Compliance News - 10 December 2010
The FSA has published proposed guidance on the COLL rules which will be of interest to fund managers, depositors and third party survey providers. FSA carried out a survey of twelve asset managers to consider their derivative risk management practices. Associated risks were highlighted as issues in the 2009 Financial Risk Outlook. FSA are consulting on the findings and information about their expectations in this survey.
The survey concentrated on six areas. In general, oversight strengths and weaknesses at the firms were mixed across the topics; but there were no firms which showed weak practices across all the areas.
Three themes emerged as inconsistently addressed across the twelve sample firms:
- The firms’ approaches to monitoring and reporting their derivative risks.
- All of the firms evaluated whether fund managers had a proper understanding of the derivatives they sought to use. It was less clear the extent to which the firms sought to ensure board members, fund directors and staff in settlement and monitoring functions understand the risks around derivatives.
- The firms had differing definitions of market and counterparty risk and as a result, the oversight processes varied greatly in frequency, content, and depth of analysis, particularly regarding unsettled trades, margin money and prime broker collateral monitoring.
Source: Financial Services Authority
For the ninth consecutive year, the FSA has written to energy market brokers to ask for information about trading volumes and values in the gas, power, coal and emissions markets.
The FSA aims to gather information on favoured routes to market and market size to help assess firms’ potential market impacts. This information also helps to focus FSA’s efforts in identifying risks to the market through their market surveillance programmes.
The detailed findings are outlined via the link below.
The FSA aims to gather information on favoured routes to market and market size to help assess firms’ potential market impacts. This information also helps to focus FSA’s efforts in identifying risks to the market through their market surveillance programmes.
The detailed findings are outlined via the link below.
Source: Financial Services Authority
The FSA has contacted thousands of people to warn them they could become victims of share fraud after it recovered its biggest ever ‘master list’ used by boiler room fraudsters. The list contains the names, addresses and telephone numbers of 49,387 people and includes potential victims who the FSA believes may have been contacted out of the blue and offered worthless shares.
The greatest concentration of targets is in London, although there are a significant number based in Scotland and the South East of England. The list is thought to still be in use by fraudsters operating in the UK and abroad and is likely to have been circulated between different boiler room networks.
The FSA is writing to every single person on the list to alert them to their presence on it and to advise them how to avoid getting scammed. Anybody who thinks they may have been targeted by a boiler room scam should call the FSA’s customer contact centre.
Source: Financial Services Authority
The FSA has set out detailed risk management requirements in relation to liquidity and funding risk in BIPRU 12.3 and 12.4. Other areas discussed in a draft CEO letter are covered under SYSC (Senior Management Arrangements, Systems and controls). This guidance is likely to be of most relevance to all ILAS BIPRU firms, although smaller firms will need to consider the content of this letter proportionately and in the context of their own business model.
The background to this consultation is to inform ILAS BIPRU firms of the results of a desktop review conducted on firms attesting to be in full compliance with the requirements of the liquidity regime and to set out the minimum requirements.
The key issues can be summarised as follows:
- A chronological review of the qualitative review to date, setting out the widespread failure of most firms who have been reviewed, to demonstrate full compliance despite previously attesting to compliance.
- The minimum requirements expected of firms under the ten qualitative risk drivers in BIPRU 12.3 and 12.4.
Source: Financial Services Authority
In an interesting move, Lord Turner wrote an article explaining the FSA decision in relation to the RBS decision not to proceed with enforcement. He stated:
“Last week the Financial Services Authority (FSA) announced, following an investigation of management conduct at the Royal Bank of Scotland, that the FSA would not bring enforcement proceedings against any individuals. This caused criticism that no ‘charges’ would be brought, and no ‘report’ published. Neither criticism is valid.”
“An enforcement case needs to rest, not on popular desire to find someone to blame, but on whether rules were broken. Legal investigations are also rightly subject to confidentiality. But the criticism raises two legitimate issues. First, do we understand the causes of the crisis, and RBS’ role within it? And second, should executives and directors of failing banks be subject to sanctions, even if they are not guilty of reckless or unprofessional behaviour, but solely of poor business judgements?”
