Compliance News - 1 July 2011
INDUSTRY NEWS FLASH WEEK ENDED 1 JULY 2011
FSA – CONSULTATION ON AUTHORISED PROFESSIONAL FIRMS AND LEGAL SERVICES REFORM
From October 2011, the Legal Services Act 2007 establishes ‘alternative business structures’ in England and Wales. The Solicitors Regulation Authority’s (SRA) interpretation of this Act means that it will not be regulating the financial services activities of its FSA-authorised alternative business structures. This means that:
- such firms carrying out mainstream regulated activities would not be subject to any rules in the areas of compensation and client money; and;
- such firms carrying out non-mainstream regulated activities would be subject to a modified FSA regime in a range of areas, despite the Solicitors Regulation Authority (SRA) no longer regulating their financial services activities.
FSA believe this regulatory gap would significantly undermine consumer protection thus the FSA need to change their rules in this area. At the moment, authorised professional firms can carry out financial services activities and benefit from a modified application of the FSA Handbook. Under the legal reforms, certain authorised professional firms wouldn’t be subject to parts of the FSA rules or those of the SRA.
FSA are proposing to close this gap in consumer protection by removing the exemptions and modifications in the FSA Handbook for professional firms (including alternative business structures) which will be authorised professional firms, but importantly only where the designated professional body does not apply rules covering the firm’s FSA-regulated activity.
Firms may no longer be exempt from certain rules and will need to be aware of the proposed changes. For authorised professional firms carrying out mainstream regulated activities, FSA are proposing amendments in the areas of client assets and compensation, bringing these firms back within the scope of the relevant rules.
For authorised professional firms carrying out non-mainstream regulated activities, the proposed changes would bring them back within scope of a number of sections in the FSA Handbook, relating to requirements such as reporting, approved persons, conduct of business, client accounts, training and competence, complaints handling and the compulsory jurisdiction of the ombudsman service. They would also be subject to the changes described above for mainstream activities. Comments must be received by 12 August 2011.
Source: Financial Services Authority
FSA – SPEECH ON THE FUTURE OF BANKING
Hector Sants, Chief Executive of the FSA addressed the BBA Annual Confeence at the Guildhall on the future of banking and covered the following topics:
- the need for change
- the PRA’s objective
- PRA supervisory approach
- the FCA’s objective
- FCA supervisory approach
- other issues
In conclusion Hector stated:
“I hope my remarks today have given you a clear sense of how the PRA and FCA will operate. I hope it has also stimulated a debate to ensure that the approach is one that is fully understood and supported by society as a whole. However, the most important point I would like to make today is that change in regulation itself will not be sufficient to achieve the improvements which society deserves.
This needs significant change in the approach taken by the firms gathered here today. A restoration of trust requires a visible step change by you – the banks. PPI was a missed opportunity to demonstrate your intent. I urge you to take the next one.”
“I hope my remarks today have given you a clear sense of how the PRA and FCA will operate. I hope it has also stimulated a debate to ensure that the approach is one that is fully understood and supported by society as a whole. However, the most important point I would like to make today is that change in regulation itself will not be sufficient to achieve the improvements which society deserves.
This needs significant change in the approach taken by the firms gathered here today. A restoration of trust requires a visible step change by you – the banks. PPI was a missed opportunity to demonstrate your intent. I urge you to take the next one.”
Source: Financial Services Authority
FSA – CRACKDOWN ON LAND BANKING
The Financial Services Authority has secured summary judgmentin the High Court against an individual, who traded as Consolidated Land UK. The judgment confirmed that the individual sold land illegally to UK consumers and ordered him to make an interim repayment of £920,000, via the FSA, to his victims. He has also been banned for life from selling plots of land without notice to the FSA.
The individual sold plots of agricultural UK land, much of which was subject to planning restrictions, for over £11 million and made a very significant profit. He was stopped by an initial injunction obtained by the FSA in 2010.
Customers were told by his sales staff that he would seek planning permission for them and also help them to re-sell the land at a profit – a business commonly called land banking. In fact he had no intention of seeking permission or helping his purchasers, many of whom paid him their life savings.
Customers were told by his sales staff that he would seek planning permission for them and also help them to re-sell the land at a profit – a business commonly called land banking. In fact he had no intention of seeking permission or helping his purchasers, many of whom paid him their life savings.
The FSA does not regulate the sale of land but land banking amounts to collective investment, something that requires FSA authorisation. The individual was never authorised by the FSA so his land sales were illegal.
Source: Financial Services Authority
FSA – HOSTS CONFERENCE ON FUTURE OF CONDUCT REGULATION
The Financial Services Authority has launched a debate about the type of regulator needed to restore customer trust in financial services. In his speech to the conference, Hector Sants, FSA chief executive and PRA chief executive designate, said:
“It is not the regulator’s role to determine its own mandate. That is for society as a whole to agree. An independent regulator’s job is then to select the best tools to use. But unless the outcomes those tools are designed to achieve are aligned with society’s expectations, the regulator will not have the necessary mandate to operate, nor will it be a sustainable institution. As I have said before this was undoubtedly a problem for the FSA.”
