point of sale system does not fully support this type of business and therefore must be completed with enough detail to enable research to be undertaken and then by attaching the more in-depth and fully completed manual business protection Fact Find into the system.

Research and a recommendation illustration can be obtained through integrated SolutionBuilder software and automatically uploaded into the point of sale system. If the adviser wishes to source directly on a provider’s website then a copy of the recommended illustration must be attached in to the point of sale system accordingly. In all cases, whether integrated searching has taken place or not, the research to support the recommendation must be attached.

Timescales for producing the Reason Why Letter (RWL) apply as with any other insurance recommendation.

For this type of business the adviser can use the existing RWL within the Key, however this will need to be significantly edited to ensure this type of recommendation is fully covered.

Relevant Life Plans

Although, by definition, relevant life plans have a link to a customer’s business the Network does not class them as “Business Protection”. Therefore separate authorisation is not required for this type of business. A personal fact find should be conducted on the individual(s) in much the same way that it would be for a ‘standard’ life policy. However, as premiums will be paid by the limited company an assessment of the limited companies affordability should be conducted. The RWL (addressed to the limited company) should discuss why a relevant life policy has been recommended, the fact that premiums are paid by the company, the reason for this and the implications.

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Private Medical Insurance (PMI)

Appointed Representative advisers of the Network are not authorised to give advice on Private Medical Insurance (PMI). Any adviser encountering a customer who wishes to enter into this type of insurance policy should refer the customer to an authorised individual in this area.

Post Sale changes to advice - Insurances

It is appreciated that changes to levels of cover and premiums can occur at any point up to a policy going on risk. In the event of a protection case, where changes have been made as a result of underwriting or certain exclusions being included, and the illustration and RWL have already been issued, there is no requirement to issue a new illustration. An addendum should be issued to the customer on the basis of the revised terms outlining the changes and this document must then be attached within the point of sale system.

Own Cases & Cases for Direct Relations,Colleagues/Employees or Business Partners

Own cases whether mortgage or protection cannot be conducted on an execution only basis and must be reported to compliance prior to submission. (Compliance do not need to be informed of own General Insurance business.)

All pure protection own cases and pure protection cases for direct relations (includes parents, children, partner/spouse and siblings), colleagues and members of other AR firms must be written on a non-indemnity basis. No payments will be made to Appointed Representatives for these cases on an indemnity basis.

Aside from the above requirements all own cases must be treated in the same way as any other regulated business. A full advice process must be followed and the usual documentation requirements apply in terms of proof of identity and income etc. This also extends to include own business that is written for the adviser themselves, any of the adviser’s direct relations, any colleague/employee within the same company/another AR firm, or anyone else that the Appointed Representative has a business relationship with. (e.g. Introducers)

Execution Only Cases/Non-advised sales

The Network only allows fully advised sales. In no circumstances should and adviser undertake any business without undertaking a fully advised sales process.

Reporting

If you have any concerns regarding the customer or their circumstances, such as the legitimacy of the information they are providing you with. Or if you have discovered any ‘breaches’, such as the late issue of a RWL then you must ensure that these are reported to the Compliance Department immediately. A Breach Register can be found on Brokerzone, under Compliance/Resources. Failure to notify the Compliance Department or concerns of breaches could lead to further action being taken.

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3 Financial Promotions

Definition

A financial promotion will either be a ‘real time’ or a ‘non-real time’ promotion:

‘Real time’ – A promotion which is communicated during interactive dialogue. An example of this would be a telephone call or a customer visit.

‘Non-real time’ – A promotion which does not require the recipient to respond immediately, is available to more than one person, is in the same format and creates a record for the recipient to re-visit at a later date. An example of this would be a mail shot, a leaflet, a poster or a website.

The rules regarding financial promotions detailed in this section apply to any individual who initiates contact with a customer or potential customer.

Please note that any documents intended for use with a customer should be forwarded to Compliance for prior approval. If in any doubt about whether a document is a financial promotion it should be sent to Compliance for review.

‘Real Time’ Promotions

Real time promotions will either be solicited or non-solicited. To be solicited a ‘real-time’ promotion must be either initiated by a customer or made at the request of a customer. If neither of these two conditions applies then the promotion will be classed as unsolicited (i.e. A ‘Cold Call’).

Unsolicited ‘Real Time’ Promotions

Unsolicited ‘real-time’ promotions are prohibited and therefore unless a customer takes positive action by agreeing to be contacted then a ‘real time’ promotion cannot be made. It is not possible to rely on an act of omission by a customer, they must expressly agree to being contacted and it must be possible to prove this. This effectively means that contacting a customer with whom there is no established relationship (i.e. ‘Cold Calling’) is prohibited.

Where there is an existing customer relationship then that relationship must be such that a customer envisages being contacted in the general course of their dealings with an adviser and an adviser will have to be able to prove this. For example it would be reasonable (and good practice) to contact a customer prior to the end of a two year mortgage deal. However, it would not be acceptable to call customers that, for example, have not had contact for 5 years (example only) just because business was slow and an adviser wanted to generate new business from an old client bank.

If any doubt exists about whether it is possible to make a ‘real time’ promotion then guidance should be sought from the Compliance Department before any action is taken.

Solicited ‘Real Time’ Promotions

Solicited ‘real time’ promotions could be either with an existing customer or with a new customer who has proactively requested to be contacted by the adviser.

Any processes that are used by Appointed Representatives to generate enquiries that will lead to solicited promotions must be approved by the Compliance Department before being implemented. Examples of this could be introductions via third parties (accountants, solicitors etc.) or a customer inputting their contact details on to an Appointed Representative’s website. A key part of the review that the Compliance Department will undertake of any proposal is to establish how an adviser will be able to prove that contact was solicited by the customer.

Where contact is solicited and a ‘real time’ promotion is made to a customer there are certain guidelines that must be followed. Any individual making such a promotion must:

Ensure all statements made are true, clear, fair and not misleading.

At the start of the communication, state their name, the name of their firm and the purpose of their call.

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Confirm that the recipient is happy to engage in communication at that point in time and terminate the communication if the recipient does not wish to continue.

Not call during unsociable hours unless previously agreed by the recipient (unsociable hours are usually considered to be all day Sunday and between 9pm and 9am on any other day. However, if it is known that a customer worked, for example, on night shifts then contact at other times may be regarded as being made during unsociable hours).

‘Non-Real Time’ Promotions

For the purposes of these procedures, approval is required for ‘non-real time’ advertising in any form. This includes, but is not limited to, print, radio, TV, films or video, e-mail, catalogue, display of notices, goods, show cards or price lists. This will also include all circulars, mail shots and standard sales presentations.

Examples of promotions requiring approval include posters, leaflets, business cards, banners, telephone directory listings, internet adverts, Facebook pages and Twitter feeds (see 3.5 for further details relating to social media). This is just a small but representative list of the type of promotion that would need approval.

Appointed Representatives with websites must ensure that these are approved and all proposed updates must be discussed with the Compliance Department to establish whether further approval is required.

Approval Process

Appointed Representatives must ensure that all intended advertising to be undertaken by the Appointed Representative and/or its advisers is referred to the Compliance Department for approval and sign-off. Items for approval can be submitted electronically, by post or by fax.

The Compliance Department will provide formal approval of the final format of the advertising and indicate any limitations which may apply. In addition they may provide a time-scale after which the material will require further review to confirm on-going compliance. An approval number will be issued for the promotion.

In consideration of approval the Compliance Department will ensure:

the advertising is clear, fair and not misleading

the content is appropriate to the circumstances, and the subject, of the advertising

the standard and quality reflects the expectations of the Network and other network members

the appropriate warnings are included

the advertising conforms to the relevant regulations and conditions at the time

In practice, Appointed Representatives should undertake their own rigorous check on all proposed advertising prior to submission to the Compliance Department.

