Compliance News - 1 April 2011
INDUSTRY NEWS FLASH WEEK ENDED 1 APRIL 2011
The Ministry of Justice has at last published their Guidance on interpretation of the Bribery Act 2010, which will come into force on 1 July 2011. The guidance is principally for corporate bodies on putting in place “adequate procedures” to prevent bribery, as required under the Bribery Act 2010.
This follows a consultation last year and the Government’s announcement that the implementation of the Act would be delayed until three months after the Guidance is published, to give corporate bodies time to consider its implications and take any further steps required to design and implement compliance programmes.
This follows a consultation last year and the Government’s announcement that the implementation of the Act would be delayed until three months after the Guidance is published, to give corporate bodies time to consider its implications and take any further steps required to design and implement compliance programmes.
The Directors of the Serious Fraud Office and Department for Public Prosecutions have also published joint guidance on prosecutorial decision-making under the Act to coincide with the Guidance.
The Bribery Act 2010 will now come into force on 1 July 2011.
The Guidance is a more pragmatic, common-sense and clearer set of pointers as to the steps businesses should take to prepare for the Act, than the draft published last year. Most interesting are the parts where the Government seeks to re-interpret the Act to sound less onerous, offering views on corporate hospitality, facilitation payments and when a foreign corporate will be caught by the Act.
It is unclear what weight the courts will give to this, given the Act only requires the Government to publish guidance on procedures. These views also highlight a tension between the Government and the SFO as to how the Act should be interpreted and enforced.
It is unclear what weight the courts will give to this, given the Act only requires the Government to publish guidance on procedures. These views also highlight a tension between the Government and the SFO as to how the Act should be interpreted and enforced.
We will be featuring further articles on this subject in the forthcoming weeks.
Source: Justice
In 2010, FSA published PS10/15 “Effective corporate governance - Significant influence controlled functions and the Walker Review” which set out to improve the quality of governance within firms and the intensity of the FSA supervisory regime. These proposals also sought to implement a number of recommendations made by Sir David Walker in his review of corporate governance.
Specifically, the proposals included plans to introduce a number of new significant influence controlled functions (SIFs) and changes to the scope and definition of certain, already existing, SIFs within the approved persons regime. FSA expected that firms would submit applications or notifications on behalf of individuals to perform these new SIFs via the Online Notifications and Applications (ONA) system.
However, there is currently a considerable programme of work underway on ONA and FSA has been unable to complete the necessary changes to allow them to accept these applications and notifications from 1 May 2011. Thus FSA are deferring the implementation of these changes to the approved persons regime until further notice.
FSA has stated that they remain committed to all of the proposals in PS10/15 and will be pressing ahead with the other changes designed to promote effective governance within firms and, in particular, those elements aimed at managing risk. “This deferral should not be interpreted as a change of policy on our part and we will ensure firms have two months’ notice of the new implementation date.”
Source: Financial Services Authority
FSA has published their Consultation Paper “Use of non-EEA rules in calculating group capital requirements” and have outlined their proposals for removing the rules permitting the use of non-EEA (European Economic Area) regulators’ rules in calculating the standardised requirements of a non-EEA subsidiary, as part of its UK consolidation group capital requirements. This consultation will be of particular interest to banks, building societies and certain investment firms.
At present, a UK consolidation group may use non-EEA regulators’ rules for calculating the standardised requirements of a non-EEA subsidiary, which are then aggregated into the group’s consolidated capital requirements. This allows firms operating in foreign jurisdictions to use non-EEA rules, so they do not need to maintain two sets of capital calculations for the same business.
FSA included the equivalence provisions in the Handbook when the CRD/Basel II was implemented, partly because of the differing (sometimes delayed) timelines for Basel II implementation by different regulators. Now that sufficient time has passed, it is appropriate to review them.
FSA included the equivalence provisions in the Handbook when the CRD/Basel II was implemented, partly because of the differing (sometimes delayed) timelines for Basel II implementation by different regulators. Now that sufficient time has passed, it is appropriate to review them.
Also, it is likely that the equivalence assessments FSA carried out in 2006 are no longer up to date. This lack of certainty has created an asymmetry of information between the FSA and firms on capital levels. This asymmetry could also be reflected in investor uncertainty of capital levels.