In her speech at the meeting, Margaret Cole, interim managing director of the conduct business unit, said:
“The failures of the past ten years mean that change is essential. We have a once in a generation opportunity to shape the new regulatory structure and challenge past orthodoxies. We must not waste it. The FCA approach document and today’s conference are our first steps in rising to this challenge.
We have time between now and the end of 2012 when the FCA is due to be established to consider what kind of regulator society wants the FCA to be and what this means for its operating model. It is critical that the issues are widely debated.
We have time between now and the end of 2012 when the FCA is due to be established to consider what kind of regulator society wants the FCA to be and what this means for its operating model. It is critical that the issues are widely debated.
For the FCA to be a credible and effective regulator it must have the support and backing of Parliament and the public from the outset. What it can be expected to do and achieve and what is outside its remit, undesirable or impossible to achieve should be clearly understood. Central to this is the recognition that the FCA will not be able to prevent all failures either of individual firms or in the way that firms treat their customers.”
Source: Financial Services Authority
FSA – LAUNCHES THE FCA APPROACH DOCUMENT
The Financial Services Authority (FSA) has outlined how its successor body charged with conduct and markets regulation will be tougher, bolder and more engaged with consumers. The approach document sets out how the Financial Conduct Authority (FCA), which will assume responsibility for protecting consumers and markets’ regulation from the end of 2012, will deliver its objectives. Comments are sought by 1 September 2011.
The Government has recently published a White Paper outlining how the FCA will:
- be more outward looking and engaged with consumers and better informed about their concerns and behaviour where this is relevant to regulatory action;
- intervene earlier to tackle potential risks to consumer protection and market integrity before they crystallise; and
- be tougher and bolder, building on and enhancing the FSA’s credible deterrence strategy, using its new powers of intervention and enforcement.
Hector Sants, FSA chief executive, said:
“Trust in the financial services sector is at an all time low and the new regulatory arrangements provide the opportunity to restore confidence in an industry which has generated in excess of £15bn detriment over the last two decades. This document sets out the approach the FCA will be taking to improve regulation, a key element in restoring trust in the industry. For the FCA to be successful it must have the support of society and Parliament, and its objectives and approach must be clearly understood by all.”
“The document is designed to stimulate debate on the key questions to be resolved, which includes finding the right balance between the benefits of early intervention and the consequent risks of reducing choice and raising costs, and also clarity regarding the balance of responsibilities between consumers and industry. The FCA’s proposed approach moves the calibration of these questions in favour of more intervention but the question which needs to be answered is whether society is happy to accept the resultant costs and potential reduction in individual freedom.”
Margaret Cole, interim managing director of the conduct business unit, said: “We will now press on with developing our thinking on how to implement the approach set out in this document. We are clear that this will require significant investment, building on and improving what the FSA has achieved so far. I am confident that, if implemented, this approach will deliver significantly higher levels of protection than consumers have enjoyed over the last 20 years.
At this early stage in the development of the new regulatory structure, the publication sets out the approach the FCA plan to take and raises issues that need to be considered by industry, legislators and consumer representatives. This open debate, seeks to find consensus on the type of regulator needed to restore customer trust in a sector which has generated billions in consumer detriment due to mis-selling scandals.”
Source: Financial Services Authority
Speeches were given on this topic by Hector Sants and Margaret Cole the day after the launch, at the Financial Conduct Authority Conference, which may be accessed by clicking on the links below:
Source: Financial Services Authority
CML – DEVELOPMENT OF MORTGAGE INDEMNITY SCHEME
The Council of Mortgage Lenders welcomed news from the Scottish Government that it has agreed to commit funds to the development of a mortgage indemnity scheme for new build properties in Scotland. They stated that with constrained conditions still affecting the housing and mortgage markets in all parts of the UK, it was promising to see support for innovative ideas that aim to meet the aspirations of potential home owners.
CML policy consultant for Scotland Kennedy Foster commented: “We look forward to working with Homes for Scotland and its advisers on the scheme. While much work still needs to be done in developing the details, this is a promising step."
Progress continues towards constructing a similar scheme for England and Wales, with developers and lenders actively working on a proposal for a joint initiative.
Source: Council of Mortgage Lenders
FOS – LEGAL CHALLENGE TO VOLCANIC ASH CLOUD DECISION
Following the ombudsman's decision in March 2011 on travel-insurance and volcanic ash, travel insurer, Europ Assistance, has launches a legal challenge ("judicial review") putting 300 consumers' complaints on hold.
The FOS have received around 700 complaints from consumers about travel-insurance claims involving volcanic ash, following delays and disruption to travel caused by a volcanic eruption in Iceland. In March 2011 they made a key ruling which illustrates many of the issues involved, and found in favour of the consumer in that case.
The FOS have stated:
“This does not mean that everyone bringing an "ash-related" complaint will necessarily have their complaint upheld – or get their claim paid in full. Each individual case needs to be considered on its own particular facts – taking into account specific exclusions, limits and policy terms that may apply.
We had expected that those travel insurers who still had unresolved cases with us would want to use this ruling as a way of resolving remaining complaints. However, in June 2011 Europ Assistance launched a legal challenge ("judicial review") against us on this ruling – which has regrettably resulted in 300 consumers' complaints being put on hold until the legal case is settled in court.”
Source: Financial Ombudsman Service