Under no circumstances must advertising be undertaken by the Appointed Representative or its advisers until appropriate approval has been received in writing.

If an Appointed Representative becomes aware that a promotion is no longer accurate then they must immediately withdraw it. If customers are known to have acted on incorrect information contained in a promotion the Appointed Representative must inform the Compliance Department immediately.

Exempt promotions

A promotion is considered exempt if:

o No promotional language is used (e.g. We’ll find the best mortgage deal for you) o No detailed breakdown of services is contained within it (For example if the advert listed:

Mortgages, Life cover, and critical illness cover this would be exempt, however if this went into

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more depth and covered things such as debt consolidation & referred services this would not be exempt).

o It only contains a short description of the firm and business.

A directory entry showing a firm’s logo/name, a non-promotional ‘tag line’ (e.g. Mortgage & Insurance Adviser) & Contact Details would be classed as exempt

An exempt promotion does not require any risk warnings but should still be sent to the Compliance Department for review.

Warning Notices

When MPPI/ASU/Income Protection is mentioned within any promotion the following must be included:

Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income.

The following text must appear on all Website & Social media pages, in the same way as the status disclosure. For Websites the footer is the recommended place.

“We always aim to provide a high quality service to our customers. However, if you

encounter any problems and we are unable to resolve them you can take your complaint to

an independent Ombudsman. Our advice is covered under the Financial Ombudsman

Service (www.http://www.financial-ombudsman.org.uk/consumer/complaints.htm). You may

be able to submit a claim through the EU Online Dispute Resolution Platform

(https://webgate.ec.europa.eu/odr/main/?event=main.home.show if you live outside the

United Kingdom or if you prefer not to deal directly with the Financial Ombudsman

Service.)”

An email address must be included on all websites and social media accounts. This is in addition to a ‘contact us’ form if one is present.

NB For warnings applicable to the CCA, these must be displayed in capital letters. This also applies where the promotions may be covered under both the FSMA and the CCA.

Where these warnings are applicable, they must be prominent within the advertisement. It is extremely unlikely that a promotion would be approved if the relevant warnings are smaller than the rest of the promotion and/or are “hidden away” at the bottom of a promotion.

Websites & All Social Media

If the Appointed Representative wishes to make use of a website or any form of social media then this will be subject to the approval process for Financial Promotions (see Section 3.3.1). A link to the intended site must be provided to Compliance whereby the content will be checked and any amendments requested before the site is made live to the public.

The firm will be required to disclose its status on the website and so the same wording will apply to the website as it does for the firm’s letterhead. (See section 5.1.1).

The following is required on all websites, preferably in the footer:

“We always aim to provide a high quality service to our customers. However, if you encounter

any problems and we are unable to resolve them you can take your complaint to an

independent Ombudsman. Our advice is covered under the Financial Ombudsman Service

http://www.http/www.financial-ombudsman.org.uk/consumer/complaints.htm

http://ec.europa.eu/consumers/odr/

https://webgate.ec.europa.eu/odr/main/?event=main.home.show

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(www.http://www.financial-ombudsman.org.uk/consumer/complaints.htm). You may be able

to submit a claim through the EU Online Dispute Resolution Platform

(https://webgate.ec.europa.eu/odr/main/?event=main.home.show if you live outside the

United Kingdom or if you prefer not to deal directly with the Financial Ombudsman Service.)”

An email address must be included on all websites and social media accounts. This is in addition to a ‘contact us’ form if one is present.

“Social Media” refers to social and business networking sites (Facebook, MySpace, LinkedIn, Bebo etc.), blogging sites (Twitter), forums (Cherry) and advanced media applications, such as those developed for Apple, Blackberry etc.

The FCA rules for financial promotions are “media-neutral” meaning they focus on the content of the promotions, regardless of the media used. As such, the same rules apply to new media.

It should be considered that some new media (e.g. Twitter) may not be appropriate for promotions as there is limited space available for any relevant risk warnings. As such this form of media may only be suitable for exempt promotions. (See section 3.3.2)

For the purposes of the above procedures, any intended advertising or promotion of services or activities to be communicated through any of the above mentioned mediums or similar will require prior compliance approval.

Referral Business

If you offer a referral service for business such as conveyancing, private medical insurance etc. then wherever this is mentioned (e.g. your Website) then it needs to be made clear that this business is being referred and that you will not be responsible for any advice given.

Reporting

If you become aware that any promotional material, stationery, Website etc. has gone live before approval has been granted you must ensure that this is reported to the Compliance Department

immediately. Failure to notify the Compliance Department of breaches could lead to further action being taken.

4 Complaint Handling Procedures

All Appointed Representatives and their staff must adhere to the Network complaints procedure. All staff of Appointed Representatives are required to familiarise themselves with these procedures and confirm their understanding and commitment on a regular basis.

Definition of a Complaint

A complaint is any allegation or expression of dissatisfaction regarding:

a breach of the rules or guidance contained within the FCA Handbook

negligence, a breach of a term of any customer agreement or of any enactment or other rule of law which may be applicable to the Appointed Representative’s, or the Network’s, business

misrepresentation, bad faith, malpractice or impropriety

the complainant having suffered, or potentially suffering, financial loss and/or material distress or inconvenience

If there is doubt as to whether or not a complaint is relevant, please refer it immediately to the Compliance Department. Although in some circumstances it may be possible for us to resolve a complaint informally, this will be a NETWORK decision and we need to know about all potential complaints.

http://www.http/www.financial-ombudsman.org.uk/consumer/complaints.htm

http://ec.europa.eu/consumers/odr/

https://webgate.ec.europa.eu/odr/main/?event=main.home.show

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The prompt, thorough and courteous investigation of complaints is an integral part of regulation and this complaint procedure must be followed rigorously. The Network will hold and maintain appropriate records regarding complaints.

Procedure for Complaints

If a complaint is made directly from the complainant or from the FCA to the Complaints Department, the adviser concerned, the Appointed Representative and their Business Assurance Manager (BAM) will be informed.

If a customer, or anyone on a customer’s behalf, complains directly to an Appointed Representative or one of its advisers or staff, it is that individual’s responsibility to inform the Complaints Department immediately. The individual must not acknowledge the complaint or endeavour to try and deal with it or try to conceal it in any way.

Individuals must not attempt to deal with the situation themselves, nor should they say or do anything which admits liability or commits the Network to paying compensation or any other form of redress. No individual involved in a complaint may contact the customer without the express permission of the Network’s Compliance department. Failure to follow these guidelines could result in a complaint being upheld unnecessarily or the invalidation of professional indemnity insurance cover. In the event of the latter, full costs of any compensation will be borne by the Appointed Representative.

On receipt of the complaint the Compliance department will forward the complaint to the relevant department at Countrywide for acknowledging the complaint in writing within five business days of it being received. The Compliance department will request customer documentation and a full written report from the adviser concerned, their supervisor and any other person as considered appropriate by the Compliance department. Due to strict regulatory timescales, any reports or documents must be sent within five working days from the request.

Dealing with Complaints Informally

With effect from the 30 June 2016 the FCA extended the ‘next business day rule’ to three business days. This, in some circumstances, will allow us to handle complaints less formally, without sending a final response letter and reporting is as an official complaint to the FCA. This is as long as the complaint is resolved to the complainant’s satisfaction by the close of the third business day following the day on which a complaint is received by the respondent.

The FCA requires firms to send a summary resolution communication to the customer where a complaint is resolved within three business days, and allow complainants to complain direct to the ombudsman service if they subsequently decide they are dissatisfied. The summary resolution communication is intended to be a template response, which is not tailored to an individual complaint, which distinguishes it from a final response letter.

