Compliance News - 11 February 2011
Hector Sants, CEO of the FSA, has written to CEOs of regulated firms to update them on progress towards the new regulatory structure announced in June 2010. The FSA will be replaced in two years by two new regulators:
- The Prudential Regulation Authority (the PRA), which will be a subsidiary of the Bank of England headed by Hector Sants. This will be responsible for promoting the stable and prudent operation of the financial system through regulation of all deposit-taking institutions, insurers and investment banks.
- The Consumer Protection and Markets Authority (the CPMA), headed by latest arrival Martin Wheatley, will be responsible for regulation of conduct in retail, as well as wholesale, financial markets and the infrastructure that supports those markets. The CPMA will also have responsibility for the prudential regulation of firms that do not fall under the PRA’s scope. The government is currently consulting on including unsecured credit within the scope of the CPMA.
FSA announced changes to their management structure which will start to take effect on 4 April, when the current Supervision and Risk Units will be replaced with a Prudential Business Unit (PBU) and a Consumer & Markets Business Unit (CMBU), to effectively foreshadow the new structure. In the interim, the roles previously held by former managing directors Jon Pain (Supervision) and Sally Dewar (Risk) will be covered by Rosemary Hilary (Supervision) and Lyndon Nelson (Risk).
In the lead-up to the final implementation of the “twin peaks” approach due in 2012, there will be some re-prioritising of FSA’s workplan to ensure due regard to their need to focus on the transition. This will mainly be achieved by reducing some of routine supervisory activity. Throughout this process, firms affected by these changes will be kept informed by their supervisors.
The new FSA organization chart can be accessed via the link below:
Source: Financial Services Authority
Peter Smith, Head of Investments Policy at FSA has produced the first RDR newsletter and in his welcome reminds readers that the aim of FSA is to modernise the industry and establish a resilient, effective market, where consumers can have confidence and trust at a time when they need more help and advice.
Summarising the four key areas of rules changes, Peter states that these changes will:
- Improve the clarity with which firms describe their services to consumers;
- Make sure the cost of adviser services is agreed between adviser and client, rather than determined by product providers;
- Increase the professional standards of investment advisers; and
- Ensure personal investment firms have adequate capital resources for complaint redress.
Peter says:
“The next two years will see major changes for all firms that give investment advice. This newsletter aims to help you keep up-to-date with RDR publications and other news, dispel myths, and let you know about other developments that may affect your firm.”
The article on the changes to the Professionalism rules (PS11/1) provides a useful summary of the main changes with links to other relevant areas of information. In terms of what these changes mean for advisers, Peter concludes:
“Now that the final rules have been published, we expect all firms that have not done so already to take action to ensure they are on track to comply with these new rules from 1 January 2013.”
This is where The Consulting Consortium can be called upon to support your firm in formulating that plan, benchmarking it against other clients, tackling troublesome issues and ensuring that you stay on track.
Call us on 020 3008 6020 or email us at info@theconsultingconsortium.com
Source: Financial Services Authority
Hector Sants, CEO of the FSA, addressed the key regulatory issues facing the UK insurance industry, namely:
- The imminent change to a new pan-European set of regulatory rules: Solvency II;
- The imminent change to a new supervisory structure in the UK; and
- The change last month to a new European regulatory structure.
In terms of Solvency II, Mr Sants detailed the perceived benefits of the Solvency II regime, stating that assessing the overall benefits of Solvency II was a complex exercise and the answer on a pan-European basis could well be different than on a national basis alone.
He commented that the FSA was committed to laying out a UK cost-benefit analysis in the next year, but that this was largely an ‘after the fact’ exercise, in the sense that the Directive had already agreed. He went on to acknowledge that there were considerable direct implementation costs being borne by industry directly, and by the FSA itself which in turn were recovered from industry. Aklthough FSA had worked hard to minimise its direct costs of implementation, FSA was currently estimating the FSA’s implementation costs at around £100m, at the lower end of the previously announced range.
In terms of the changes to insurance regulation from a European perspective, Mr Hants stated that the principal change was that, effective from 1 January, Europe had set up a new European Supervisory Authority responsible for European insurance and occupational pensions, termed EIOPA. EIOPA’s core responsibilities were to support stability of financial system, the transparency of markets and financial products and protection of policyholders, it is also envisaged EIOPA will conduct pan-European analysis of trends in the insurance sector. This mandate is wide-ranging but initially, its principal feature will be as the rule making body in Europe. Going forward, the FSA and successor authorities will thus essentially be a supervisory arm of an EU policy setting body.
