Govt more than £600m behind tax avoidance targets

Government measures to clamp down on tax avoidance are bringing in £615m less than originally forecast, according to an analysis from the Office for Budget Responsibility.

In an investigation of successive measures to clampdown on avoidance introduced since 2010, the OBR found that none of the plans had brought in more than expected, with many falling below targets.

Reviewing 39 announced changes introduced by the Conservatives since they first entered power in 2010, the OBR said: “Most measures are within £50 million of the original estimate either way, but that there have been five measures where the average yield is lower by more than £50 million a year.

“No measures have significantly outperformed the original costing.”

18 of the 39 measures were found to be yielding less than expected, producing a total shortfall of £834m, while 10 were exceeding forecasts by £219m, resulting in an annual overall shortfall of £615m.

In particular, the OBR found that plans to raise revenues through new disclosure facilities for Crown dependencies in Jersey, Guernsey and the Isle of Man would now raise around 20 per cent less than expected, equivalent to £50m a year.

Similarly, while a 2010 plan to reduce fraud and error in tax credits was expected to raise £350m, the OBR said it was instead generating savings of £200m.

And a crackdown on onshore employment intermediaries has also yielded £300m less than expected in the last two years, although the OBR adds this is expected to improve from 2016/17.

In his most recent Budget, the Chancellor promised to devote money raised from efficiencies at HMRC to further avoidance measures.

The analysis comes months after the Institute for Fiscal Studies accused the Conservatives, Labour and Lib Dem parties of using “made up assumptions” for increased revenue from avoidance clampdowns as part of their election campaigns.

A Treasury spokesman could not be reached for comment.

The biggest FCA fines of 2015

The FCA imposed a total of £905,219,078 in fines in 2014 against 39 firms. The level of penalties marks a 38 per cent fall on the £1.4bn issued in fines in 2014.

Banks continued to pay the price for foreign exchange failings, as well as manipulating Libor rates.

Issues around complaint handling related to missold payment protection insurance also saw record fines.

But it was not just the banks that got hit, with major fund groups also paying the price for regulatory failings.

Here is our breakdown of the biggest FCA enforcement cases this year.

10. Ex-hedge fund chief executive Alberto Micalizzi – £2.7m

Former hedge fund Dynamic Decisions Capital Management chief executive Alberto Micalizzi is the only individual to have a multi-million pound fine issued against him this year.

He was banned and fined in July after appealing the decision against him.

The Dynamic Decisions fund was marketed as having a low risk, highly liquid strategy. But in the last few months of 2008 during the financial crisis the fund suffered massive losses amounting to approximately 85 per cent of its value.

Micalizzi sought to conceal these losses from investors by deliberately misrepresenting the fund’s value.

9. Threadneedle – £6m

Threadneedle Asset Management was fined over £6m earlier this month over failing to put in place adequate controls in its fixed income business.

The failings allowed a fund manger on the emerging markets debt desk to initiate, execute and book a $150m trade which, had it settled, could have caused a $110m loss to the relevant client funds.

Threadneedle also failed to provide accurate information to the regulator and failed to correct this for four months.

8. Merrill Lynch International – £13.3m

In April the FCA imposed its highest fine for transaction reporting failures on Merrill Lynch International.

The firm incorrectly reported over 35 million transactions, and failed to report a further 121,387 transactions for seven years.

Merril Lynch was privately warned about its misconduct in 2002, and fined £150,000 in 2006.

7. Aviva Investors – £17.6m

Aviva Investors Global Services was fined £17.6m in February for failing to manage conflicts of interest.

A total of £132m has been paid in compensation to eight affected funds to ensure none of the funds were adversely impacted.

The regulator found that Aviva Investors operated systems which were open to abuse and allowed traders to “cherry pick” funds which paid higher performance fees.

6. Clydesdale Bank – £20.7m

Clydesdale Bank was hit with a £20.7m fine in April over the way it handled payment protection insurance complaints.

The failings date back to mid-2011 when the bank’s policies meant that complaint handlers did not search for documents in relation to mortgages and loans repaid more than seven years prior to the complaint.

