The need for effective broker checks within the financial services industry

The financial industry is evolving rapidly – with the advent of Open Banking and advanced Fintech solutions presenting many more sales opportunities to brokers and Independent Financial Advisers (IFA). In addition, we are seeing thousands of new entrants to the enabler communities since the introduction of sweeping reforms to financial and insurance regulations.

As well as opportunities, this presents challenges. Many providers are still reliant on paper based or spread sheet systems to screen and validate their network of enablers, to ensure that they are appropriately qualified and compliant. This poses significant organisational challenges when managing the workflow involved inbringing new enablers safely on board.

How can the industry make these processes simpler, faster and more efficient? A major provider has trialled and launched an IFA and Broker Boarding Solution which is delivering instant results – saving time and money and reducing risk.

Providers need to board new IFAs and brokers quickly and efficiently, with as little friction in the process as possible, and provide them with the best business terms for both parties in order to continue to grow their market share.

The Challenges

With so many changes in the world of financial services and insurance – from the opening up of opportunities for new providers and brokers through the Open Banking Standard, to the digital transformation we are seeing that is impacting organisations and changes enforced in the GDPR – traditional systems of screening candidates for pensions, life insurance, mortgages and other financial services enabler panels, are being stretched to the limit.

Providers need to board new IFAs and brokers quickly and efficiently, with as little friction in the process as possible, and provide them with the best business terms for both parties in order to continue to grow their market share. That’s particularly critical at this time of change, where demand is increasing rapidly and old ways of working are becoming outdated.

Many of the screening systems are not designed to cope with the high numbers of new entrants.

Outdated systems cause problems

Currently there are largely only time consuming and manual screening processes in place for brokers and IFAs, all of which slow down the boarding process. Some are even paper-based, and many require extensive cross referencing of various data sources using spreadsheets. It is a costly way of working.

In addition, many of the screening systems are not designed to cope with the high numbers of new entrants – or the growing problem of candidates without the right qualifications to be compliant, or who are not who and what they claim to be.

Your internal controls effectively monitor and manage your firm’s compliance with anti-money-laundering (AML) policies and procedures.

Compliance and regulatory requirements

The Financial Conduct Authority (FCA) states in its report on financial crime¹ that:

“Firms must satisfy us that they have robust governance, effective risk procedures and adequate internal control mechanisms to manage their financial crime risk. Some firms will also have further obligations placed on them by law.

By using effective systems and controls, your firm can detect, prevent and deter financial crime."

Senior management should take clear responsibility for managing financial crime risks and be actively engaged in addressing these risks.

Subsequent to that report, the FCA’s paper on money laundering and terrorist fraud² added: 

“The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 require you to apply risk-based customer due diligence measures and take other steps to prevent your services from being used for money laundering or terrorist financing.

We require all authorised firms subject to the Money Laundering Regulations to meet additional but complementary regulatory obligation to apply policies and procedures to minimise their money laundering risk.

Your internal controls effectively monitor and manage your firm’s compliance with anti-money-laundering (AML) policies and procedures."

...apply risk-based customer due diligence measures and take other steps to prevent your services from being used for money laundering or terrorist financing.

On the subject of brokers it states:

“Although mortgage brokers, general insurers and general insurance brokers are not subject to our AML rules and the Money Laundering Regulations, they still need systems and controls to prevent financial crime. They are also subject to the Proceeds of Crime Act 2002."

Compliance with regulatory requirements can be a significant problem if the wrong candidates become accepted – leading to fines from the appropriate bodies and the risk of reputational damage.

Fines and reputational damage

Six pension companies with funds of £21 million have been wound up by the High Court after an investigation found a misuse of funds. A lack of proper due diligence when vetting their IFA’s also made it ‘impossible’ for investigators to find out the full extent of the ‘companies’ activities, the nature and value of the investments made or the value of the members’ pension funds.³

"An insurance agent who sold fictitious life insurance policies to pocket thousands in commission payments has been handed a 12 month suspended sentence, ordered to carry out 120 hours of unpaid work and pay almost £7,000 in compensation.