In all instances of the above, or if there is any doubt as to whether a complaint has been raised, please refer it immediately to the Compliance Department. The Network will review the complaint, discuss with you and decide whether it can be resolved informally or whether it needs to go through the full complaints process.

Under no circumstances can an AR firm deal with any complaint, informally or otherwise. In all instances this is the Networks responsibility.

Oral Complaints

If a complaint is made orally the recipient should make as detailed a note as possible of it and immediately inform the Compliance Department. A letter of acknowledgment stating the understanding of the complaint and inviting a written confirmation in response will be sent by the Compliance Department. Oral complaints will in all other respects be dealt with in the same way as written complaints.

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Investigation Process

The Compliance department has the right to see any records or documents and interview any individual who is the subject of the complaint, or any other individual as appropriate. Any information or assistance requested by the Compliance department must be supplied and full co-operation given.

If, as a result of the investigation, the Compliance department considers that it may be necessary to take action against an adviser or an Appointed Representative, Head of Compliance will review the matter and initiate whatever action is deemed appropriate to the circumstances.

If the investigation is not completed within four weeks of the date when the complaint was received, the Complaints department will send the complainant a further letter. This will explain clearly that the Network is continuing to conduct an investigation into the complaint, explain why there is a delay and detail to the complainant when they will be contacted again.

If the investigation is still not completed within eight weeks of the date when the complaint was received, the Complaints department will send the complainant a further letter that explains clearly that an investigation into the complaint is continuing and explain why there is a delay. The complainant will be informed that if they are not satisfied with the progress of the investigation, they may refer the complaint to the Financial Ombudsman Service (FOS). The letter will state the full name, address and telephone number of the FOS and a copy of the FOS explanatory leaflet will be included.

As soon as an investigation is completed, the Complaints department will send the complainant a letter explaining:

The outcome of the investigation

The nature and terms of any offer of settlement which the Network is prepared to make in satisfaction of the complaint

If the complainant is not satisfied with the outcome they may refer their complaint to the FOS - the letter will state the full name, address and telephone number of the FOS and, if not already provided, a copy of the FOS explanatory leaflet will be included.

A record of all complaints is maintained by the Network, including those upheld, where compensation is paid and details of any other action taken as a result. However the adviser must keep any correspondence relating to the complaint within the customers file. Along with other T&C records any complaints made against an adviser will form part of their overall Key Performance Indicators (KPI’s).

Copies of all complaints (or a record if the complaint was not made in writing), together with a full record of the investigation into the complaint will be kept by the Network indefinitely. The Network will regularly review complaints involving both Appointed Representatives and advisers to ascertain if there are any trends of significance. Where trends are identified appropriate action will be taken.

Complaint Resolution

For the guidance of all Appointed Representatives and their advisers, the merit of a complaint, and also the resolution, can be considered based on the following:

1. Has there been a breach of rules, guidance or law? If yes, then;

2. Has the complainant suffered loss or inconvenience? If yes, then;

3. Did the breach cause the loss or inconvenience? If yes, then;

4. What loss was suffered and what compensation is due?

Of course, every complaint is different and is therefore considered on its own merits using the evidence available, including what has been supplied by the Appointed Representative and/or adviser.

It is sometimes the case that complaints cannot be upheld using only the documentary evidence from the relevant Point-Of-Sale system. They often require the inclusion of evidence which is only held on the Appointed Representative’s and/or adviser’s client file. This may include, for example, e-mails or letters to/from the client or provider. It is for this reason that files, whether paper-based or

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electronic, should be kept up-to-date and include all relevant and appropriate documentation (As per section 14.1

In exceptional circumstances the Network reserves the right to pay compensation for distress and inconvenience even when the complaint has not been upheld.

As per the Appointed Representative contract the Appointed Representative firm remains responsible for the payment of any amount not covered by our PI Policy. The Network will make any payments due to the customer as part of the redress and then claim any uninsured amount (e.g. the excess amount) from the Appointed Representative firm.

At all times during the investigation and resolution of complaints, the Network will liaise with the relevant professional indemnity insurers and may act on their instructions if required to do so.

In support of Treating Customers Fairly (TCF) all Appointed Representative firms are expected to analyse the root cause of any complaints made and make amendments to any procedures and processes. These changes must be documented to show how the AR has constructively used such information.

Training

All Advisers will be made aware of their responsibilities relating to the handling of complaints as part of their initial training. The Compliance Department will ensure that all Appointed Representatives are notified of any changes or updates to procedures whether initiated by the firm or the regulator.

It is the responsibility of the Appointed Representative to ensure that all advisers and relevant support staff are made aware of the changes/updates and their individual responsibilities.

Reviews

The Compliance Department will ensure that the complaints procedure is effective by undertaking regular reviews of the firm’s complaints handling procedures and by assessing staff knowledge.

Subject Access Requests (SAR)

Under the Data Protection Act, individuals can ask to see the information relating to them that is held on computer and paper records. To obtain access the individual must submit a Subject Access Request (SAR) in writing and this should usually be accompanied by a fee of £10. A request must include enough information to enable us to confirm the client’s identity and locate the requested information.

If you receive a Subject Access Request from a customer or a firm acting on the customer’s behalf this must be forwarded to the Compliance Department and you must not deal with the request yourself. However, it is worth locating the client’s files at this stage as it is highly likely that the Compliance Department will request this information from you.

Once a SAR is received we have 40 days to provide the customer with the requested information. Please note that it is a criminal offence to destroy any paperwork that relates to a SAR.

Reporting

If you become aware that a member of staff/adviser has tried to deal with a complaint outside of the above rules this must be reported to the Compliance Department immediately. Failure to notify the Compliance Department of breaches could lead to further action being taken.

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5 Business Stationery

All business stationery to be used by an Appointed Representative and its individuals must be submitted to the Compliance Department for written approval prior to use.

Business stationery includes letterhead paper, business cards, compliment slips, fax headers and emails intended for use with customers or potential customers.

It is the responsibility of the Appointed Representative to ensure that its advisers and employees do not use unapproved business stationery.

If the Compliance Department requires amendments to the draft presented for approval, the Appointed Representative must ensure that the item is not used until written approval of the final proof has been provided.

Wording Requirements

All business stationery must be ‘clear, fair and not misleading’ and include:

the name of the Appointed Representative

the address, telephone and fax numbers of the principal office

Letterhead, Websites and email footers

The letterhead, Website and email footers must disclose the status of the company using the following wording:

<Company Name> is an Appointed Representative of <Name of Network> which is authorised and regulated

by the Financial Conduct Authority under number <Network FCA number> in respect of mortgage,

insurance and consumer credit mediation activities only.

If the firm is a Limited Company then details of the registered address, place of registration and registration number must also be included (please note that under company law this is also required on company websites), the wording will be:

<Company Name> is an Appointed Representative of <Name of Network> which is authorised and regulated by the Financial Conduct Authority under number <Network FCA number> in respect of mortgage, insurance and consumer credit mediation activities only.

Registered address: <full address including postcode>. Registered in <England & Wales or Scotland> under number <registration number>.

If the firm is a Partnership then details of the partner’s names must be shown, unless there are more than 20 as wording must then confirm that a list of partners is available instead. For partnerships the status would be disclosed as follows:

<Company Name> is a trading style of <Partner Name> and <Partner Name>.

<Company Name> is an Appointed Representative of <Name of Network> which is authorised and regulated by the Financial Conduct Authority under number <Network FCA number> in respect of mortgage, insurance and consumer credit mediation activities only.

Where the firm operates under a trading name then this, and the name of the legal entity must be clearly shown in the appropriate status wording. For example:

<Trading Name> is a trading style of <Legal entity Name, i.e. Sole Trader> who is an Appointed Representative of <Name of Network> which is authorised and regulated by the Financial Conduct Authority under number <Network FCA number> in respect of mortgage, insurance and consumer credit mediation activities only.

