This month’s key regulatory and compliance-related developments in private banking and wealth management.
FCA tightens grip on asset managers
The UK’s Financial Conduct Authority (FCA) has introduced new rules to ensure that fund managers act in the best interest of investors. The new rules, which are expected to be rolled out over the next 12-18 months, require managers to assess their funds’ value against certain prescribed elements every year, and be accountable on how they deliver value.
For the assessment, managers will have to consider charges for the service and its quality. The new rules also require managers to appoint at least two independent directors to their boards. At the same time, managers will have to improve the transparency on how they profit from investors, and support the transition of investors into cheaper fund versions.
The FCA’s executive director of strategy and competition, Christopher Woolard, commented: “The investment choices open to people, and the decisions they make on how to invest, can have a profound impact on their financial health.”
Barclays fined $2bn for sale of toxic securities
Barclays Capital has agreed to pay a fine of around $2bn to the US Department of Justice (DoJ) to settle allegations of fraud in underwriting and issuance of residential mortgage-backed securities (RMBS) before the financial crisis. The settlement follows a three-year probe that alleged the company caused billions of dollars in losses to investors by fraudulently selling 36 RMBS deals worth over $31bn between 2005 and 2007.
The civil complaint, filed in December 2016, also accused the company of misleading investors about the quality of the mortgages backing the deals.
US attorney Richard Donoghue said: “This settlement reflects the ongoing commitment of the Department of Justice, and this Office, to hold banks and other entities and individuals accountable for their fraudulent conduct.
Donoghue added: “The substantial penalty Barclays and its executives have agreed to pay is an important step in recognising the harm that was caused to the national economy and to investors in RMBS.”
The DoJ also agreed a $2m settlement with two former Barclays executives – Paul Menefee and John Carroll – over their roles in the sales of RMBS. Menefee was lead banker in the company’s subprime RMBS securitisation division, while Carroll was head trader for subprime loan acquisitions.
UBS to pay $230m fine for toxic securities sale in New York
UBS has reached a $230m settlement with the state of New York to resolve allegations of misleading investors over marketing and sale of residential mortgage-backed securities (RMBS) before the financial crisis.
The bank will pay $189m in consumer relief for affected New Yorkers, in addition to a payment of $41m in cash to the state. The settlement includes 15 securitisations offered by UBS from 2006 to 2007, worth over $10bn.
UBS was accused of selling RMBS to investors based on inaccurate statements, and failing to adhere to underwriting guidelines or applicable laws in this regard. The bank was also accused of ignoring the advice of its diligence vendors who detected that it had sold loans that did not meet underwriting guidelines.
New York attorney general Eric Schneiderman commented: “Today’s settlement marks another key step forward as New Yorkers rebuild their lives and communities. The dollars we’ve secured have funded critical housing programmes across New York – and this settlement means even more community revitalisation work in the years to come.”
In a separate move, UBS Securities Asia was fined HK$4.5m by the Hong Kong Securities and Futures Commission (SFC) for failing to implement effective controls during client trading activities. The regulator alleged that the business did not put sufficient controls in place to record transactions and client consents, as well as failing to provide complete data related to client facilitation trades.
Notably, the business was only found to have provided SFC client consent records for almost half of the client-facilitation trades between June 2015 and June 2016. In deciding the fine, SFC considered the firm’s co-operation in the matter and its remedial measures, such as launching a supervisory review to ensure the adequacy of client consents.
Hargreaves Lansdown emerges victorious in tax battle with HMRC
UK wealth manger Hargreaves Lansdown has won a tax tribunal appeal against HM Revenue & Customs (HMRC) over tax charged on loyalty bonuses paid to investors. Fifteen years ago, the wealth manager launched a loyalty bonus that enabled investors to receive discounts against ongoing annual management charges.
Loyalty bonuses were deemed to be non-taxable at that time by HMRC. However, in April 2013, HMRC said loyalty bonuses paid on funds outside ISAs or SIPPs would be taxed – a decision that Hargreaves Lansdown challenged.
The wealth manager expects the decision to help return at least £15m to nearly 150,000 investors, with HMRC having two months to appeal against the move.
Hargreaves Lansdown CEO Chris Hill said: “We saw the ‘discount tax’ which HMRC introduced in 2013 as an unwarranted attack on private investors, so we launched a legal challenge, and I am delighted that the tax tribunal has supported our view.”