Example 9 |
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Term extends beyond retirement age: example of failure to explain investment risks |
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Background |
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45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th anniversary. |
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It has always been the intention of the complainant to retire at state retirement age 65. |
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Term from date of sale to retirement is 20 years and the maturity date of the mortgage is five years after retirement. |
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In addition, an endowment does not meet the complainant's attitude to investment risk and a repayment mortgage would have been taken out if properly advised. |
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Established facts |
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Surrender value (on the 25 year policy) at time complaint assessed: |
£12,500 |
Capital repaid under repayment mortgage of term to retirement date (20 years): |
£21,000 |
Surrender value less capital repaid: |
(£8.500) |
Difference in outgoings (repayment - endowment): |
£5,400 |
Cost of converting from endowment mortgage to repayment mortgage: |
£200 |
Basis of compensation: |
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The surrender value of the (25 year term) endowment policy is compared to the capital that would have been repaid to date under a repayment mortgage arranged to repay the loan at retirement age, in this example, a repayment mortgage for a term of 20 years. The complainant has gained from lower outgoings of the endowment mortgage to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. The conversion costs are also taken into account in calculating the redress. |
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Redress generally |
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Loss from surrender value less capital repaid: |
(£8,500) |
Gain from total lower outgoings under endowment mortgage: |
£5,400 |
Cost of converting to a repayment mortgage: |
(£200) |
Net loss: |
(£3,300) |
Therefore total redress is: |
£3,300 |
Redress if it is unreasonable to take account of gain from lower outgoings |
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Loss from surrender value less capital repaid: |
(£8,500) |
Gain from total lower outgoings under endowment mortgage: |
Ignored |
Cost of converting to a repayment mortgage: |
(£8,700) |
Therefore total redress is: |
£8,700 |
Related provisions for SYSC 7.1.1
121 - 140 of 177 items.
4The processes that a firm should have in place in order to comply with DISP 1.3.3 R may include, taking into account the nature, scale and complexity of the firm's business including, in particular, the number of complaints the firm receives:(1) the collection of management information on the causes of complaints and the products and services complaints relate to, including information about complaints that are resolved by the firm by close of business on the business day following
(1) This chapter helps in achieving the regulatory objective of protecting consumers by laying down minimum standards for the investments that may be held by an authorised fund. In particular:(a) the proportion of transferable securities and derivatives that may be held by an authorised fund is restricted if those transferable securities and derivatives are not listed on an eligible market; the intention of this is to restrict investment in transferable securities or derivatives
The interim management report must include at least:(1) an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and(2) a description of the principal risks and uncertainties for the remaining six months of the financial year.[Note: article 5(4) of the TD]
If a firm chooses to make this presumption, then it should do so fairly and for all relevant complainants in a relevant category of sale. It should not, for example, only use the approach for those complainants it views as being a lower underwriting risk or those complainants who have cancelled their policies.
The FSAmay seek to vary a firm's Part IV permission on its own initiative
in certain situations including
the following:(1) If
the FSA determines
that a firm's management, business
or internal controls give rise
to material risks that are not fully addressed by its rules,
the FSAmay
seek to vary
the firm's Part
IV permission and impose an additional requirement or limitation on the firm.(2) If
a firm becomes or is to become
involved with new products or selling practices which
The Society must establish and maintain effective arrangements to monitor and manage risk arising from:(1) conflicts of interest (including in relation to (2) to (4));(2) inter-syndicate transactions, including reinsurance to close and approved reinsurance to close;(3) related party transactions; and(4) transactions between members and itself.
(1) The purposes of this section are to:(a) provide UK recognised bodies with guidance regarding the provisions of PIDA; and(b) Encourage UK recognised bodies to consider adopting and communicating to workers appropriate internal procedures for handling workers' concerns as part of an effective risk management system.(2) In this section "worker" includes, but is not limited to, an individual who has entered into a contract of employment.
(1) An authorised fund manager must, as frequently as necessary to ensure compliance with COLL 8.4.7 R (2) and COLL 8.4.7 R (4), re-calculate the amount of cover required in respect of derivatives and forwards positions in existence under this chapter.(2) Derivatives and forwards positions may be retained in the scheme property only so long as they remain covered globally under COLL 8.4.7 R.(3) An authorised fund manager must use a risk management process enabling it to monitor
Business and internal control risks vary from firm to firm, according to the nature and complexity of the business. The FSA's assessment of these risks is reflected in how its rules apply to different categories of firm as well as in the use of its other regulatory tools. One of the tools the FSA has available is to give a firm individual guidance on the application of the requirements or standards under the regulatory system in the firm's particular circumstances.
A firm may attribute an exposure value of zero for CCR to a securities financing transaction or to any other exposures in respect of that transaction (but excluding an exposure arising from collateral held to mitigate losses in the event of the default of other participants in the central counterparty's arrangements) which is outstanding with a central counterparty and has not been rejected by the central counterparty.[Note: BCD Annex III Part 2 point 6 in respect of SFTs]
The rules in this chapter are designed primarily to restrict the commingling of client and the firm's assets and minimise the risk of the client'ssafe custody assets2
being used by the firm without the client's agreement or contrary to the client's wishes, or being treated as the firm's assets in the event of its insolvency.2