The statements above, when used, must be prominent and the same size as any other statutory information as well as in a colour that does not reduce the impact of their content.

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Business cards

Disclosing the status of the company is not compulsory in respect of business cards although the wording can be added if desired.

Business cards must include:

the name of the individual

job title of the individual

company name

contact details

Care must be taken with the job title used to ensure that it is not misleading to the customer i.e. creating an impression about the size of the firm or the abilities of the individual. Under no circumstances may blank business cards be held or be used by any Appointed Representatives or their Advisers.

Facsimile Headers

If the firm uses the company letterhead for its faxes then the disclosure statement as detailed in Section 5.1.1 will not apply as this will already be evident on the letterhead. It is, however, recommended that the firm includes the following privacy statement on all facsimile communications:

This facsimile transmission is strictly confidential and intended solely for the person or organisation to which it is addressed. It may contain privileged and confidential information and if you are not the intended recipient, you must not copy, distribute or take any action in reference to it. If you have received the facsimile in error, please notify us as soon as possible and return the transmission to us.

Email Signatures

All Appointed Representatives must include the relevant disclosure wording from 5.1.1 above in their email signatures and in addition must include the following wording:

Email communications are not secure and for this reason <Company Name> cannot guarantee the security of the email or its contents or that it remains virus free once sent.

This email message is strictly confidential and intended solely for the person or organisation to whom it is addressed. It may contain privileged and confidential information and if you are not the intended recipient, you must not copy, distribute or take any action in reference to it. If you have received this email in error, please notify us as soon as possible and delete the message from your system.

Reporting

If you become aware that any promotional material, including stationery has been used before approval has been granted you must ensure that this is reported to the Compliance Department

immediately. Failure to notify the Compliance Department of breaches could lead to further action being taken.

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6 Monitoring and Controls

The Network will monitor Appointed Representative activity on a day to day basis. Formal monitoring will be undertaken through:

T & C Supervision Activity

Compliance Audits

Financial Audits

Fit and Proper Reviews

Management Information

On entry to the Network, Appointed Representatives will be risk-assessed based on size and nature of business, number and experience of advisers, financial position, previous regulatory history and feedback from any initial compliance audit.

The Network will determine from this risk assessment the level of ongoing monitoring activity considered appropriate, however, Compliance Audits, Financial Audits and Fit and Proper Checks may be undertaken regularly.

Disclosure of Significant Information

All significant information relating to the adviser should be disclosed to the Business Assurance Manager (BAM) or the Compliance Department at the earliest opportunity. Significant information includes, but is not limited to the following:

CCJ’s

Debt Management

Criminal/Civil Proceedings

Removal from lender/provider panels

If you are in any doubt then please let a member of the Compliance Team know.

T&C Supervision Activity

This will be undertaken by qualified supervisors appointed by the Network and will be carried out in accordance with the requirements of the T&C Scheme.

Compliance Audits

Formal audits will be undertaken to ensure that Appointed Representatives and their advisers are complying with their Agreement, the requirements of the Compliance Manual and the rules and guidance of the relevant regulators.

The frequency of formal audits will be depend on risk and factors including the size and nature of business, the number of advisers and previous formal grades.

Formal audits will include, but not be limited to a review of:

Customer files

Systems and Controls within the Appointed Representative firm

Compliance with the T & C Scheme

Logs and Registers

Recruitment activity

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Assessment of notifiable events

Additionally, both Principals and Advisers will be interviewed.

The Compliance Department will normally give between two and four weeks advance notice to an Appointed Representative if it intends to visit their offices to carry out a formal audit. However, the Network reserves the right to visit without notice or warning if it is considered appropriate to do so.

Identification of rule breaches and systems outside of the guidelines of the Compliance Manual will form part of the compliance monitoring through routine visits. Reports will be provided to the Appointed Representative with any necessary actions identified. Remedial action must be satisfied within any specified timescales and where necessary, steps may be taken to rectify any breaches to ensure that they do not reoccur.

Breach Registers for Larger Firms

Firm Principals of larger firms (more than 3 Advisers) are expected to maintain their own Breach Register listing any breaches, their impact and any customer detriment. Examples of breaches which we would expect to be logged and reported to Compliance are:

Breaches of the Network’s sales process (which reflects the FCA rules)

Breaches in relation to Data Protection or Data Security

Breaches in relation to documents or record keeping. An example of the breach register can be

found on BrokerZone.

Financial Audit

Formal audits will be undertaken regularly of the Appointed Representative’s financial position.

This will include, but not be limited to, a review, where relevant, of:

Annual Accounts (audited where a Limited Company)

Management Accounts

Profit and Loss Accounts

Annual Audit

Commission Accounts

Bank Accounts

Fit and Proper Review

Appointed Representatives, their Principals and Advisers will be subject to a regular check of their fitness and propriety. The check will incorporate elements of the standard T&C Scheme assessments, as well as the following:

Credit Check

Criminal Records Bureau Check

Completion of a declaration confirming;

o Ongoing compliance with the Manual and rules and guidance of the regulator

o Understanding of individual responsibilities

o Other business activities

o Criminal or civil convictions and pending legal action

o Financial soundness

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Appointed Representatives and their advisers must co-operate fully with the Network in the conduct of these Audits. Failure to do so may result in suspension of advisers or of an Appointed Representative firm.

Disciplinary Procedures

As a company, the Network would seek to resolve informally any dispute with its Appointed Representatives or their advisers through constructive discussion, dialogue and agreement. However, where there is evidence of a serious or persistent breach of the rules or guidance of any regulators, or the Compliance Manual, then the following disciplinary procedures may be invoked at the sole discretion of the Compliance Department. The Network will endeavour to carry out all parts of the process with due regard and understanding of the sensitivities involved.

The Disciplinary Process

The disciplinary process may consist of the following stages:

1. Initial consideration of the prima facie evidence and a decision on whether immediate action is necessary (e.g. suspension)

2. Collection of facts relevant to the issues which may include interviews with any member of an Appointed Representative’s staff;

3. Where necessary a meeting with the adviser and/or the Appointed Representative Principal to discuss the results of the investigation;

4. A decision by the Compliance Department on what action, if any, will be taken;

5. Formal notification of the decision to the adviser and/or the Appointed Representative Principal;

6. If applicable, an appeal against the decision may be made to a nominated director of the Network;

7. The Network director considering the appeal will uphold, reject or otherwise modify the decision, which will be final.

In making a decision, the Compliance Department and the Network director will give due regard to the evidence and, if it is considered that a rule or guidance has been breached, to the seriousness of the breach. In addition, the Appointed Representative’s previous disciplinary record (whether at the Network or not) will be taken into account. In the first instance, regard will be given to the expectations of the relevant regulator. Further to this, regard will be given to the effect on the expectations, reputation and standing of the Network and its other Appointed Representatives.

Although not exhaustive, the decision made is likely to be one of the following:

No action taken

Verbal warning

Written warning

Final written warning

Suspension

Termination

Each decision will be communicated directly to the adviser and/or the Appointed Representative and may have further conditions attached to it. Failure to comply with any conditions may result in the disciplinary process being re-started. Where required by the rules of a regulator or by law, the Network will provide information regarding investigations to third party organisations or Government bodies.

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7 Money Laundering

See also Enhanced Due Diligence Policy, under Compliance>Resources, on BrokerZone. The Network aims to ensure that, under the various laws, rules and guidance, it has in place an appropriate approach to, and relevant operational procedures to comply with, the requirements. Policy and procedures are maintained and monitored by the Compliance Department.

The Principals of the Network Appointed Representative firms must ensure that all relevant members of their staff, including those working under contract, understand and comply with the requirements of the general law as well as these rules.