The proposals in this paper will affect those firms currently using the rules permitting the use of non-EEA regulators’ rules in calculating the consolidated capital requirements of a UK banking/investment firm group on a standardised approach. The proposed Handbook changes are designed to ensure that the group capital requirements of a UK banking/investment firm group, on a standardised approach, are calculated under FSA rules. Thus some firms will have to change how they calculate group capital. Comments must be received by 30 June 2011.
Source: Financial Services Authority
Handbook development newsletter Issue 133 has been published, setting out the usual summary of papers issued since the previous newsletter and a timetable for future consultations.
Source: Financial Services Authority
The ABI has said that Government plans to reform legal system will mean a better deal for genuine claimants and insurance customers as it will put the brake on runaway legal costs and mean a better deal for genuine claimants and insurance customers. The ABI has been campaigning for reforms to the current system, especially reducing the high level of legal costs in settling personal injury claims, one of the major reasons for the general rise in the motor insurance premiums.
Nick Starling, the ABI’s Director of General Insurance and Health, said:
Nick Starling, the ABI’s Director of General Insurance and Health, said:
“These reforms are good news for genuine claimants, who too often struggle to get fair compensation under the current system. The ABI has long campaigned for reform that puts the genuine claimant at the heart of a simpler, faster, more cost-effective system.”
“For too long ambulance-chasing lawyers and claims management firms have encouraged many people to believe that there is a compensation culture to exploit. The result has been a slower process for genuine claimants, and out of control legal costs that end up being paid for by all consumers through higher insurance premiums. Currently, for every £1 motor insurers pay out in compensation, an extra 87 pence is paid in legal costs.”
“By implementing in full the recommendations of Lord Justice Jackson’s review of civil litigation, the Government has addressed the injustices of our civil justice system. And motorists, who are paying an extra 10% on their motor insurance as a result of high legal costs in settling personal injury claims, can look forward to cheaper insurance in the future. The final part of the reform process must be the abolition of referral fees and we urge the Government to ban them”
Source: Association of British Insurers
The new Lending Code containing enhanced and new provisions for consumers, micro-enterprises and charities has been published by its sponsors (the British Bankers’ Association, the Building Societies Association and The UK Cards Association). The new Code is the result of an independent review conducted by Professor Lorne Crerar. Changes to the Code were made following consultation with consumer groups, debt advice bodies, regulators and governmental departments together with industry.
Key recommendations that have been adopted include:
- Stronger requirements for responsible credit assessment;
- New provisions on customers’ ability to opt-out of unarranged overdrafts;
- More support for customers who may be in, or approaching financial difficulties;
- Extension of the Code’s temporary breathing space moratorium on debt collection to include those customers using 'self-help';
- New standards on the appropriate use of the Right of Set-Off by lenders;
- Further assistance for customers in financial difficulty who have a mental health condition.
Customers will also be able to find the key protections that lenders offer, as plain language guides to the Code will now be available.
Self-helpis defined as where a customer is adopting a structured approach to dealing with their financial difficulties using an appropriate tool with or without the assistance of a debt advice agency.
Right of Set-Off is defined as the right of a bank or building society to recover moneys due to it by using a credit balance on a customer’s account to make up all or part of a debt due to the bank or building society on another account such as a loan or a credit card, for example because of a missed payment.
Source: British Bankers’ Association
The European Commission has published a proposal for a new Directive on credit agreements relating to residential property. The Council of Mortgage Lenders is concerned that the UK, as the largest mortgage market in Europe, will incur cost but gain little benefit from the Directive.
The Commission says that the objectives are twofold: "First, it aims to create an efficient and competitive single market for consumers, creditors and credit intermediaries with a high level of protection by fostering consumer confidence, customer mobility, cross-border activity of creditors and credit intermediaries, and a level playing field. Second, the proposal seeks to promote financial stability by ensuring that mortgage credit markets operate in a responsible manner."
The CML states that the reality, however, is that national mortgage markets are highly idiosyncratic and likely to remain so even if the Directive is implemented. Property valuation and registration, and different funding mechanisms and consumer product appetites will not be addressed by the proposals. So it seems unlikely that a single market will emerge as an outcome of the Directive.