As an agent working for an insurance broker, the defendant should have known better than to think this would go unnoticed."

These examples show that non-compliance with regulatory requirements and ineffective applicant screening can cause significant problems and lead to the wrong candidates being accepted as brokers. This can lead to fines from the appropriate bodies and the risk of reputational damage. No provider will want to be associated with negative press about their services and choice of agents.

Exposure to risk and potential fraud

Across the whole financial sector, fraudsters are seizing on the new opportunities presented by the changes in the way products are offered and managed.

Some are targeting unsuspecting clients looking at new ways to use their pension pots, or exploit vulnerable customers purchasing life insurance and other products. Others are exploiting confusion over workplace pensions and the opening out of the market with Open Banking and the accessibility of consumer and product data.

Boarding new and previously unknown IFA’s comes with an inherent risk to the business in terms of potential exposure to fraud.

Stories abound of policies being incepted on non-existent customers, non-payment of premiums, mis-selling and more stemming from rogue IFA’s interested in making short term fraud gains across multiple providers before disappearing with the funds.

"Non-compliance with regulatory requirements and ineffective applicant screening can lead to fines and reputational damage."

As with the other financial sector reforms, it presents many opportunities and benefits – but also challenges, with heightened risk of fraud and non-compliance through rogue intermediaries.

The need for a faster, more efficient and effective system

Even where the vetting process is successful in preventing undesirable candidates from getting through, the time spent weeding them out slows the whole system down. This causes delays for the genuine and compliant candidates that companies need to bring on board as they seek to optimise the benefits of the new opportunities presented by the evolving market.

"In response to these challenges, one major provider has led the way in introducing a fast and efficient way to screen applicants at the point of boarding. It instantly covers all potential new IFAs and brokers in ‘real-time’ – with a system which reduces potential exposure to fraud and risk to their business, whilst also speeding the whole process up for all candidates."

Figures drawn from regulatory returns show 5,270 financial advice firms had at least one staff member advising on retail investments, with a total of 25,951 advisers recorded as at the end of November 2017.

These intermediaries will typically be selling pension, insurance and mortgage products with many more seeking to enter the market. So how can you be sure they are fully compliant and risk free?

The Proceeds of Crime Act and the impact on mortgage brokers, general insurers and brokers

The Proceeds of Crime Act (2002) deals with a wide range of matters relevant to UK law on proceeds of crime issues. These include confiscation orders against convicted individuals (requiring payment to the State based upon the benefit obtained from their crimes), civil recovery of proceeds of crime from unconvicted individuals, taxation of profits generated from crime, UK anti-money laundering legislation, powers of investigation into suspected proceeds of crime offences, and international co-operation by UK law enforcement agencies against money laundering. So how does this legislation and other regulations impact brokers, and what challenges do these present in terms of financial service providers screening and vetting potential brokers, to ensure they do not financially ruin their business?

Pension reform, workplace pensions and the increase of IFA and broker entrants

The Pensions Act of 2008 saw the introduction auto-enrolment for Workplace Pensions, designed to give people who may not otherwise have a pension pot a start in making provision for their retirement. Then, in 2014, Chancellor George Osborne announced the most radical overhaul of the pensions system in nearly a century, with freedom for the pension saver at its core. Mr Osborne said the reforms would allow individuals who have built up a lump sum in a defined contribution, or money purchase, pension to take the funds as cash, draw them down over time, or buy an annuity. These reforms have of course, brought many new IFA and broker entrants into the market, as individuals seek to explore these new freedoms in how they manage their pensions. How can you ensure that the intermediaries you engage with are compliant?

Open Banking and the impact on selling mortgages, investments, loans and insurance

With Open Banking, data historically held by banks can be securely shared or published and used to build resources which answer people’s needs and wishes in a digitally-driven modern consumer environment. Customers will find it easier to access services like mortgages, investments, loans and insurance, and compare products and services. FCA approved providers will be able to offer the right product to the right customers and offer better, tailored rates for loans.