But in some cases relevant documents were available.

Between May 2012 and June 2013, Clydesdale also provided false information to the Financial Ombudsman Service in response to requests for evidence of the bank’s PPI records.

5. Barclays – £72m

In November the FCA issued its largest ever fine for financial crime failings against Barclays.

The bank agreed a £1.9bn transaction for ultra high-net-worth clients in 2011 and 2012.

The transaction was dubbed the “elephant deal” internally, and netted the bank £52.3m.

4. Lloyds Banking Group – £117m

The regulator imposed its largest ever retail penalty in June after Lloyds failed to properly handle PPI complaints.

The bank’s staff were told to assume its sales processes were compliant and robust, which led to complaint handlers unfairly rejecting cases or failing to fully investigate them.

As a result Lloyds reviewed or chose automatically to uphold around 1.2 million PPI complaints, and set aside £710m for redress.

3. BNY Mellon – £126m

Bank of New York Mellon was fined £126m in April for failing to comply with client money rules.

Firms are required to keep records of client accounts and state which division the client monies relate to. Instead BNY Mellon used global platforms to manage custody of assets.

Following the Lehman Brothers collapse in 2008, the FSA required chief executives to confirm they complied with the client money rules.

2. Deutsche Bank – £227m

The FCA fined Deutsche Bank in April for manipulating Libor and Euribor. Combined with fines imposed by US regulators, the total penalties against Deutsche Bnk were £1.7bn.

The FCA revealed a number of incriminating messages between traders, including one request to a Libor submitter which said a low fix “would be the best xmas present”.

1. Barclays – £284m

The second appearance for Barclays, the bank was fined £284.4m after traders used chat room to manipulate foreign exchange rates.

The penalty was the largest every imposed by either the FCA or FSA.

After reaching settlements with US regulators, the bank paid a total of £1.5bn in fines.

Certain groups of traders described themselves as “the players”, “the 3 musketeers”, and said “we all die together”.

MAS slashes marketing budget; unveils plans for ‘assisted digital’ guidance service

The Money Advice Service plans to slash its marketing budget for next year by more than 50 per cent as it sets out its response to the Farnish Review.

The MAS has today published a consultation on its business plan for 2016/17. The plan outlines proposals to cuts its total budget by £6m, from £81.1m to £75.1m.

The ‘money guidance’ budget will be reduced by £4m, from £34.1m to £30.1m, while the debt advice budget will fall by £2m, from £47m to £45m.

The biggest spending reduction comes through marketing, which will be slashed by 55 per cent from £8.8m to £4m. It will be the second year in a row the marketing spend has been drastically reduced.

The MAS has also confirmed it has ceased “all dedicated brand building marketing”.

“Instead, customer communications will seek to co-ordinate partners,” the MAS says.

“This co-ordination will address social norms about spending and saving; and topical money issues that can engage consumers with their money.

“We will particularly focus piloting, testing and learning on segments that are disengaged from managing their money.”

One idea the MAS has piloted is an “assisted digital” service that combines website information with telephone support, without straying into regulated advice.

The MAS says: “After customers have read complex information on financial guidance websites about products, some of those customers may still need support that reduces confusion and helps them to take action.

“Thanks to the interest and involvement of moneysavingexpert.com, we ran a pilot for six weeks of just such a service. An invitation to call a dedicated Money Advice Service helpline was embedded at key points in moneysavingexpert.com pages dedicated to helping consumers choose basic bank accounts, cash Isas, savings accounts and credit card
balance transfers.

“The pilot showed that there was a low but focused demand, and that we could meet the customer need without straying into regulated advice.

“We are reviewing the pilot results in the light of our budget for next year. But we think an operational version of this service, offered to financial guidance websites that aim to educate and inform consumers about product choice, could be a promising way of bringing the support offered by a helpline to customers that need it.”

In addition, the MAS has embedded a new strategic objective – ‘Improving access to guidance and advice’ – in its business plan.

The pledge means that over the next three years the MAS will work to “enable more people to access the right information, advice or guidance when making financial decisions”.

