Compliance News - 2 September 2011
CC:ME WEEK ENDED 2 SEPTEMBER 2011
The Financial Services Authority (FSA) has published details of the amount of redress paid by firms during the first six months of 2011 to consumers who have complained about the way they were sold payment protection insurance (PPI).
The data shows that 16 firms, representing 92 per cent of PPI complaints received in the first half of 2011, have paid a total of £215 million in redress between January and June 2011 inclusive. In May and June alone, following the dismissal of the industry’s legal challenge to the FSA and the Financial Ombudsman Service (the Ombudsman), £102 million was paid out.
The monthly totals, with cumulative totals in brackets, are:
· January - £29 million (£29 million)
· February - £31 million (£60 million)
· March - £28 million (£88 million)
· April - £25 million (£113 million)
· May - £37 million (£150 million)
· June - £65 million (£215 million)
The figures include the value of ex-gratia payments made to complainants and cases settled by the Ombudsman.
The FSA has published the data as a measure to allow firms, consumers and other interested parties to keep track of the progress being made. The FSA will continue to publish this data on an ongoing monthly basis accompanied by a running total.
Source: Financial Services Authority
The Financial Services Authority (FSA) and HM Treasury (HMT) have published a joint consultation paper setting out proposals for the transfer of the regulation of Northern Ireland (NI) credit unions from the NI Department of Enterprise, Trade and Investment (DETI) to the FSA, bringing enhanced consumer protection to the 177 NI credit unions and their members. The transfer is due to take place on 31 March 2012.
As part of this process the joint consultation paper outlines proposed legislative amendments and FSA rules that will apply to all NI credit unions. These changes will lead to a number of benefits for these credit unions and their members. In particular:
- NI credit unions will come within the UK Financial Services Compensation Scheme (FSCS) and within the compulsory jurisdiction of the Financial Ombudsman Service (the ombudsman service).
- This will significantly enhance consumer protection as only some, but not all, NI credit unions are currently covered, to varying levels, by voluntary protection schemes operated by the relevant trade associations.
- Prudential standards for NI credit unions will be aligned to those of other credit unions in Great Britain with a focus particularly on capital, liquidity and financial reporting.
The joint consultation paper proposes that from March 2012 NI credit unions will need to comply with an updated version of the Credit Union Sourcebook that currently applies to all credit unions in Great Britain. This sets out, in one place, the prudential and reporting requirements specific to credit unions. The requirements will be proportionate to different levels of risk dependent on the type of activity the credit union undertakes. The consultation paper is open for feedback until 31 October 2011.
Source: Financial Services Authority
The Financial Services Authority (FSA) has obtained an interim High Court injunction preventing a number of companies and individuals from manipulating the market in UK-listed shares. The injunction also freezes the assets of the companies.
The FSA has issued proceedings against Da Vinci Invest Ltd, a UK-registered but Swiss-based fund manager, a related Singapore-based company Da Vinci Invest PTE Ltd, and Mineworld Ltd, which is registered in the Seychelles, as well as Szabolcs Banya, Tamas Pornye and Gyorgi Brad (all of whom are resident in Switzerland and/or Hungary) who traded on behalf of those companies.
The FSA believes that these companies and individuals have committed market abuse by engaging in a form of manipulative trading known as “layering”, which created a misleading impression as to the supply and demand of shares. The companies and individuals traded across a number of UK trading platforms and the FSA estimates that they made over £1 million gross profit from this activity.
The conduct took place from August 2010 to July 2011.
The manipulation was done by placing large orders for shares which they had no genuine intention of allowing to trade. These misleading orders had the effect of moving the share price up and down as the market reacted to the perceived change in supply or demand of the shares. The traders would then take advantage of the price changes by repeatedly buying shares (when the share price had been manipulated downwards) and selling them (when the share price had been manipulated upwards). At the same time, they would delete the initial orders which had manipulated the share price.
The FSA obtained an interim injunction freezing the assets of the companies on 12 July, and a further order continuing the freezing injunction and restraining the market abuse on 31 August. The FSA’s investigation, and the associated court case, will continue.
Source: Financial Services Authority
The FSA has published a Policy Statement on the main issues arising from the joint HM Treasury/FSA paper (Transposition of UCITS IV: consultation document) of December 2010 and published final rules.
Source: Financial Services Authority
The Upper Tribunal (Tax and Chancery Chamber) has issued its decision in the case of Jason Geddis, who referred a Decision Notice issued by the Financial Services Authority (FSA) on 11 June 2010. The Tribunal determined that Mr Geddis committed market abuse by securing the price of Lead contracts on the London Metal Exchange (LME) at an abnormal and artificial level, and directed the FSA to impose a public censure on Mr Geddis. The FSA had proposed to prohibit and fine Mr Geddis but the Tribunal felt that a public censure was a more appropriate penalty.