Consumer protection, meanwhile, is already being addressed extensively within those national markets - including the UK - that have borne the brunt of the impact of the financial crisis.
Some of the proposed regulatory approaches differ between the FSA and the Commission - for example, while the Commission sees disclosure as a key tool for improving borrowers' buying decisions, the FSA is moving away from a reliance on disclosure as the main means to achieve that outcome and it is difficult to see that harmonisation at a European level will necessarily bring additional benefits, given the improbability of the emergence of an active market for cross-border lending.
Some of the proposed regulatory approaches differ between the FSA and the Commission - for example, while the Commission sees disclosure as a key tool for improving borrowers' buying decisions, the FSA is moving away from a reliance on disclosure as the main means to achieve that outcome and it is difficult to see that harmonisation at a European level will necessarily bring additional benefits, given the improbability of the emergence of an active market for cross-border lending.
Source: Europa
The CML have welcomed publication by the Financial Services Authority (FSA) of its business plan for the coming year, which confirmed some welcome changes in response to representations on the direction of the ongoing mortgage market review (MMR).
The plan confirms that interest-only mortgages will not be prohibited, with an acknowledgement by the regulator of their benefits for some types of borrower.
"It is not our intention to ban interest-only loans, which undoubtedly, for some consumers, are an appropriate method of finance," the plan says.
The plan confirms that interest-only mortgages will not be prohibited, with an acknowledgement by the regulator of their benefits for some types of borrower.
"It is not our intention to ban interest-only loans, which undoubtedly, for some consumers, are an appropriate method of finance," the plan says.
The report also confirms a welcome move away from mooted proposals for assessing affordability on a fixed 25-year term, and a generally more flexible approach by the regulator in response to representations.
"We are carefully considering feedback we have received on these consultations and will take full account of them. We recognise the need not to take a 'one size fits all' approach and the need to balance the advantages of simplicity against those of flexibility.
"For example, we acknowledge that our initial proposal to have a fixed 25-year term for assessing affordability, whilst easy to administer, may not be appropriate, given the range of different individual circumstances."
Confirmation of these changes, hinted at previously in speeches by key FSA figures, will be especially welcome if it heralds a more pragmatic approach in the responsible lending paper that the business plan says will be published this summer. The business plan sets out how the regulator will address the risks to its statutory functions, as highlighted in the recently published prudential and retail conduct risk outlooks. It also provides a clear steer on some of the policy documents that will emerge in 2011.
It comes as no surprise that the FSA will be spending a lot of time and effort this year developing and preparing for the introduction of new regulatory structures, with a ‘shadow split’ beginning in April this year. There is also a large amount of continuing work on the development of global, regional and national prudential standards in response to the financial crisis. Of particular interest to lenders is the confirmation that the MMR will continue to be a central platform of the regulator’s conduct risk strategy in 2011 and 2012.
The FSA has also given details about documents it is planning to publish later this year. A further paper on responsible lending will be published in the summer. According to the business plan, this paper will be both a "policy statement and consultation paper." That implies that the paper will include "near final" proposals that may not be open to further discussion, as well as policy that is being consulted upon again. This paper will also have an "indicative cost-benefit and impact analysis" of the full package of proposed rules.
This year, the regulator will also consult on the prudential regime for non-bank lenders, the impact of the MMR’s broader proposals on niche markets (including lifetime mortgages and business lending) and the expansion of the FSA’s scope to include second charge lending.
This seems like a long and imposing list, but there are still some significant omissions. At this stage, it is still not clear if there is any intention to consult further on proposals for disclosure and distribution, or when transitional measures will be proposed and consulted upon.
What is clear is that the final MMR policy statement will not be published until early 2012, which gives the FSA more time than originally planned to consider an appropriate and proportionate set of proposals for the future of mortgage regulation. It also means that the MMR will enter its fourth year. One crucial area of uncertainty, however, is how the FSA’s plans may be affected by the EU directive on mortgages, due to be published any day. The European document is likely to overlap significantly with both the MMR policy proposals and the timetable for the FSA’s work.
Source: Council of Mortgage Lenders
The Ombudsman Service has published its plan and budget for the forthcoming year and confirmed that the case fee and levy will be frozen.
Source: Financial Ombudsman Service