Verification of Customer Identity - Mortgages

Each lender will have their own processes and procedures for verification of identity and the onus of identifying customers falls principally on them. However, each adviser must follow the requirements stated below for any application that is made and should be aware that they have a duty to take reasonable care when sending verification information to lenders.

For all sales of mortgages the adviser must ensure that original documents providing verification of identity and address are obtained, regardless of whether the lender has requested them or not. This is mandatory and also applies to repeat business for existing customers.

The only exception to the above would be, if you had previously dealt with the clients in the last three months, the ID provided at that time is still correct and in date. In this example the existing copies must be added to the current case. A copy of photographic ID must be certified as being a “true likeness of the client” only when the adviser has seen the customer in person. This certification should also show the name of the adviser and the company name.

In the vast majority of cases, only the adviser is able to certify documents. However in exceptional

circumstances, that would otherwise cause customer detriment then the Principal of the firm can

certify the documents in the absence of the adviser. This must not be done by an administrator or

another adviser under any circumstance.

It would not be expected for an adviser to hold uncertified copied assets and re-certifying previously obtained copies is strictly prohibited.

Lenders will have slightly different requirements for verifying identity but the generally accepted documents are:

Passport

Driving licence

HMRC Tax Letter (E.g. Benefits Letter, or tax code letter). Please check that the lender concerned is also happy with this type of identification.

And the generally accepted documents to prove address are:

A local authority tax bill (dated within the last 3 months)

A utility bill (dated within the last 3 months)

A bank, building society or credit union statement or passbook (dated within the last 3 months)

An original mortgage statement, a local council rent card or tenancy agreement (dated within the last 3 months)

Driving licence

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If the adviser has any difficulty obtaining the appropriate documents to verify the identity of the customer, then the matter should be referred to the appropriate lender who will be able to give advice on the course of action to take.

Verification procedures are not restricted to individuals but are also required for:

Nominees or trustees and the third parties they represent

Companies, trusts and other structures and the people behind them

Advisers must ensure that all copies of money laundering identification are held in a customer file. Where the lender requests any verification documents, these must be copies bearing an original certification signature. Recommending that two copies of verification documents are taken initially therefore ensures that, should the lender require any copies, the adviser will still be able to retain original copies as evidence of satisfying money laundering obligations.

Copies taken of verification documents must be clear and legible and of the best quality that the adviser can produce. The adviser should scan any remaining certified copies into the point of sale system, it is important that the quality of the scanned item is not compromised by an originally poor quality copy. All records must be stored indefinitely unless permission is given by the Compliance Department for their removal.

Customer records, both physical and electronic, must be stored in a secure manner and be readily available if requested for review by the Network.

Verification of Customer Identity - Insurances

The potential for using general insurance and protection policies for money laundering purposes is low and the requirements in this respect are therefore simple.

We would expect that all regular premium policies would be paid by direct debit from the personal account of the applicant and in these cases verification of identity would not be required. However if the regular premium is to be paid from the bank account of a third party then this must be reported to Compliance for prior approval. In this instance verification of identity would be required for all parties. The budget planner would also need to be completed by the person paying the premium.

The following events must be reported to Compliance as soon as reasonably practical:

Any policy where a refund of premium greater than £1,000 is made by the insurer.

Any payment of commission/procuration fee to a customer (other than correctly notified own-case business), by the adviser or appointed representative firm, greater than £1,000.

Verification of Customer Identity – At a distance

When dealing with customers at a distance there is a higher risk of fraudulent activity. This applies to all distance sales but in particular for customers who an adviser is dealing with the first time.

Where customers are not seen face to face advisers should forward a copy of the fact find to them (this can be via email) for customers to check the content for any errors or omissions that may have occurred. There is no requirement for a signed version to be returned but the customer must be given opportunity to advise of any issues. This is in addition to the checks required in respect of identification and address verification.

When there is an existing customer relationship, whereby business has previously been conducted between the adviser and customer, the process for verifying customer identity remains the same as detailed in 7.1 above. However, where no previous business has been conducted additional checks are required for all mortgage sales as follows:

In all cases telephone contact must be made with the prospective customer prior to submitting an application to a lender

In all cases written communication must take place with the prospective customer prior to a case completing. The written communication must be with the address verified under the adviser’s identity checks and not any alternative addresses.

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A record must be kept of the above 2 communications using the notes section of the Key to record verbal communication and attaching relevant documents into the Key for postal communication.

For any distance sale original documents will need to be sent to the adviser in order to prove identity and address. Documents should be sent and returned using Special Delivery to ensure they are both tracked and insured. Please note that documents should not be certified as a “True likeness of the individual…..” if the individual has not been seen face to face but it is acceptable to certify as “True copy of the original…..”

Expats

Proof of Identity. Ideally you will be able to perform identity checks as per section 7.1. However if this is not possible then you must check the individual lender’s requirements. Some lenders will allow identity and address checks to be performed by the Embassy in that particular country. If this is the case then full notes must be added to the Key to confirm the lenders requirements and what has been done.

In all cases written communication must take place with the prospective customer prior to a case completing. The written communication must be with the address verified under the adviser’s identity checks and not any alternative addresses.

Financial Sanctions Checks

Under the Proceeds of Crime Act you are obliged to ensure that clients (targets) with whom you do business are not on the sanctions list. The sanctions list is a database of individuals and organisations that are known or suspected to be involved with terrorism. It is the aim of the list to ensure that financial institutions and firms do not aid these individuals and organisations in the transfer or manipulation of funds. Financial sanctions orders prohibit a firm from carrying out transactions with a person or organisation (known as the target).

For all mortgage cases including repeat business (but excluding product transfers) you need to be able to demonstrate that clients are not on the Sanctions List. This should be done prior to submitting a DIP to the lender. (The Financial Sanctions report should be dated within three months of the application being submitted.) There are two options for doing this:

Option 1

Download the targets list on the HMRC Website in a PDF format so that you can reconcile your clients against this list. Please also ensure that you register for the email updates to ensure that you are always searching using the most up to date version. Please ensure that at the time you carry out the search that a copy of the list is saved within the Key.

Option 2

Another option is to consider using an external firm such as www.sanctionssearch.com/ who will provide you with evidence in order to attach to the Key. If you wish to use a firm other than Sanctions Search please refer to the Compliance Department in the first instance.

If you find your client is on the sanctions list then you are required to stop any services provided to your client and report this matter, as soon as possible to the Compliance department.

For full information please refer to the Financial Sanctions guide on BrokerZone or speak to Compliance.

Proof of Deposit

Appointed Representatives are required to verify their clients deposit for all residential, CBTL and

BTL business. This is partly due to anti money laundering rules but also to ensure robust financial

crime controls. A copy of the original document should be certified as a true copy of the original and

scanned into the POS system. Where deposit evidence is not in English the adviser must still be able

to ascertain the origin of the funds and (where not in £ sterling) the value. If an adviser cannot do this

themselves they should arrange for the evidence to be translated by the relevant embassy and both

http://www.sanctionssearch.com/

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original and translated versions should be held on the Key. If deposit is from multiple sources this will

apply to all funds.

The following provide examples of acceptable evidence:

e.g.

Gift from a family member: An original letter from that person stating they have gifted the deposit

and do not require the funds repaid. This should show the original signature of that person and

therefore does not need to be certified. You should, in addition, obtain proof from the donor

showing the funds in their account in the following scenarios:

a. Deposit funds are coming from non-UK bank account

b. Deposit is coming from a UK Bank account but exceed £20,000

Savings: Original statements showing funds should be obtained and certified copies held on file. In

the case of a sudden deposit into the account it would be necessary to demonstrate and evidence

the origin of these funds. E.g. company bonus, or sale of an asset etc.

