FSA – CEO OUTLINES NEW CONDUCT REGULATION STRATEGY

Hector Sants, chief executive of the FSA, has outlined the FSA’s new consumer protection strategy. Speaking at the annual Lubbock Lecture at Oxford University’s Saïd Business School, Sants described how the regulator will deliver its new approach, involving early detection and intervention, through intensive supervision.

The FSA’s consumer protection strategy seeks to achieve three goals:

• Making the retail market work better for consumers;

• Avoiding the crystallisation of conduct risks that exceed the FSA’s risk tolerance; and

• Delivering credible deterrence and prompt and effective redress for consumers.

It signals the end of ‘reactive regulation’ where, historically, the FSA waited for clear evidence that a product had been mis-sold and consumers harmed before it took action and relied principally on risk disclosure information at the point of sale to avoid mis-selling occurring.

Hector Sants said that "the mechanism for achieving this has three key strands:

• First, seeking to improve the long term efficiency and fairness of the market. This builds on initiatives we have recently undertaken such as the Mortgage Market Review.

• Second, delivering intensive supervision of firms. The new supervisory approach will ensure firms treat their customers fairly and will equip the FSA to intervene earlier in the development of retail products. Interventions of this nature which necessarily involve us making a judgement on potential detriment will need to be based on sound business-model analysis and integrated firm-risk assessment.

• Third, in the event that failure has occurred we will secure the appropriate level of redress and compensation (when justified), and achieve effective credible deterrence by taking tough action against firms and individuals who have transgressed."

The new strategy, involving an integrated model of risk analysis and research, would see the FSA making judgements on firms’ decisions and actively intervening in product design. There will also be a greater willingness to test outcomes through mystery shopping and on-site visits. Furthermore, the FSA will also improve the framework and delivery of redress to consumers, starting with a review of the complaint-handling standards of all the major banking groups.

Hector Sants said:

"A successful consumer protection strategy must restore consumer confidence in the financial market place. A key element of restoring that confidence is that the consumer can trust the regulator. This strategy will restore trust in the regulator and will benefit everyone, consumers and providers."

Hector Sants reiterated:

“A regulator must be willing to place themselves between consumers and harm. We will only achieve this by taking a proactive stance.”


Source: Financial Services Authority

FSA Website

FSA – NEW JOINT COMMITTEE PROPOSED TO ENHANCE CONSUMER PROTECTION

The Financial Services Authority (FSA), Office of Fair Trading (OFT) and Financial Ombudsman Service (FOS) have proposed the creation of a new consumer protection committee to scan for emerging risks.

The committee would identify any risks with the potential to turn into widespread problems, and determine fast and effective ways of dealing with them, whether through regulatory action or consumer complaints.

The work of the committee, set out in the discussion paper, would update the wider implications process, which is often triggered once a problem has already had an impact on both the industry and consumers.

The new committee would draw together specialists from the three bodies to spot emerging risks, increasing the ability of the regulators and ombudsman service to respond quickly and decisively to the threats in the market.

The focus on emerging risks also complements the FSA’s ongoing intensive supervision regime, where firms’ business models are scrutinised along with their product design and marketing material to assess whether any single aspect, or indeed the entire operation, poses unacceptable risks to customers or the wider industry.

Sheila Nicoll, FSA director of conduct policy said:

"Complaints handling is a priority area within the FSA’s intensive supervision agenda. The co-ordination committee is a clear indication of the intention, and will, of the authorities to work even more closely together to improve the experience of consumers, and to avoid problems happening in the first place."

Ray Watson, OFT director of consumer credit, said:

"Identifying and dealing with problems at an early stage is important for ensuring consumers do not suffer unnecessary harm from financial products. We believe that the proposals for a new co-ordination committee and the focus on risk will improve our ability to deal with problems before they become widespread."

David Thomas, interim chief ombudsman:

"The ombudsman service is committed to preventing complaints, as well as resolving them. It's key for regulators and the ombudsman service to continue working closely together to identify potential problems as soon as they emerge, to ensure that consumers are treated fairly and can have confidence in financial services."


Source: Financial Services Authority

FSA Website

FSA – PUBLISHES FINANCIAL RISK OUTLOOK

The Financial Services Authority (FSA) has published its Financial Risk Outlook (FRO) outlining the main risks and issues present in its operating environment, affecting firms, markets and consumers.

This year’s FRO is divided into four sections:

• Macroeconomic background and outlook looks at how fiscal and monetary policy support has limited the scale and duration of the global recession, and the future impact of its removal;

• Financial Stability and Prudential Risks and Issues highlights the importance of effectively managing prudential and financial stability risks for all stakeholders in the financial system. The chapter explores the new regulatory frameworks being developed to strengthen firms’ capital and liquidity management under stressed conditions and the FSA’s updated stress test;

• Market Risks and Issues explores risks derived directly from the crisis and other ongoing risks to which regulators and market participants need to respond;

• Retail Conduct Risks and Issues identifies retail conduct of business risks, some of which have resulted from today’s specific economic circumstances but many of which are rooted in enduring features of retail financial services markets: such as business models that cross subsidise loss-making core products and very high margin products.