As with the other financial sector reforms, it presents many opportunities and benefits – but also challenges, with heightened risk of fraud and non-compliance through rogue intermediaries.

Not only does IFA and Broker Screening identify risk candidates but valid candidates can be cleared instantly – speeding up the boarding process.

The solution:

Introducing SIRA Real-time IFA and Broker Screening at the point of boarding

SIRA is a comprehensive fraud and risk prevention and candidate verification solution from Synectics Solutions. It is already successfully deployed in a large number of insurance and financial service companies throughout the world, and is now being introduced to organisations that sell their products and services via brokers and IFAs.

The system brings together a multitude of machine learning algorithms and comprehensive workflow management to put real control into the hands of front line teams.

IFA and Broker Boarding Screening has already been trialled and deployed by one of the UK’s leading financial services providers, in response to the challenges and risks outlined.

It simplifies the IFA and broker boarding validation process by providing real-time checking against both an organisations own local data, national known fraud data and cross sector shared data as well as validation checking against commercial information, Companies House intelligence and other data sources.

• IFA and Broker Screening solution improves efficiency and reduces the potential fraud risk in boarding unacceptable risks to the business.

• Unlike existing manual validation of IFA’s via multiple sources, this one-stop-shop solution provides flexibility and expedited processing of new IFA applications.

• IFA and Broker Screening utilises SIRA’s unparalleled data agnostic approach and proven abilities in counter fraud and risk validation screening combined with in-depth understanding of finance industries.

The system means that your validation and screening team can check the broker candidate’s identity and risk ‘on the spot’ – whether it is an individual or a group of individuals representing a financial advice business. In real-time, the system displays an on-screen clear or not clear response and a red, amber or green risk rating.

Not only does IFA and Broker Boarding Screening identify risk candidates but valid candidates can be cleared instantly – speeding up the process so you can bring brokers on board faster and more efficiently.

Our solution provides you with the opportunity to safely embrace new opportunities for increased business through fully compliant intermediaries.

Key benefits and features

Reduction in potential fraud exposure and risk to the business by screening at point of boarding for all IFA and Broker applications.

• Real-time screening
• Single, dedicated manual entry screen for ad-hoc checking of single IFA or broker applications.
• Configurable rules to screen against a client’s own local intelligence, cross sector known fraud cases via a national syndicated database and external third-party data sources (see additional data services below).
• Real-time application response which details if the applicant is clear or not clear.

• In built workflow process, referral and investigation tasklists help with the prioritisation of investigations to help manage workloads and cases.
• Filters and prioritises applications and referrals automatically through rules matching and risk scoring.
• Aids with assigning work to different teams and help increase efficiencies.
• A single-point view in allows all referrals and investigations to be housed in one system, which can be integrated easily with current and legacy systems.
• All third party data sources are also integrated within rules matches and workflows and presented in SIRA.

• Criminal Intelligence (fraudulent ID data).
• DDRI (deceased register).
• Public Sector (inc. failed asylum seeker data).
• Sanctions and Politically Exposed Persons data.
• ID Verification.
• Commercial and Companies House data.
• Device Identification.

Conclusion: Why it is important to consider implementing the IFA and Broker Boarding Screening solution right away?

With the growing demand for intermediaries as the financial services and insurance sectors evolve, there are thousands of new entrants to the market.

"You will naturally want the very best of them to be representing and selling your products and with the IFA and Broker Boarding Screening you can bring them on board faster and more efficiently – saving time and money whilst also reducing the potential for fraud, fines for non-compliance and reputational damage."

Our solution provides you with the opportunity to safely embrace new opportunities for increased business through fully compliant intermediaries – and helps you answer the challenges and risks that the many new developments in the financial services sector present.

For more information about IFA and Broker Boarding Screening solution from Synectics Solutions and how it can enhance your processes, efficiency and business, call 01782 664000, email info@synectics-solutions.com or visit www.synectics-solutions.com.

References

4. https://www.covermagazine.co.uk/cover/news/2453470/life-insurance-agent-found-guilty-of-commission-fraud