Compliance News - 4 November 2011
CC:ME WEEK ENDED 4 NOVEMBER 2011
The Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have joined forces to help prevent the problems associated with payment protection insurance (PPI) recurring in a new generation of products. The FSA and the OFT are consulting on proposed guidance to firms in relation to payment protection products – which can fall within either regulator’s remit. This is a key time as the market shifts away from PPI and firms begin to develop new products or product features – such as short-term income protection, or debt freeze or debt waiver as elements of a credit agreement or mortgage.
The two organisations will continue to monitor developments in the market, and will take appropriate action under their respective powers where firms’ products or practices risk causing detriment to consumers.
Payment protection products within the FSA’s jurisdiction
The FSA’s guidance stresses that firms should ensure that product features reflect the needs of the consumers they are targeting. There are four key areas of concern that providers should think about carefully:
- firms not properly identifying the target market for the protection product;
- the protection not reflecting the needs of the intended consumers;
- the benefit of a successful claim not matching the needs of the claimant; and
- product features or pricing structures creating barriers to comparing products, exiting a policy or switching cover.
Margaret Cole, FSA managing director, said: “This is the first time that the FSA has issued guidance on the design of a specific product. Firms must learn the lessons of the past and make sure they have consumers’ needs at the heart of new product development. That is why we are acting early to ensure firms understand the risks they should bear in mind when designing these products, and how they can manage these risks when developing or distributing the product. The FSA cited new forms of payment protection products as an emerging risk in its Retail Conduct Risk Outlook earlier this year, and we are following up on that warning with this important piece of work. We want to put consumers ‘front of mind’ for the providers and distributors of these products.”
Payment protection products within the OFT’s jurisdiction
The OFT’s guidance sets out how the OFT considers the Consumer Credit Act (CCA) applies to payment protection products such as debt freeze or debt waivers linked to a regulated credit agreement, and what firms can do to ensure compliance with the CCA. In particular, firms should ensure that consumers are absolutely clear about the nature, price and implications of payment protection products. For example, if an agreement is offered with an option to choose debt waiver terms, upon payment of a fee, it may be necessary to provide financial information including and excluding the cost of the debt waiver. The guidance also sets out examples of business practices in relation to payment protection products which the OFT is likely to regard as unfair or improper (whether unlawful or not) and so may cast doubt on fitness to hold a consumer credit licence.
Source: Financial Services Authority
The Financial Services Authority (FSA) has introduced further guidance for firms when developing new structured products which they want to market to consumers.
The FSA assessed seven major providers of structured products, responsible for approximately 50% of structured products in the UK retail market by volume and value. The review was conducted between November 2010 and May 2011 and found that while there had been some improvements, weaknesses remain in the way firms are designing and approving structured products - increasing the risk to consumers. Firms tended to focus on their own commercial interests rather than consumer needs.
Following this review, the FSA is publishing guidance that firms should consider when designing structured products and dealing with the after sales process. Much of the guidance is also relevant to other retail products. Firms should:
- identify the target audience and then design products that meet that audience's needs;
- pre-test new products to ensure they are capable of delivering fair outcomes for the target audience;
- ensure a robust product approval process is in place for new products; and
- monitor the progress of a product throughout its life cycle.
Further and more detailed actions for firms are outlined with the publication. The guidance is open for consultation until 11th January 2012.
Nausicaa Delfas, FSA's head of conduct supervision, said:
"Structured products are rising in popularity in today's low interest rate environment, and we are concerned that the growing number of structured products, as well as increasing product complexity, is placing a strain on firms' systems and controls. We want firms to consider the issues we raise in this publication, compare their product governance to the guidance we set out and address any areas for improvement. A lack of robustness in a firms' product development and marketing processes can increase the risk of poorly-designed products and lead to mis-selling.
Many of the problems we found with the product design process were rooted in the fact that the firms are focusing too much on their own commercial interests rather than the outcomes they are delivering to consumers. Where we found problems we have taken action with the firms involved. This work is a further step towards intervening earlier in conduct regulation and demonstrates that the FSA is already seeking to identify potential consumer detriment at a far earlier stage."
Source: Financial Services Authority
The Financial Services Authority (FSA) has appointed Zitah McMillan as its new communications director. Zitah joins from the Department for Work and Pensions, the DWP, where she has been Acting Director of Communications. Previously she was Marketing Director and Brand Director at worldwide communications agency Publicis, working across a variety of global blue-chip brands. She will take up her new role in January and will report to the FSA’s chief executive, Hector Sants.
Source: Financial Services Authority
Marcus Agius, Chairman, British Bankers’ Association has written to the Prime Minister on the G20 Summit held last week.
I write to you ahead of the G20 Summit in Cannes on 3rd and 4th November 2011 to offer the perspective of the members of the British Bankers’ Association.
The UK banking industry continues to see the G20 as a vital forum through which to pursue the development of a coherent and strengthened international regime for the regulation of financial services. In the time since the G20 first set out its agenda, a number of vital gaps have emerged in the way in which that agenda is being pursued across jurisdictions. We urge the G20 leaders to reaffirm their commitment to the G20 process and to demonstrate this via renewed coordination of their actions and the removal of unilateral and protectionist measures.
The current economic and market uncertainty reinforces the importance of ensuring that the current roadmap for international reform is appropriate and that any further changes to the agenda are carefully considered and sequenced within that roadmap. This exercise should include a commitment to undertake a cumulative impact assessment of the regulatory measures underway, as well as any further measures proposed, and one which considers the interplay of regulation with macro-economic policy, fiscal policy and supervision.
The Financial Stability Board (FSB) has begun to make progress in the development of a framework to monitor the implementation of agreed reforms. We welcome the publication of the Coordination Framework for Implementation Monitoring and agree the approach and priority issues it identifies. However this exercise could be extended to include an explicit expectation that the FSB should identify examples of internationally -agreed rules being implemented in a manner which could have an extra-territorial or protectionist impact.
In terms of the technical issues for discussion in Cannes, we see the development of effective regimes for the resolution of failing institutions, including the proposals for so-called “bail-in”, as essential to the success of the wider regulatory reform agenda. It will be important for there to be consistency between the interaction of effective resolution regimes and the proposed regime for systemically important institutions to ensure that market discipline operates. We would see this as including recognition of the quality of an institution’s recovery and resolution plan in a supervisor’s approach to determining the size of a G-SIB (Global Systemically Important Bank) surcharge.
Whilst we welcome the changes proposed by the Basel Committee on Banking Supervision (BCBS) on trade finance we urge the G20 to do more to revise the capital and liquidity regime to ensure that trade is not penalised and can act as the engine of growth. However, we remain concerned that the Basel Risk Management and Modelling Group (RMMG) is still working towards a year-end deadline for its clearing rules. We consider that the G20 should give the Basel Committee and RMMG further time in order to be able to complete this important piece of work.
In conclusion, we welcome your Government’s continued commitment to the G20 and urge you to encourage your counterparts to engage in a constructive manner towards the delivery of a consistent, credible and economically tested regulatory regime.
Source: British Bankers’ Association
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