Lord Turner concluded:
“A report woul add little to our understanding of the key causes of the crisis and of the crucial measures required to prevent repetition. It would reveal the same deficiencies of regulatory philosophy already identified, under which the FSA simply did not believe its remit included preventing the ABN Amro acquisition – which was highly risky but breached no regulation. In future we would act differently. It would also reveal that international rules on capital and liquidity allowed RBS to take risks with leverage and wholesale funding, which will not be allowed in future.”
Source: Financial Services Authority
The ABI has warned that the Solicitors Regulatory Authority (SRA) proposals published last week on reform of the solicitors’ professional indemnity insurance may not bring about a solid, sustainable market for this cover. The SRA consultation proposes a two-stage introduction of changes, with some to be made in time for the October 2011 renewals, and others to be implemented in 2012 or later.
The ABI welcomes the proposal to exclude financial institutions from the minimum terms, and limiting the time solicitors’ practices can spend in the APR. However, there is concern that some key issues will not be addressed in time for 2011. These include:
The ABI welcomes the proposal to exclude financial institutions from the minimum terms, and limiting the time solicitors’ practices can spend in the APR. However, there is concern that some key issues will not be addressed in time for 2011. These include:
- The operation and funding of the Assigned Risks Pool (ARP). It is crucial that the way this is funded is addressed, to give some predictability on future costs, as over the last three years nearly 800 firms have amassed losses of £65 million.
- The ability of insurers to void policies for non-payment of premiums and misrepresentation or non –disclosure.
- Ensuring that run-off provisions in the policy are fair and do not allow the public to be put at risk by allowing incompetent or dishonest solicitors to continue practising.
Nick Starling, the ABI’s Director of General Insurance and Heath, said:
“These proposals need to go further if we are to build a stable and sustainable market for solicitors’ indemnity insurance. With the market facing its third major crisis in the last twenty five years, the regulator must grasp this opportunity and act decisively to deliver much-needed reforms that will encourage insurers back into this market. In the coming months we will be discussing these proposals with the SRA and our members to push for effective action to bring greater certainty and stability to this market for insurers and solicitors alike.”
Source: Association of British Insurers
The BBA has stated “CEBS announcement, on top of the FSA rules, changes dramatically the bonus landscape. Taken together, these rules mean that for the key people, whatever is paid in bonus is half in shares, mostly locked away for several years, and any cash will go straight to the tax man. This represents a huge change away from the bonus arrangements of the past.”
“The BBA recognises that the reform of pay structures plays a significant part in restoring confidence in the industry. Banks link pay, both the fixed and variable elements, to the long term success of the business and do not reward staff in ways which encourage undue risk taking.
“For the past year, pay policies and distributions have been regulated by the Financial Services Authority. Banks have also paid additional tax on variable pay. Remuneration policies at banks in receipt of government support are monitored by the government. The UK has moved further on the reform of remuneration than any other jurisdiction. The guidance from CEBS represents a levelling of the EU playing field for most institutions.
“We maintain that reform of the remuneration system in financial services must be globally coordinated. A global industry needs to conform to global standards, as any jurisdiction which takes a lighter approach will attract business and staff. We now need other jurisdictions, notably the USA and emerging markets, to coordinate their reforms with the EU rules.”
Source: British Bankers’ Association
An expected decline in mortgage lending towards the end of the year has now become apparent, data released by the Council of Mortgage Lenders shows. Lending for both house purchase and remortgaging were affected by a lull in activity in October. There were 46,000 loans for house purchase (worth £6.7 billion), down 4% in number and 6% by value from September. The total was 16% lower (12% by value) than in October 2009, but lending numbers in the final quarter of 2009 were boosted as buyers brought forward transactions to take advantage of the stamp duty holiday.
Remortgaging showed a similar pattern, with 26,000 loans (worth £3.1 billion) advanced in October, down 9% (11% by value) from September, and 21% lower (24% by value) than in October 2009.
Remortgaging showed a similar pattern, with 26,000 loans (worth £3.1 billion) advanced in October, down 9% (11% by value) from September, and 21% lower (24% by value) than in October 2009.
Source: Council of Mortgage Lenders
Lloyds have produced a web-cast which is available at
http://www.lloyds.com/The-Market/Operating-at-Lloyds/Solvency-II/Presentation/Market-presentation
http://www.lloyds.com/The-Market/Operating-at-Lloyds/Solvency-II/Presentation/Market-presentation
Source: Lloyd’s of London