Please ensure that you take care to ‘sense check’ the plausibility of the customers deposit (e.g. If

£50k ‘savings’ was suddenly deposited into an account that had previously been accruing overdraft

charges this would seem a somewhat unusual circumstance and more investigation would be

needed).

Appointed Representative Responsibilities

Appointed Representatives are required to verify the identity of all individuals as explained above, but must be alert to recognise the unexpected and suspicious.

Appointed Representatives and their advisers have a responsibility to report any suspicions directly to the Compliance Department without alerting the customer or any third party. Alerting the customer or other party either explicitly or implicitly could be interpreted as ‘tipping off’. ‘Tipping Off’ is a criminal offence carrying a possible prison sentence of five years plus an unlimited fine.

All advisers must therefore give consideration to any documentation presented to them by the customer or a Third Party in ascertaining they are happy with its authenticity and content. Should any adviser or Appointed Representative firm be unsure or concerned regarding information presented to them by a customer or Third Party or the manner in which it was presented then they must contact the Compliance Department without delay.

Reporting Suspicions

All suspicions must be reported immediately to Head of Compliance at the Network or to a member of the Compliance Department. The Suspicious Transaction Report form has been provided for this purpose but other means of communication can be used. Reports will be acknowledged and it is incumbent on the person making a report to ensure that this is received.

By formally reporting a suspicion to the Compliance Department the individual has satisfied their legal obligation. If it is established that an Appointed Representative or an individual within the Appointed Representative, without reasonable excuse, failed to report promptly any knowledge or suspicions to the Compliance Department, the Appointed Representative and/or individual may be subject to disciplinary procedures.

Responsibilities of the Compliance Department

The Compliance Department will assess any report of suspicions made by an Appointed Representative’s advisers or administration staff and will, at their sole discretion, decide whether to report the matter to the Serious Organised Crime Agency (SOCA). The Compliance Department will also make reports to other agencies, including the Police, if they are required by law, or consider it appropriate to do so.

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8 Mortgage Fraud

Mortgage fraud is a crime in which the intent is to materially misrepresent or omit information to obtain a mortgage on a property that would not otherwise be obtainable, for example, exaggerating income, or providing false employment details. Larger scale Mortgage fraud is for profit – this is usually perpetrated by a ‘fraud ring’ involving more than one individual and with links to serious organised crime. Mortgage fraud is not only exceptionally costly to the UK economy, but it can also threaten an adviser’s career if they fail to identify it in time. It is therefore essential that you have sufficient controls in place to prevent your firm being used for committing fraud.

The Network has produced a comprehensive set of bulletins covering some of the key areas of fraud prevention. The bulletins can be found within Brokerzone and advisers should regularly ensure that their fraud prevention checks are robust and that they are alert to potential indicators of fraudulent activity.

The following provides a brief overview of the key target areas for mortgage fraud:

Occupation & Income Evidence

Over the past decade the quality of fraudulent documentation has vastly increased, making it very difficult for advisers to spot documents that are not genuine. At the same time as this increase in the quality of document fraud, lenders have gradually increased the number of documents that they either want to see themselves or that they expect advisers to have seen. Despite the increasing volume of documents that an adviser will invariably be obtaining it is vitally important that time is taken to carefully examine each and every document to be satisfied that they are genuine.

For example is the customer employed by a large firm (Tesco, Honda etc) but their employee number is number 1? Does the monthly income shown on the payslip correlate with the credits shown on the account? Are the bank statements concurrent and in a consistent numbering/style? Are there any unusual transactions? Do the customer outgoings look feasible for their profile?? Where a customer profile does not appear to match their stated salary or role then you should be prepared to enquire further.

Undisclosed Below Market Value (BMV)

Undisclosed Below Market Value (BMV) transactions are a significant risk across the Industry and it is

a concern in relation to fraud. Purchasing properties below market value is not in itself a problem,

however serious issues arise with regards to risk and reputation when transactions are not transparent

and full details not disclosed to the lender. Ask some searching questions and use common sense!

For example:

How did they source the property?

Is the property in the local area? If not, why are they buying out of area?

Have they viewed the property? If not, why not?

Who is the vendor?

Who is the contact for valuation? It would be unusual for this not to be the individual or the vendor.

Does the purchase price seem reasonable? Where applicable use your local knowledge of similar properties

With very few exceptions this type of business will come from an Introducer. Please refer to section 13.1 for additional guidance regarding Introducers.

Proof of Deposit

Lenders set Loan to Value (LTV) ratios to make sure clients have placed sufficient resources of their own into the property. This mitigates the risk that the borrower will ‘walk away’ when times are tough. To demonstrate the deposit has come from a legitimate source, proof of deposit should be requested for all residential and BTL mortgage sales. For example if the client has borrowed the

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deposit in the shape of a personal loan and misrepresented it to the lender as ‘savings’, they could be overcommitted. Further questions should be asked and the money traced back, if, for example the client’s bank account shows a large deposit from an unknown source. Refer to section 7.5 for full details.

BTL as residential or residential as BTL

Whether a BTL application is submitted as residential or residential as a BTL this exposes the lender to a different level of risk than it had intended. Take a common sense approach, for example the client is buying a residential property in a completely different area to that they live in. Are they re-locating, does this seem feasible? Or the client is living in a 1 bed flat and is purchasing a 4 bed house with a BTL mortgage. Is this reasonable?

For further guidance please refer to the Compliance bulletins that can be viewed on Brokerzone, or contact Compliance.

Reporting

If you have any concerns regarding the customer or their circumstances, such as the legitimacy of the information they are providing you with. Or if you have discovered any ‘breaches’, such as the late issue of a RWL then you must ensure that these are reported to the Compliance Department immediately. Failure to notify the Compliance Department or concerns of breaches could lead to further action being taken.

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9 Bribery, Hospitality & Gifts

The United Kingdom has adopted laws prohibiting the payment of bribes for the purpose of obtaining or retaining business opportunities in both the public and private sector. The guidance reflects the key provisions of the Bribery Act (“the Act”). The Act confirms bribing and being bribed as a criminal offence, punishable by fine or imprisonment.

These offences will apply where any individual requests/accepts/agrees an "advantage" of any kind, including any form of financial or other advantage (such as a benefit) which is intended to induce the "improper performance” of the recipient's functions, or to reward the recipient for such conduct.

We need to be satisfied that any expenditure on a gift, benefit or entertainment is properly authorised, appropriate and ethical.

Gifts, benefits and entertainment include (but are not limited to):

(i) A supplier (e.g. Lender) arranging and hosting an event where they have made payment to a third party (e.g. A hotel, ticket agency). Examples of this may include a black tie dinner hosted by a lender, a day in a provider’s corporate box at Wimbledon or an activity day

(ii) A supplier makes a gift direct to an AR. Examples of this would include Christmas gifts, bottles of champagne and hampers provided by a lender to an AR

(iii) A supplier making a payment to an AR, which they then pay to a 3rd party to provide an event. An example of this would be an AR arranging a sales conference

To clarify our Policy in this area, with immediate effect:

No prior approval is required by the Compliance Department in the following circumstances:

- Where cost per adviser is less than £100

- Any invite to an industry dinner

Prior approval required by Compliance Department

- Where cost per adviser is more than £100

- Note that events over £100 cost per adviser should be designed with a business element included

Some gifts/events are still unlikely to be approved by the Network, these will include:

- Events over £350 where the clear and predominant purpose for the event is not for business purposes

- More than 3 events/gifts, per adviser, in a rolling 12 month period from the same third party (this does include invites to industry dinners)

- Hospitality for any adviser with compliance/quality concerns

Regardless of whether prior approval is required all hospitality and gifts must be logged on an ARs gifts and hospitality register. The register can be found within the Compliance/Resources section of BrokerZone)

The policy applies to gifts from any 3rd party. If in any doubt about the receipt of a gift, entertainment or hospitality you should refer to the compliance department.