Mr Geddis was a trader at Dresdner Kleinwort Limited with responsibility for LME trading on behalf of his firm and its clients. On 21 November 2008, he rapidly built up a position in a particular Lead contract in the course of the morning. He then unwound this position in the course of the LME's open outcry session, at rapidly increasing prices. The FSA in its Decision Notice stated that Mr Geddis deliberately squeezed the market in the contract in question in order to secure substantial profits for his firm; on that basis it proposed to fine Mr Geddis and impose a prohibition order on him.
The Tribunal determined that Mr Geddis’ conduct in creating a disorderly market fell below the proper standard of care, but it was not a failure of integrity. The breach was committed through a lack of care in an exceptional situation, not through a premeditated plan to act improperly.
Source: Financial Services Authority
ABI members and retailers are to follow Good Practice Guides for Extended Warranties, GAP insurance and service contracts. Insurers and retailers will be doing more to help consumers better understand extended warranties, Guaranteed Asset Protection (GAP) insurance and service contracts, by following ABI Good Practice Guidance. The ABI published the voluntary guidance in February this year, and insurers were given until 31 August to implement the changes. The guidance sets out examples of good practice to help customers choose the right product for their needs.
Nick Starling, the ABI’s Director of General Insurance and Health, said:
“We want customers to be confident that they have taken out the right insurance product for their needs and that they fully understand the benefits and any limitations of the policy they choose, whether it is an extended warranty, service contract or GAP insurance.”
Nick Starling, the ABI’s Director of General Insurance and Health, said:
“We want customers to be confident that they have taken out the right insurance product for their needs and that they fully understand the benefits and any limitations of the policy they choose, whether it is an extended warranty, service contract or GAP insurance.”
Source: Association of British Insurers
The amount paid out to customers through critical illness and life insurance policies continues to rise significantly according to data published from the Association of British Insurers. In 2010, the total value of £1.9 billion was paid out to more than 40,000 families and individuals through critical illness (CI) and life insurance policies. The average amount paid in 2010 was £47,166, which is almost double the UK average salary.
The insurance industry took action after the level of claims turned down reached 16% in 2007 by helping people better understand their policies, so that fewer claims are declined at times when people are undergoing stress, bereavement or trauma.
To ensure consumers are treated fairly in dealing with claims, the ABI introduced guidance on insurance claims in 2008 to make sure that no customer would be worse off as a result of making a genuine mistake by failing to disclose medical or other information. Figures from the Financial Ombudsman Service showed that since the guidance was introduced in 2008, the number of long-term protection complaints has reduced by 50%.
To improve consumer knowledge further, the ABI has also:
- Issued a statement of best practice in 2011 to help insurers provide consumers with a better understanding of how critical illness policies work and what they are covered for.
- Produced guidance in May 2011 to help speed up life insurance payments issued to consumers which cuts out some of the legal delays and means people can get their money much sooner. This is already starting to have an impact and the ABI is currently researching the benefits this has to consumers.
Source: Association of British Insurers
Following a successful pilot, 1 September sees the formal launch of an important new scheme to combat mortgage application fraud. HM Revenue & Customs, the Council of Mortgage Lenders and the Building Societies Association have worked together on the development of the Mortgage Verification Scheme and see it as an important additional tool to help beat fraud. The National Fraud Authority estimates the cost of mortgage fraud at £1 billion last year, so measures to tackle it are important.
The scheme was announced in the March 2010 budget and has been refined during the pilot period since. Use of the scheme will be limited to cases where lenders reasonably suspect, following their own rigorous checks, that mortgage fraud may be taking place. Mortgage lenders will send relevant details of mortgage applications where they have inadequate evidence of declared income and suspect fraud using a secure electronic platform to HMRC, which will check income details declared to lenders against information provided in income tax and employment returns. HMRC will then advise lenders whether or not the details correspond, which will inform lending decisions.
As well as aiding mortgage fraud prevention, the scheme will help HMRC to risk assess whether the information it has been given on applicants’ tax affairs is correct. In return, lenders gain access to a source of data that helps them to lend responsibly and manage risk. Financial institutions use a variety of sources to help them assess fraud risk, however, and will not rely solely on responses provided by HMRC to reach a decision where the lender suspects fraud.
HMRC has set up a specialised unit to deal with the requests. Any mortgage lender who wishes to use the scheme may do so. Other than a fee of £14 plus VAT per case to cover HMRC’s costs, lenders face no additional fees to participate. It is not anticipated that the scheme will have any significant impact on the time taken to reach a lending decision.
Source: Council of Mortgage Lenders
