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DPB Update Issue 8 - November 2012

DPB update is for firms that hold a DPB licence with ICAEW. We use the update to bring matters to the attention of DPB licensed firms, in particular to the DPB contact principal.

This issue contains important information on:

Appointing corporate principals

The Investment Business Committee (IBC) continues to hear about firms that are in breach of the DPB licensing requirements because they've appointed limited companies or LLPs as principals without their first obtaining DPB affiliate status.

These firms failed to tell ICAEW about changes of principal, something they're required to do under Regulation 2.07 of the DPB Handbook. We alerted firms to the need to notify ICAEW of any changes within 10 business days in Issue 7.

If you're considering appointing an LLP or limited company as a principal, they must first apply for DPB affiliate status, whether or not they will be trading. This also applies even if the entity is wholly owned by the principal and/or their spouse. This won’t, however, be necessary if the new corporate principal is already licensed or registered for audit work by an institute.

The IBC has issued regulatory charges with publicity to firms that have failed to take appropriate action over a prolonged period of time. If your firm is not complying with the requirements, you should act immediately to regularise the situation .

Affiliate status for spouses

Spouses who are to be principals in a licensed firm are required to apply for DPB affiliate status whether they have any active role in the firm or not.

Annual reviews

The Quality Assurance Department regularly identifies firms that are not undertaking an annual review of how they are complying with the requirements of the DPB Handbook. Regulation 4.04 of the handbook sets out this requirement and provides guidance on how to do the review.

The review must be carried out whether or not the firm believes it has conducted any regulated activities. You should also keep evidence that a review has been undertaken so that you can demonstrate that what you've done is appropriate. We've updated our helpsheet, DPB annual compliance review, designed to assist firms in completing the review; we've simplified the process and reduced the burden on firms.

Retail Distribution Review

The FSA’s Retail Distribution Review (RDR), which is a key part of its consumer protection strategy, comes into effect on 31 December 2012.

This does not affect firms licensed under the DPB arrangements. Under the terms of the RDR, authorised firms providing advice on retail investment products will have either 'independent' or 'restricted' status.

When a licensed firm makes introductions to a permitted third party, it must observe the independence and objectivity requirements of the Code of Ethics in addition to the DPB Handbook.

Section 241 of the Code of Ethics has been updated to reflect the new terminology used by the RDR and ICAEW’s Financial Services Faculty has produced FAQs on what is meant by ‘independent’ and ‘restricted’ and the impact this will have on the Code of Ethics.

Introductions to IFAs

An introduction to an independent financial adviser can amount to the regulated activity of ‘arranging’ under the Regulated Activities Order (RAO). This is where the client requires advice on an insurance contract and the firm passes the client’s details to the adviser. Such introductions can be made under a DPB licence. 

If the introduction is for independent advice on investments generally, this is likely to be exempt from 'arranging' under RAO Article 33.

Even if the firm doesn't mention to the adviser that the client requires advice on, for example, pensions or insurance, if there's any chance they might be sold a contract of insurance, the firm should follow the stricter requirements of Regulation 4.15.

If the introduction falls within RAO Article 33, this can be dealt with under the general requirements of Section 240 of the Code of Ethics.

If the IFA is responsible for disclosing the commission-sharing arrangement to clients, and if a regulated introduction has been made, the firm should make sure the letter complies with Regulation 4.15. Ultimately, it's the firm that's responsible for compliance with the relevant rules and it must have procedures that demonstrate that this has been correctly done by the IFA.

Statements of professional standing

From 1 January 2013, all independent financial advisers who give retail financial advice must have a Statement of Professional Standing (SPS) which shows they hold an approved qualification. Only an Accredited Body (AB) can issue an SPS.

ICAEW became an AB in January 2012 to provide this service for its members and associated professionals, the only accountancy body to be awarded this status. As a professional body, we want to be involved in raising standards in the financial services marketplace.

ICAEW’s AB scheme details, including regulations and an SPS application form, are available now.

The application process is straightforward. Once we receive an application, we assess it and, if it meets the criteria, we approve it. We send an email as soon as the application has been approved and the SPS certificate by email a few days later. Most applications are easy to verify and approve but, if there is any doubt over an individual's eligibility, the Investment Business Committee considers the application.

An SPS issued now is valid from 1 January to 31 December 2013 and everyone has the same renewal date. The cost is £100 which compares favourably with other ABs. ICAEW’s SPS holders can also join the ICAEW Financial Services Faculty at a discounted rate of £75.

We’ve kept our AB scheme and the issue and monitoring of SPSs simple. It’s primarily a service for those ICAEW members and member firms that provide retail financial advice; it helps them meet the new RDR requirements through their own professional body.

If you're interested in getting an SPS or want to find out more about the scheme, email sps@icaew.com or ring + 44 (0)1908 546 378.