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10 Incentives

Following the FCA’s review of Rewards & Incentives it is now necessary for firm Principals to seek

approval from Compliance for all new competitions and incentive schemes offered to their advisers.

The main aim of this is to ensure that clients are not disadvantaged by the incentive, that the reward

promotes the right behaviours and does not encourage mis-selling. An Incentive Scheme Checklist

can be found at the end of this manual and also under the Compliance/Resources Section of

BrokerZone. Please ensure that a copy of this form is completed and sent to

[email protected] for approval prior to the incentive being promoted.

If you become aware that a member of staff/adviser has received an incentive that has not been approved this must be reported to the Compliance Department immediately. Failure to notify the Compliance Department could lead to further action being taken.

11 Handling Customer Money

Appointed Representatives are not permitted to handle customer money. All customer cheques in respect of valuation and administration fees must be made payable to the lender.

Breaches of these rules will be treated very seriously and are likely to result in an adviser and/or an Appointed Representative no longer being deemed fit and proper to give advice.

If you become aware that a member of staff/adviser has accepted customer monies this must be reported to the Compliance Department immediately. Failure to notify the Compliance Department could lead to further action being taken.

12 Holding Customer Assets

On occasions it may be necessary to retain customer assets (e.g. passport, driving licence or items such as utility bills and payslips) for a short period of time. When this is necessary firms must have in place a system to ensure that all assets are held securely and are returned to the customer in a timely and secure manner. Proof of return must be held on file in all cases.

All assets held overnight must be recorded in a Client Asset Register which details the asset held, the date it was received and the date it was dispatched. Registers can be obtained from BrokerZone. The Compliance Department will check the Appointed Representative’s register when compliance audits are conducted.

If you become aware that any customer asset has been lost this must be reported to the Compliance Department immediately. Failure to notify the Compliance Department could lead to further action being taken

mailto:[email protected]

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13 Referrals & Leads

Creating an Introducer relationship

If the Appointed Representative firm wishes to establish a relationship with a third party from which to receive business leads then they must firstly meet with the Introducer face to face. Once the adviser has satisfied themselves that they wish to proceed then the introducer checklist must be completed and sent to the Compliance Department. This is the case even for ‘related’ companies (E.g. Where the AR Principal may also own an estate agent) and applies even if no payments are made for introductions. In the interests of treating customers fairly and company reputation, the firm must undertake due diligence checks on the Third Party and be satisfied in a number of areas before proceeding. Once approval has been given from the Compliance Department then the introducer agreement must be signed by both parties and sent to the Compliance Department.

Introducer Agreements are mandatory for all relationships that are to be established (including ‘related’ companies), although it is not compulsory to use the Introducer Agreement forms provided by the Network. However, evidence of an agreement form, in any format or from whatever source, will also need to be sent to the Compliance Department before proceeding with any business.

Use of the “Introducer Checklist” will ensure that certain measures are checked and addressed and these include, where applicable, aspects such as:

Companies House

Consumer Credit Licence / Data Protection Licence

FCA Register

Data Protection policy

Marketing and awareness

It will not be acceptable to establish an agreement where the third party has failed the due diligence checks or where any concerns were not resolved with the Compliance Department.

The introducer’s role must be disclosed to the customer before the customer is referred to the adviser. Introducers must not receive any money directly from customers and any payment made to the introducer must be disclosed on the illustration.

NB. If at any stage of entering into an agreement with a third party you have concerns, doubts or queries you must always refer to the Compliance Department in the first instance for help and guidance.

Obligations to the customer

If a customer is referred to the AR firm the firm is responsible for any advice given and has an obligation to conduct a full advised sales process. The Introducer therefore is responsible for only completing tasks that are necessary in order to make the referral. Simply put,the Introducer must not complete a Fact Find, give advice or act as a conduit between the customer and the AR firm.

The customer’s details can only be provided to the AR firm with their permission and the Compliance/Resources section of BrokerZone includes an Express Request Form which can be utilised. Although use of this form is not mandatory the AR firm must seek confirmation from the Introducer that express consent has been given and recorded as such.

The Introducer has an obligation to the customer to make them aware of any fee, benefit or advantages that they may receive as a result of referring them to the AR firm. As per Section 1.5.1 the introducer must also be stated in any mortgage illustration which the customer receives from the AR firm.

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Non-mortgage and insurance referrals

Appointed Representatives are not able to give advice on investment products. If during the course of a sale, as a result of generic product discussions, a need is identified then the customer should be referred to a suitably qualified Financial Adviser.

Leads

It is not uncommon for leads to be purchased from marketing organisations and before this is undertaken approval must be sought from the Network. The Compliance Department will wish to be satisfied, with evidence, that express consent has been sought by the marketing company and given by the customer.

The AR firm must supply the Compliance Department with a summary of their service and details of the firm that they wish to purchase leads from, together with a completed introducer checklist. Once this has been approved then the Compliance Department will require a signed agreement. This can be produced using the template agreement form on BrokerZone, or can be a copy of the agreement produced by the lead generator.

Reporting

If you become aware that a member of staff/adviser has received leads that are not from an approved introducer you must report this to the Compliance Department immediately. Failure to notify the Compliance Department could lead to further action being taken.

14 Record Keeping

Records demonstrate evidence of compliance with various regulations and codes as well as providing useful management information. Records of advice provided and the suitability of that advice must be recorded within the point of sale system. However, in addition to individual suitability records the following items should also be maintained. This can be done on any suitable medium, including any systems provided by the Network but must be capable of being printed as hard copies when given reasonable notice to do so.

Copies of all business stationery approved and used

Records of current and terminated advisers.

Records of any complaints received (For larger firms a register available from Compliance Department).

Individual adviser records as required by the T&C Scheme.

Records of notifications to the Network.

Records of Customer Assets held (Register available from Compliance Department).

All records must be retained indefinitely and must only be disposed of with the express written permission of the Compliance Department.

Customer Files

Appointed Representatives must retain appropriate records of conversations, meetings and correspondence with their customers. They must ensure that copies of relevant documents supplied to a customer and all correspondence are retained in a customer record on the point of sale system. All records must be stored indefinitely unless permission is given by the Compliance Department for their removal.

Customer records must be stored in a secure manner, both physically and electronically, at all times and must be readily available if requested for review by the Network.

A checklist is available in the Guides & Library section of the point of sale system that can be used to confirm the documents that are required to ensure a comprehensive audit trail. The list is reproduced below but advisers are recommended to hold the checklist with all files. Please note

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that, with the exception of the final item, all documents are mandatory and must be stored on the Point of Sales system:

Disclosure Document or Terms of Business (TOB) – POS system

Fact Find– POS System

Decision in Principle agreement (or written authority to the same effect) where appropriate (signed and dated in advance of DIP being conducted)- Scanned and attached to the POS System

Copy of Fee Agreement (where appropriate) (signed and dated in advance of completed business) – POS System

Verification of Identity documents (certified and dated - Money Laundering) – Scanned and attached to POS system

Proof of address (certified and dated) – Scanned and attached to the POS System

Proof of income (certified and dated) – Scanned and attached to the POS System

Proof of Deposit (certified and dated) - Scanned and attached to the POS System

Research documentation to include Mortgage and/or Protection - POS system

Copy of Illustration for all recommendations – POS system

Copy of Application Form - Scanned and attached to the POS System

Any other copy documents, not already obtained, that have been requested on behalf of the lender or required to justify the recommendation for example: passports, driving licence, utility bills, P60, payslips, employer letters, bank statements, Inland Revenue letters, Home office correspondence etc. All copies must be certified as true copies, certified and dated - Scanned and attached to the POS System

Reason Why Letter (Mortgages & Insurance) – POS system

Copy of Mortgage Offer/Policy Schedule/Acceptance terms– Scanned and attached to the POS System

Signed Discontinued Plans form (where appropriate) – POS system

Provision of Information Checklist (optional) – Scanned and attached to the POS System

If the scanned copies are of a poor quality then you should adjust your settings and repeat the scanning

Complaints

If a complaint has been received it is necessary to hold copies of all related correspondence within the customers file.

