Identifying a new headache for adviser firms

In recent years we’ve seen a series of regulations introduced which initially attracted little attention but – once the details became clear – were in some cases recognised as unworkable, in others convoluted or, at worst, both!

Amongst the unworkable regulations are the reporting requirements which surround the money purchase annual allowance (MPAA). Rules which rely on pension scheme members who make a contribution to a pension remembering that they need to tell their provider that they’re subject to a reduced annual allowance are never going to work as intended. The contribution might be made years after the saver was told they were subject to the MPAA. In the real world, rather than the rule makers’ world, savers just aren’t going to remember that they’re legally obliged to pass this information on.

On the convoluted side, various sets of international tax information reporting rules – the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) – have been introduced. These now require many savers to disclose a much greater amount of personal information than had previously been the case, just to open a broking account. And for those trying to open dealing accounts on behalf of entities such as companies, trusts, or charities – good luck working your way through terminology like ‘Passive Non-Financial Foreign Entity’ or ‘Owner-Documented Foreign Financial Institution’!

The new contender for the award given to under-the-radar rules which are likely to bite the unprepared goes to the regulations covering the Legal Entity Identifier (LEI). The requirements sound deceptively simple. Certain parties will be required to obtain a unique code which, from early January 2018, they will need to supply to brokers in order to carry out financial transactions on major stock markets. The aim of the rules is to allow the decision maker in relation to trades to be identifiable in case there is any link to market abuse.

Individuals won’t have to obtain an LEI themselves – although firms providing discretionary services on behalf of individuals will need to, an issue which lots of adviser firms will need to consider. Entities, for example trusts, typically will need to obtain a LEI, although trust-based SIPPs where the underlying client can be identified and is known to the investment firm will be exempt.

A number of questions immediately arise:

  • Are adviser firms who offer discretionary services to clients yet aware that they need to obtain an LEI?
  • How do SSASs, which appear not to benefit from the same exemption as SIPPs, comply? Can a professional SSAS trustee apply for an LEI to cover all of its schemes, or is there a need to obtain an LEI for each scheme? Will all professional SSAS trustees interpret the rules in the same way?
  • Will brokers interpret the rules in a consistent fashion? Will some take the view that they just need an LEI of a trustee? Will others insist that each trust must acquire its own LEI?

Anecdotally, I hear of different firms interpreting the rules in various ways. It also appears that some firms are not yet aware that they’ll need to comply with these rules in order for financial transactions to be carried out on behalf of their clients.

Let’s hope, come early 2018, that these questions have been answered and clients are not left unable to trade because firms are viewing the requirements differently.

Head of Technical

Gareth joined AJ Bell in April 1997 and, as the company’s first SIPP administrator, helped to establish what is now the Platinum SIPP. In 2000 he became the first member of the administration team for the newly launched Sippdeal SIPP (now AJ Bell Youinvest) and in 2006 set up AJ Bell’s technical team. Gareth is responsible for analysing regulatory and technical material and communicating this within AJ Bell and to the wider world through a variety of media.