The analysis which lies behind the FRO helps inform how the FSA sets priorities and deploys its resources. The FSA’s Business Plan, published next week, describes those priorities and the resulting resource requirements.


Source: Financial Services Authority

FSA Website

FSA – UPDATE ON PPI REFORMS

The Financial Services Authority (FSA) has published feedback to its plans to reform the Payment Protection Insurance (PPI) market and announced a further six week consultation on its revised package of measures.

In response to its consultation (CP 09/23), the FSA received 51 detailed responses from a wide range of stakeholders. Consumer groups were very supportive of the proposals but PPI providers and industry groups were highly critical.

As a result of this detailed feedback, there have been some revisions to the original proposals which, in the FSA’s view, warrant a further short consultation. For example, the wider costs and consumer benefits have altered since the original consultation and the FSA wants to test the revised financial assumptions with firms.

The FSA’s proposed package of measures is designed to ensure customers are treated consistently and fairly, either when buying new PPI policies or making a complaint about an existing one.

Dan Waters, the FSA’s director of conduct risk, commented:

“We’re disappointed that the industry has responded so critically to our proposals but we remain 100 per cent committed to bringing about genuine, lasting change in the PPI market. We do, however, recognise the importance in ensuring that genuine concerns have been listened to."

"Our commitment, nevertheless, is evidenced by the fact that we have halted single premium PPI sales, taken enforcement action against 23 firms, issued two ‘Dear CEO’ letters, undertaken three thematic reviews, conducted numerous mystery shops, and visited over 200 PPI providers. We remain firmly of the view that the PPI market is broken and needs to be fixed.”

The FSA invites further comments on its proposals, and responses must be received by 22 April 2010.

With the FSA having taken enforcement action against 22 firms and imposing fines of £11.8 million over poor PPI selling practices since 2005, TCC can provide assistance to firms, large and small, who are involved in the PPI market. For more information on how TCC can help you cope please call us on 020 7645 8808 or email info@theconsultingconsortium.com


Source: Financial Services Authority

FSA Website

FSA – LIQUIDITY CALIBRATION STATEMENT

The Financial Services Authority (FSA) published its enhanced liquidity regime in October 2009. This introduced both tougher qualitative and quantitative standards for firms.

At that stage the FSA said that it would not tighten quantitative standards before economic recovery is assured given that all firms were experiencing a market-wide stress. The FSA committed to giving a further update in the first quarter of 2010.

The FSA believes that it would be premature to increase liquidity requirements across the industry at the current time. This position will be reviewed later on in the year with a further announcement in Q4, 2010.

Meanwhile, the FSA is continuing to work with firms that are most affected by the new regime focusing on the steps they are taking to mitigate liquidity risk and on the additional impact of our progressively tightening quantitative requirements.

The FSA is also actively contributing to the international debate on liquidity.


Source: Financial Services Authority

FSA Website

CML – BUDGET SUBMISSION

With the date of the Budget now confirmed as 24 March, the Council of Mortgage Lenders has produced a Budget submission urging the government to commit to the ongoing funding of measures to help borrowers in financial difficulty.

The CML's submission also urges the government to use the Budget to announce how it will work with the industry to address the market implications of lenders repaying the £300 bn support given under the Special Liquidity Scheme and the Credit Guarantee Scheme. This is a matter of urgency in view of the scale of the problem and its potential knock-on implications on future funding to support economic recovery.

Finally, the CML urges the government to clarify how it will address growing demand for affordable housing in both home-ownership and rental tenures, against the backdrop of fiscal cutbacks.

CML director general Michael Coogan observed:

"At the moment we cannot see how to square the circle between increasing demand for housing, constraints on the necessary finance to deliver it, the repayment of £300 billion of lending support between 2011 and 2014, and reductions in public spending as the fiscal deficit is addressed. And all of these features apply at a time when more people are going to need housing help."

"Lenders have been active in supporting lending to all tenures, and are committed to delivering an ongoing flow of finance for housing in all its forms, but at the moment there is too little clarity about how the competing policy pressures can be reconciled. The Chancellor should take the opportunity in the Budget to address this."

"We call on the leaders of all political parties to commit to prioritise spending on housing in the coming years, at a time when we recognise difficult investment choices will have to be made in the next comprehensive spending review. Housing can be a driver of economic recovery, but the lack of it contributes to a wide range of social problems."


Source: Council of Mortgage Lenders

CML Website

CML – JANUARY PROPERTY SALES HIT

House purchase loans fell by more than three times the decline in remortgages in January, according to data released by the Council of Mortgage Lenders. This emphatically demonstrates the effect on the mortgage market from the end of the temporary stamp duty holiday in December.

There were 49% fewer house purchase loans in January than in December but only 15% fewer remortgage loans. However, the 32,000 loans for house purchase, worth £4.7 billion, were up from the low of 23,000 (worth £3.1 billion) seen in January 2009. Conversely, the 24,000 loans for remortgage, worth £3 billion, were down from 45,000 (£6.2 billion) a year ago. This is the lowest monthly level of remortgage activity - both by number and value - in eight years of available data.


Source: Council of Mortgage Lenders

CML Website