New Business

There is no longer any need to hold a new business register as this information can be easily obtained with the reporting functions within the Key.

The report held within The Key under Reports>Queries can be printed or saved and used as an electronic new business register. Alternatively if you prefer a paper register can be obtained from the Compliance/Resources section of Broker Zone or you can maintain your own Excel Spread sheet.

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Reporting

If you become aware that any customer information has been lost this must be reported to the Compliance Department immediately. Failure to notify the Compliance Department could lead to further action being taken.

15 Treating Customers Fairly (TCF)

All firms and its employees are expected to be familiar with, and have embedded within their business, the FCA’s Treating Customers Fairly (TCF) initiative.

Firms are expected to be able to evidence that they regularly collate and analyse relevant management information (MI), where appropriate challenge data/trends and document findings/response to demonstrate they have embedded a culture of TCF within their business and treat their customers fairly. The Network TCF Policy brochure and ‘Guide for Appointed Representatives’ can be located under Broker Zone, Compliance/Resources and all ARs firms and staff should be fully familiar with the policy and what is expected of them.

To assist AR firms achieve their requirements under the TCF regime, the Network has made available a report to use for TCF purposes within the online point of sale system (“The Key”), which will provide accessible MI under a number of sub-headings. This can be found under Reports>Queries.

All AR firms are required to regularly collate and review management information relating to all areas of their business and the Network expects AR firms to conduct a TCF analysis of appropriate management information at least annually for 1-4 Adviser firms and bi-annually for 5+ Adviser firms.

16 Data Security & Business Continuity

Data Security

All Appointed Representative firms have an obligation to protect their customer’s personal

information. All firms must give due consideration to the following sections and assess

which areas need addressing in order to minimise any risk to customer data.

See Information Security Policy in the Compliance Resources section on Broker Zone for

additional information.

Customer Files

Customer files may be stored both physically and electronically and all AR firms have a duty to ensure that, whatever the medium, the data contained therein remains secure and protected.

Paper files should be kept in lockable (and where possible, fireproof) cabinets, which should be locked at the end of each working day. The keys should be kept separate from the cabinets, thus ensuring protection as far as is possible, from fire, theft etc.

Where firms store data electronically consideration must be given to where these files will reside, who will have access and how the data will be backed up. All AR firms are reminded that the Network has an obligation to ensure that the point of sale system, and all data contained within it, is securely backed up on a daily basis. This then means that if a firm fully utilise the point of sale system by attaching all supporting documentation to the customer record, the Network will ensure that this is backed up each day thereby reducing the responsibility that the firm and its advisers have in this area.

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Sensitive Information

All advisers must ensure that customer sensitive information, such as debit/credit card details, is not held for any longer than necessary. This means that as soon as this information is no longer required, it must be securely destroyed. It would not be expected that customer files, paper or electronic, would hold this type of data after completion of the case. It should be noted that application forms would show this information and as such this particular section must be ‘blanked out’ in order that information of this nature cannot be viewed. All AR firms must ensure there is a strict procedure in place whereby all staff dispose of this data appropriately and understand the reason for doing so.

Data on the move

Outside of the principal trading address the obligations to protect customer data continue and arguably become more important. Consideration must be given to how data is being transported – paperwork, laptop, disc etc, and how this can be kept safe.

Minimising the distance and locations that any customer data needs to travel is essential as well as ensuring that this data is kept out of sight and not, for instance, left in an unattended car in plain view.

Information itself is not just that which is written, printed or stored electronically; it is also that which can be transmitted physically and electronically (post and email) and also spoken in conversation. Care must be taken when posting and sending emails that the data is sent to the intended recipient and, although there may be little influence over the security of posted information, all advisers are encouraged to ensure that their emails are as secure as reasonably possible. Caution must also be exercised when discussing customer information in conversation, that sensitive information is not given unnecessarily to another within the conversation but that information is also not overheard by an unrelated party who could be a potential risk.

Technology

It is necessary for firms to ensure that all PCs and laptops used within the principal trading office are password protected. This would be an essential measure if the firm is based within a shared office or building but could also minimise the risk of accessing data held on such a system in the event of burglary or theft.

For laptops and movable devices, firms are encouraged to consider encrypting as much data as reasonably possible, especially if customer data is stored on the device outside of the point of sale system. This could, for instance, be by using encrypted hard-drives for laptops or encrypted back-up tapes.

The use of pen-drives is strongly discouraged as they have the potential to hold a wealth of data but their size means that they could be easily, although unintentionally, lost or misplaced. Encrypted pen-drives may be available on the market but AR firms are advised to exercise caution with this type of storage device all together and if used to store them safely.

Business Continuity

All firms must consider the impact on their business if it were to be affected by fire, flood, theft or sickness. Having some form of continuity plan in place is good business practice as it not only protects the customer, but it can minimise the potential financial loss for the firm.

All data stored within the point of sale system is held on the Network’s servers which means that all data that AR firms enter here will be backed up remotely and therefore protected. All firms must therefore consider the impact of losing any other data stored at the trading address(s) and how this can be backed-up or stored to minimise risk. Each firm will have their own priorities and so the Network cannot offer a mandatory plan. As an example, one measure that could be taken would be to scan and hold all customer files electronically and have this backed up remotely from the trading address – this would minimise the risk of losing all customer data held in paper format which cannot be replaced.

Should the principal place of business be unsuitable from which to conduct business due to burglary, flood, fire, storm etc., then all firms would do well to consider a procedure which ensures that all members of staff are informed and given their actions in order that the business can continue to operate as smoothly as possible, and possibly from an alternative location.

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Where firms put in place a Business Continuity Plan then this should be documented as a formal procedure with all staff having an understanding of their duties in the event of invoking the plan.

Locum arrangements

Firms with one adviser must give consideration to the requirement of locum arrangements in the event of the adviser’s absence, illness, disability or death. This ensures that any pending business and customer expectations can be met appropriately. Firms with only one adviser are encouraged to consider another member of the Network. Within larger firms internal resource may be able to deal with periods of absence but principals must ensure that internal procedures satisfy this area.

Where locum arrangements are put in place these will need to be made formal by way of an agreement, an example of which can be found within the Compliance/Resources section of BrokerZone. Ownership of all files must remain with the adviser and this must be agreed by the locum.

Reporting

If you become aware that any customer information has been lost this must be reported to the Compliance Department immediately. Failure to notify the Compliance Department could lead to further action being taken.

17 Appendix

The forms and declarations mentioned throughout the manual can be found within the Compliance/Resources of Brokerzone.

DIP Authority form (section 1.6)

Residential Interest Only Mortgage customer declaration (section 2.5)

File Checklist form (section 14.1)

Suspicious Transaction Report form (section 7.7)

Client Asset Register (section 12)

Customer Analysis Expenditure Form (section 1.3.2)

Fee Agreement (section 1.2.4)

Introducer Checklist – due diligence checks (section 11.1)

Introducer Agreement form (section 13.1)

Customer Express Consent form (section 13.2)

Hospitality Register (section 9)

Locum Arrangements Agreement form (section 16.2.1)

Discontinued Plans form (section 1.9.2)

Incentive Scheme/Competitions checklist (section 1)

Breach Reporting Form

Enhanced Due Diligence Policy

Potentially Vulnerable Customers Policy

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