The Treasury is currently consulting on how public financial guidance should be structured and funded. The consultation is running alongside the Financial Advice Market review.

In its response, published yesterday, Apfa called for the Money Advice Service, The Pensions Advisory Service and Pension Wise to be merged.

CML elects new chairman

The Council of Mortgage Lenders has appointed Leeds Building Society chief executive Peter Hill as chairman for 2016.

Hill succeeds Royal Bank of Scotland’s Moray McDonald, who held the role at the trade body during 2015.

Hill says: “We are set for another big year in the mortgage industry. The Mortgage Credit Directive takes effect from the end of March; the Financial Conduct Authority is embarking on an examination of competition in the mortgage market; significant tax and likely regulatory changes are being introduced in the buy-to-let sector.

“And we are determined to keep up momentum on our collaborative approaches to improve retirement lending and mortgage cost transparency; these have great potential to benefit both consumers and lenders.

“Against this busy backdrop, we are also working through the ramifications of a potential merger with other trade bodies, as proposed by the Financial Trade Associations Review. This is a significant decision for the CML, on which our members will vote in the first quarter of 2016.

“As incoming chairman, my dual aims for the year are to ensure that any organisational change does not detract or distract from our normal focus on services and representation in the short term, and that any change is for the benefit of all CML members in the long term.

“I am grateful to Moray McDonald for steering the CML through this landscape so far, being mindful of the needs of members of all sizes, types and different business interests.”

Govt casts its shadow over the FCA

2015 was the year the Government cast a looming shadow over the FCA, from dictating the regulator’s workload to ousting its senior management.

The controlling hand of Government in regulatory affairs was made abundantly clear in July when it was announced that FCA chief executive Martin Wheatley would be stepping down. A statement from Chancellor George Osborne thanked Wheatley for his tenure but added: “The Government believes different leadership is required to build on those foundations and take the organisation to the next stage of its development.”

Independent regulatory consultant Richard Hobbs says: “The Government has fallen very much out of love with its regulator, and as a result there are going to be significant changes. It seems like the banking lobby is finally being listened to.”

The Government also set the tone on the FCA’s priorities. Following the rollout of pension freedoms in April, the FCA was charged with putting in place a framework to govern Osborne’s flagship reforms.

In July, Money Marketing revealed the types of pension freedoms complaints consumers were bringing to the Financial Ombudsman Service. Complaints mainly centred around the way providers were allowing consumers to access pension freedoms, poor service and delays and frustrations over the requirement to take advice for safeguarded benefits worth more than £30,000.

But the dominant issue has been insistent clients. Advisers have been concerned about future liabilities should they process a transfer despite advice not to do so, and the FCA was forced to issue guidance on dealing with insistent clients in June.

But law firm DWF partner Harriet Quiney is not convinced the insistent clients challenge has been resolved.

She says: “There is more clarity than there was but a lot of people are still concerned about what to do if an insistent client approaches them. A lot of networks have taken the view they will not advise insistent clients because it’s just too risky. They don’t feel confident that if they give appropriate advice, but ultimately do what the client wants, that they will be protected in the long run.”

The disquiet over insistent clients and pension transfers has also extended beyond the advice market to Sipp providers. In May, Money Marketing reported how Sipp providers were coming under increasing pressure to intervene on pension transfer advice, and block transfers out of defined benefit schemes that are not in clients’ best interests. The contested case of Berkeley Burke, in which the Financial Ombudsman Service found the provider had failed to carry out adequate due diligence on an unregulated collective investment scheme, continues to be reviewed by the FOS.

Quiney says: “There is a big concern around how the FOS seems to be forcing obligations on Sipp providers. For a Sipp provider to be told they should have told a client an investment was unsuitable is frankly ridiculous.”

EY senior adviser Malcolm Kerr says: “2015 revealed a major challenge for the regulator: ‘how do you regulate the unregulated?’ For example, Sipps, where the data is around the wrapper not the unregulated product. Or pension freedom scams. Or, dare I say it, leveraged film finance investments.

