Compliance News – 29 July 2011
CC:ME WEEK ENDED 29 JULY 2011
On 16 June 2011, the Interim Financial Policy Committee (iFPC) recommended that the FSA compile data on the current sovereign and banking exposures of UK banks not subject to the European Banking Authority (EBA) stress tests to European Economic Area (EEA) countries. They recommended the FSA publish these exposures in aggregate.
On 15 July, the four UK banks that participated in the EBA stress tests, Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland published details of their exposures to the EEA 30 countries (plus the US and Japan and the rest of the world by region) as part of their stress test disclosures. In addition, Cooperative Bank, Nationwide Building Society and Standard Chartered have also published details of their exposures to EEA sovereigns and financial institutions.
In response to the iFPC’s recommendation, the FSA has presented the aggregated exposures of 47 UK-owned building societies and the remaining 30 UK-owned banks to non-UK EEA sovereigns and financial (excl. UK) institutions as of 31 December 2010.
When taken together with the disclosures from the 7 major UK-owned banking institutions, the data offers a comprehensive picture of UK-owned deposit takers’ exposure to the EEA 29 sovereigns and financial institutions. In aggregate, the UK financial system has limited direct exposures to all EEA 29 sovereigns, including to the higher risk peripheral countries. Exposures to EEA 29 financial institutions are larger however exposures to peripheral countries’ banking systems are not significant. FSA continues to monitor individual firms’ exposures and capitalisation as part of their ongoing supervision.
Source: Financial Services Authority
FSA Website
FSA Website
The FSA has published their newsletter targeted at smaller wholesale insurance intermediaries. The lead article is about the FCA’s intended approach to regulation and delivers the following key messages:
· The FCA will be responsible for regulating conduct in retail and wholesale markets; supervising the trading infrastructure that supports those markets; and for the prudential regulation of firms not regulated by the Prudential Regulatory Authority (PRA), which will include insurance intermediaries.
· The FCA will have the single strategic objective of protecting and enhancing confidence in the UK financial system; a key task of which will be to ensure that the conduct of participants is compatible with fair and safe markets. It will therefore focus more closely on wholesale conduct than the FSA has done. It will adopt a more issue and sector-based supervisory approach across the firms it will regulate.
· The FCA will have three operational objectives:
• securing an appropriate degree of protection for consumers;
• promoting efficiency and choice in the market for financial services; and
• protecting and enhancing the integrity of the UK financial system.
· It is proposed that the FCA should discharge its functions (such as rule-making, guidance and general policies) in a way which promotes competition. Combined with the efficiency and choice objective, this means that the FCA will have a significant role in promoting competition in financial services.
· The FCA will also take action in relation to financial crime risk in any of the sectors or markets it regulates. It will focus its resources on firms which are particularly exposed to financial crime risk and will give higher priority to the protection of consumers as potential victims of financial crime, and to the prevention of the use of firms as a conduit for financial crime.
The newsletter then goes on to discuss further topics of interest to this type of firm including:
· client money compliance
· responsibilities towards Appointed Representatives
· anti-bribery and corruption responsibilities
· IMD2 update
· new rules on consumer complaint handling
Source: Financial Services Authority
FSA Website
FSA Website
This paper sets out the results of the Financial Services Authority’s (FSA) latest Hedge Fund Survey (HFS) conducted in March 2011 and the Hedge Fund as Counterparty Survey (HFACS) conducted in April 2011. The surveys are conducted every six months and form an important part of FSA’s work on assessing risks to financial stability from outside the boundary of prudential regulation. This in turn forms a key component of FSA’s efforts to protect and enhance the stability of the UK financial system, which is one of the FSA’s four statutory objectives. In the future the Financial Policy Committee of the Bank of England will have a mandate for enhancing the stability of the UK financial system.
It is important to recognise both surveys’ limitations when examining the results. The HFS is completed by hedge funds on a voluntary basis and provides only a snapshot of hedge fund exposures and a partial view of the hedge fund industry. Similarly, the HFACS provides only a partial view of a sample of FSA-authorised banks’ exposure to hedge funds. Nevertheless, both surveys are important tools in providing the FSA with a view of the hedge fund industry. The analysis presented in this paper covers the broad systemic conclusions and does not identify individual firms or funds.
In general, risks to financial stability from hedge funds could crystallise through two potential channels: market dislocations that disrupt liquidity and pricing (the market channel); and/or, losses in hedge funds leading to losses by banking and other counterparties (the credit channel).
The latest results suggest that the leverage of surveyed hedge funds remains largely unchanged and that their footprint remains modest within most markets, so that current risks to financial stability through the market channel seem limited at the time of the latest surveys. In addition, counterparties have increased margining
requirements and tightened other conditions on their exposures to hedge funds since the financial crisis, increasing their resilience to hedge fund defaults. However, risks may change rapidly according to market conditions.