Mr Hants concluded by stating:
“It is thus vitally important that the UK organises itself to effectively influence decision-making, not just in EIOPA, but also in the wider European framework. I am pleased to say that the FSA (as well as sitting on the Board of Supervisors) is represented on the inaugural Management Board of EIOPA and I can assure you we will invest significant effort, including my own personal time, into fully engaging with the issues facing the insurance sector at a European level. It is also vitally important that the industry continues to invest time to engage with not just EIOPA but with the Commission and European Parliamentary process. I am sure it is apparent through the Solvency II process that well articulated pan-European industry input is carefully listened to and can influence policy-making. It is vital that the UK organisesitself to contribute fully to such initiatives.”
Source: Financial Services Authority
Note that there is a very short response deadline on this consultation, being 4 weeks in respect of proposals affecting small firms and 8 weeks in respect of medium and large firms. Rules with come into force on 1 June 2011.
The proposals cover how firms should report the new Client Money and Asset Return (CMAR) and will be of interest to:
- All CASS investment firms (ie those firms subject to the Client Assets sourcebook);
- Consumers; and
- Individuals who may have senior management responsibilities in relation to a regulated firm’s client money and assets positions.
The proposals do not apply to general insurance intermediaries who only hold client money in line with CASS 5.
Source: Financial Services Authority
Following joint work with the Bank of England, the FSA has published, for consultation, a draft code of practice designed to enhance the dialogue between auditors and supervisors. The aim of the code is to improve audit effectiveness and ensure that supervisors are better informed about, and able to challenge, the firms they regulate. Auditors have an important role to play in the supervisory process as the annual financial statements that they audit form the basis of the prudential information that the FSA uses when supervising firms.
The code of practice proposes a framework for auditors and supervisors to work together in an open and collaborative way. This increased coordination will enhance the ability of the FSA to scrutinise specific accounting practices and related judgements in order to understand fully their implications and to highlight emerging problems. Equally, auditors are expected to gain valuable insights from their dialogue with the FSA when gathering evidence to support their audit opinions.
Principles are set out in the code for auditors and supervisors to follow when they deal with regulated firms. These cover the nature of the relationship between the supervisor of a regulated firm and the firm’s external auditor, how often and in what form they should be communicating with each other and the way that information should be shared between them. For certain firms, the code specifies a minimum level of formal meetings between the supervisor, the external auditor and the firm. It also encourages discussions through informal channels to help both supervisors and auditors fulfil their responsibilities towards regulated firms and enhance the effectiveness of the supervisory and audit process.
Source: Financial Services Authority
This paper will be of interest to electronic money issuers (and those considering issuing e-money) and payment services providers, including:
- ELMIs, small e-money issuers and businesses that want to become authorised electronic money institutions (authorized EMIs) or small EMIs under the new regime;
- Banks, building societies and credit unions;
- Payment institutions;
- Mobile phone companies; and
- Other technical service providers in the payments industry.
The issue will also interest consumers and consumer groups, as the new provisions on safeguarding and redemption increase the level of protection offered to consumers.
The Treasury is implementing the European Commission’s second Electronic Money Directive (2EMD) through the Electronic Money Regulations 2011 (EMRs).
In CP10/25, Implementation of the second Electronic Money Directive: supplement to HM Treasury’s consultation, FSA consulted on changes to the Handbook to enable them to carry out their responsibilities.
Whilst respondents generally supported FSA’s approach, there were concerns on a number of issues, in particular, the content of the Perimeter Guidance, the intention to require EMIs to submit reporting returns by email and transitional provisions for existing electronic money (e-money) institutions (ELMIs) and small e-money issuers that enter into certain e-money contracts before 30 April 2011.
In this Policy Statement, FSA discuss the responses and set out the Handbook rules, directions and guidance. These do not differ significantly from the consultation proposals. FSA also provide feedback on proposed authorisation and registration application fees consulted on in Chapter 2 of CP10/24: Regulatory fees and levies – policy proposals for 2011/12.
Source: Financial Services Authority
Insurers and retailers will do more to help consumers understand the benefits and exclusions of extended warranties, Guaranteed Asset Protection (GAP) insurance and service contracts, following the publication of a new Good Practice Guidance for Providers. The voluntary guidance sets out examples of good practice to help ensure customers are able to choose the right product for their needs.
Nick Starling, the ABI’s Director of General Insurance and Health, said:
“We want to ensure that consumers to be confident they have taken out the right insurance product for their needs and that they fully understand the benefits and limitations the product they choose, whether it’s an extended warranty, service contract or GAP insurance.”
Source: Association of British Insurers
