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4 May 2007

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FSA good practice guide: ensuring TCF in Cascade underwriting systems

The FSA has published on its website examples of good practice for ensuring Treating Customers Fairly (TCF) in Cascade underwriting systems used by mortgage firms. To help firms in making their own decisions, the FSA has highlighted the following examples that the FSA found in its dealings with mortgage advisers. They tended to:

  • be aware of exactly how the cascade system operated before placing business with the lender;
  • undertake further product research to make sure any product changes resulting from the cascade were still the most suitable for the customer;
  • be transparent throughout the cascading process so that the customer is made aware of any changes to the product offering;
  • fully understand sub prime customer’s credit status before making a recommendation; and
  • record evidence to show that the recommendation was the most suitable at the time.

A copy of the article is available at [http://tinyurl.com/ypsr38].


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FSA consults on conduct of business regime: non-MiFID deferred matters

The FSA has published a consultation paper entitled “Conduct of Business regime: non-MiFID deferred matters (including proposals for Telephone Recording)” which sets out its proposals for reforming the remaining elements of the Conduct of Business (COB) regime which are not required to be changed by the Markets in Financial Instruments Directive (MiFID).

The consultation paper deals with the following:

  • Part I – Specialist Regimes and additional topics from Annex 5 of CP06/19 (Daily News 1 November 2006 [http://tinyurl.com/26xqfv]);
  • Part II – Other non-MiFID topics (including projections and charges; financial promotion); and
  • Part III – Other related topics (including telephone recording and client assets).

The main proposals are as follows:

  • Specialist Regimes – The FSA proposes to carry forward the Specialist Regimes in COB with two modifications: (1) updating the applications, exemptions and modifications in line with the NEWCOB rules and MiFID terminology, and (2) removing some rules deemed unnecessary in a principles-based environment.
  • Additional Topics – on best execution, order handling, client limit orders and client order record keeping, the FSA is generally proposing to apply MiFID provisions but with additional flexibility for certain non-MiFID firms. On investment research, the FSA intends to apply MiFID requirements to firms outside the scope of the Directive. MiFID terminology will be used for client categorisation of wholesale non-MiFID business with appropriate modifications of definitions and grandfathering. These proposals reopen certain issues discussed in CP06/19 in relation to non-MiFID firms and business.
  • Projections and charges for non-MiFID packaged product business – The FSA is reorganising and improving the presentation of its point of sale disclosure requirements.
  • Financial promotion – Minor changes are proposed in the following areas: (1) promotion of unregulated collective investment schemes; (2) exemption available to authorised professional firms when communicating certain financial promotions; and (3) a transitional provision for non-MiFID financial promotions with a long shelf life.
  • Telephone recording – The FSA is proposing that firms be required to record telephone lines used for voice conversations involving the receipt of client orders and the negotiating, agreeing and arranging of transactions across the equity, bond and financial commodity and derivatives markets and that electronic communications relevant to these activities should be retained.
  • Client assets – Changes are proposed in relation to: (1) requirements concerning the Commodity Futures Trading Commission; and (2) the application of CASS 6 and 7 to third country investment firms carrying on equivalent business to MiFID business.

A copy of this paper is available at [http://tinyurl.com/ys7sk8] and the related newsletter at [http://tinyurl.com/2z7ggy].


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