“Add these issues to the concerns raised by the wealth management thematic review, and many other ongoing inquiries, and 2016 will see lights burning in the windows late at night at the FCA.”

Expert view: Richard Hobbs

Despite the fact there has not been a change of Prime Minister or Chancellor, we have had a change of Government at the general election. It became clear it was the Lib Dems who were driving a lot of financial services public policy, such as banker bashing, and it’s people like Vince Cable who were keeping Martin Wheatley in a job.

Our politicians play a rather sophisticated game. They create arm’s length regulators so they do not get the blame when things go wrong. But when things do go wrong and they think the regulator is at fault, they quickly start to influence the agenda. If you do not dance to the Government’s tune, as happened with Wheatley, then you will quickly find yourself dumped.

The mood music has changed, both at a UK and European level, and now the conversation is not about more regulation, it’s about potentially having too much.

Whether there is significant deregulation or not remains to be seen, but it looks like the high tide mark for regulation has been passed.

Richard Hobbs is an independent regulatory consultant

Robert Reid: Large firms should not receive special FCA treatment

The news that consolidators are under the microscope is long overdue. The number of times I have been told of an acquisition triggering a mass transfer of assets where ongoing charges increase with no corresponding increase in services is far too common to be apocryphal.

Just how this works as suitable advice I have no idea.

But should it surprise us when we operate in a market that has been remuneration focused for so long? People talk glibly about being client focused but few really practice it given their wish to avoid any discussion over fees or costs versus services delivered.

Then there is the issue of moving assets from one platform to another when you take over a client whose previous advice included investments.

If the money is moving Sipp to Sipp or Isa to Isa it is of no issue but where it is a general investment account or an investment bond then its movement will be restricted by the taxation due on its liquidation.

I would be shocked if those using these “locked in” portfolios have ever explained their taxation-led illiquidity when confirming them as suitable. In my opinion, there is little difference between locking people in and taking less than transparent or obvious charges. Both are as far away from treating customers fairly as you can get.

So the FCA needs to act and make sure that size does not mean special treatment. Just because a corporate business model needs cash flow from inaction to survive does not mean it is right for them to act like Vikings pillaging with no fear of being exposed or called to account.

When he was FCA chief executive Martin Wheatley stated he favoured fixed fees over those linked to value and contingent on sale of product. I do think he is partly right: we need to be paid for what we do but we also need some element of risk premium. A mix, not a swap, is where I sit in this discussion about change.

The last generation thought the banks could do no wrong. Regrettably, the banks were not interested in looking after them until they had safeguarded their profits, as their focus had never ever been on client outcomes.

In order to make this step change, the general public needs to understand that they need advice. They also need to realise that, while robo-advice may reduce costs, it sure as hell will not hold their hand when the market drops. We need to engage them then educate them if we are truly to move to a client-centric market. Indeed, there is little point in changing the market if we do not take the public with us.

In closing, next year sees me having completed 15 years as a columnist with Money Marketing. In my first column of 2016 I intend to look back to the start to see what, if anything, has changed.

May I wish us all a lighter regulated year to come – if not from rules, at least from demands for fees and so on. Best wishes to you and yours for the festive season.

Robert Reid is director at The Ideas Lab

Ascentric delays £4m tech upgrade

Ascentric is delaying the launch of its £3.9m technology upgrade until next year to conduct more tests on the software.

The technology, called Project Accelerator and provided by Bravura, was originally due to be launched in September 2015, then in October 2014 the date of the launch was postponed to the end of 2015.

Ascentric, which is owned by Royal London, will delay the launch to test the software “properly” before advisers access it, says a Royal London spokesperson.

However, the firm has not set a deadline for the launch of Accelerator.

Ascentric chief executive Jon Taylor says: “We have delayed Accelerator into next year to ensure we carry out a robust testing programme before going live.

“We are keen to ensure we deliver the best quality platform for our customers with the high standard of service they expect.”

Ascentric is the 11th-largest platform in the UK by assets under administration, with £9.6bn as at 30 June.