Some potential risks to hedge funds remain, particularly if they are unable to manage a sudden withdrawal of liabilities during a stressed market environment, potentially resulting in forced asset sales. If this occurs across a number of funds or in one large highly leveraged fund then it may exacerbate pressure on market liquidity and efficient pricing.
Source: Financial Services Authority
FSA Website
FSA Website
The FSA has published a Consultative Paper on the above for comment by 18 September. These rule changes will affect firms that are a Recognised Investment Exchange (RIE) that wants to apply for recognition to conduct auctions of EU carbon emission allowances. The key change set out in the draft Regulations is the introduction of the Recognised Auction Platform (RAP) regime to provide a framework for the authorisation and supervision of auction platforms auctioning emission allowances.
The draft Regulations specify the RAP as a new kind of Recognised Body (RB) alongside the existing definitions of Recognised Investment Exchange (RIE) and Recognised Clearing House (RCH).
The proposed amendments to REC look to draft rules and guidance which will facilitate the operation of the new RAP regime, whilst ensuring the operation of the regime is consistent with our proportionate and risk-based approach to regulation.
FSA has also set out the proposed methodology for annual periodic fees, including the proposed application fee for recognition as a RAP and the proposed periodic fees payable by RAPs. The new regime comes into force from 1 January 2013, and the FSA proposes to start levying periodic fees in the 2012/13 financial year.
Source: Financial Services Authority
FSA Website
FSA Website
The ABI has announced that insurers are detecting more fraudulent claims than ever: over 2,500 worth £18 million every week. It is estimated that insurance fraud costs £2billion a year, adding, on average, an extra £44 a year to the insurance bill for every UK policyholder.
The figures highlight that in 2010:
· Insurers uncovered 133,000 fraudulent insurance claims - 2,500 every week - up 9% on 2009. The value of these claims was £919 million, also up 9% on the previous year. Over the last five years both the number and overall value of insurance frauds detected have risen by over 100%.
· The most common frauds involved home insurance with 66,000 bogus or exaggerated claims detected, followed by dishonest motor insurance frauds with 40,000 frauds uncovered. Motor frauds were the most costly, totalling £466 million.
· The value of savings from detected frauds represented 5% of all claims, compared to 4% on 2009
Fraudulent claims uncovered by insurers include:
· A claim for back injuries apparently sustained from a fall while working in a nightclub was rejected when Facebook images showed the claimant performing gymnastics, and training for a charity run.
· A woman’s claim for facial injuries she said resulted from a falling toilet roll holder in a fast food outlet was rejected when it was shown that the holder would have had to have fallen upwards to cause the injury claimed.
· A man claimed for a ‘lost’ engagement ring. His ex partner said that she was never given a ring as they had never been engaged. On the same day the man said he had suddenly found the ring.
· A claim by a woman for the loss of a £2,000 watch after a night out was rejected when the photograph she provided of her allegedly wearing the watch turned out to be that of a friend.
· A claim for injury said to be caused by falling over a wall was rejected when it was proved that there was no wall at the scene of the alleged incident.
Source: Association of British Insurers
ABI Website
ABI Website
The Council of Mortgage Lenders was disappointed with the decision by the Scottish Government not to legislate to reverse the perverse effects on court proceedings for mortgage repossession hearings created by the case of RBS vs Wilson, despite the fact that most respondents to the government’s consultation would support this approach. The judgement in November 2010 has led to lenders needing to serve a calling up notice and wait two months before they can start court proceedings for repossession, which can be detrimental both to lenders and to distressed borrowers.
CML policy adviser for Scotland Kennedy Foster commented:
"It is disappointing to find that, even though the majority of respondents to the consultation agreed with our views that there would be negative, long-term implications from this judgement, the Scottish Government have decided to do nothing. While the industry waits for the Scottish Law Commission's review of this area in the next couple of years, borrowers and lenders will face adverse consequences through higher costs and extensive delays."
Source: Council of Mortgage Lenders
CML Website
CML Website
Tony Boorman, Principal Ombudsman and Decisions Director at FOS, has written on the “rollercoaster” start to the year for those at the Ombudsman Service. The first three months of the financial year were the busiest-ever quarter for the Financial Ombudsman Service with over 81,000 complaints – more than double the number received in the same period last year.
PPI was the main reason for this substantial increase. During the quarter FOS was receiving on average over 900 PPI cases each working day. The period also saw both the High Court decision on the PPI judicial review and the decision by the British Bankers’ Association not to appeal that decision. During the period of that judicial review, FOS’s ability to progress cases against many banks and other financial businesses was seriously hampered, meaning that fewer cases than had been planned were resolved.
Source: Financial Ombudsman Service
FOS Website
FOS Website
Edition 95 has now been published with several topics in addition to headlining the full article by Tony Boorman.
Source: Financial Ombudsman Service
