Compliance News - 13 August 2010
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FSA – REFORMS THE PPI MARKET AND PROTECTS CONSUMERS
The Financial Services Authority (FSA) has published a policy statement confirming its package of measures to protect consumers in the Payment Protection Insurance (PPI) market.
The package will ensure customers are treated more fairly when complaining about PPI and better when buying the product; it includes: • New handbook guidance to ensure complaints are handled properly, and redressed fairly where appropriate; • An explanation of when and why firms should analyse their past complaints to identify if there are serious flaws in sales practices that may have affected complainants and even non-complainants; and • An open letter setting out common sales failings to help firms identify bad practice. Firms must implement the measures by 1st December 2010, with the time in between to prepare for implementation such as training staff to a higher level. The FSA will be monitoring firms closely to ensure the new standards are adhered to. Dan Waters, the FSA’s director of conduct risk, said: “Today is the culmination of months of hard work and now, with these measures, we look forward to consumers being treated fairly whether they are buying or complaining about PPI. Since we took over the regulation of PPI we’ve carried out 24 investigations and three thematic reviews, issued warnings, halted the selling of single premium PPI with unsecured personal loans, visited over 200 firms, and handed out some very significant fines. Now, with this package of measures we’re confident we can mend a market that has been broken for too long." "This remedy is fair to consumers and the industry alike. The onus is now on the industry to ensure it treats all customers fairly. We will be monitoring the implementation of our guidance closely to ensure real change is delivered." The policy statement follows consultation that saw significant levels of highly detailed feedback from PPI providers, sellers, trade groups and consumer bodies. The measures follow up on the FSA’s commitment to reform the market and build on the agreement the FSA secured from the industry in 2009 to stop selling single premium PPI on unsecured loans. The FSA has also taken action against 24 firms and individuals for PPI failings with fines totalling approximately £13 million. Source: Financial Services Authority |
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PAYMENT PROTECTION INSURANCE (PPI)
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ABI – “NEST” REVIEW CONSULTATION
The ABI has submitted its response to the Department for Work and Pensions’ Workplace Pension Reforms Review.
Commenting on the main findings, Maggie Craig, the ABI’s acting Director General said: “The ABI fully supports automatic enrolment into workplace pensions, which needs to be implemented without delay. This is vital to tackling the chronic lack of saving for retirement, and helping thousands of people avoid a dramatic drop in income and living standard when they retire. The insurance industry will continue to work with the Government to help make automatic enrolment a success, such as giving employers a simple method of certification for existing good pension schemes. However, as things stand, it is unlikely that the private pensions industry could replace NEST.” “To make sure only those who can afford to save are included, only people earning £10,000 and over should be automatically enrolled. But those earning less should be allowed to opt-in. The Government needs to make it as easy as possible for employers who already contribute generously to good pension savings for their employees to continue to do so. This is why contributions should be based on basic earnings from £1 – not a complex formula. If the basic pay method is not used, it will result in many employers abandoning existing good pension schemes and contribution levels, and moving to the easy option of minimum mandatory contribution levels. If this happens, it risks resulting in many people saving less for retirement, not more. As things stand, it is unlikely that the private pensions industry could fill the gap if NEST did not go ahead. But we look forward to helping employers who want to offer their employees more generous pension arrangements than they can provide through NEST; and to helping the Government make automatic enrolment a success.” Source: Association of British Insurers |
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CML – DECLINE IN ARREARS AND REPOSSESSIONS
The number of properties taken into possession by first-charge mortgage lenders continued to fall in the second quarter of 2010, according to the latest data from the Council of Mortgage Lenders. There were 9,400 repossessions (down from 9,800 in the first quarter and 11,800 in the second quarter of 2009).
The number of mortgages behind with payments also fell. As at the end of June there were 178,200 loans with arrears equivalent to 2.5% or more of their mortgage balance. This was 5% lower than at the end of March, and 17% lower than a year earlier. The continuing welcome decline in payment problems has led the CML to revise its forecasts for arrears and repossessions in 2010 as a whole. The CML now expects 175,000 mortgages to end the year 2.5% or more in arrears, compared with the previous forecast of 205,000. A total of 39,000 repossessions is now forecast for 2010 as a whole, compared with the previous forecast of 53,000. However, there is no room for complacency looking further ahead. The headline arrears figure masks differences in the experience of different arrears bands. For example, in the lowest arrears category (between 1.5% and 2.5% of balance, or £1,500 to £2,500 on a £100,000 mortgage) there has been a marked improvement from the peak in the first quarter of 2009, when 1% of all mortgages were in this category, to 0.7% now. But in the highest 10% or more arrears category, the proportion of mortgages has remained almost static at 0.23% (compared with the peak of 0.24%). In the higher arrears categories, some mortgages will have improved, and returned to lower categories, while others will have worsened and followed through to repossession, and will in turn have been replaced by other mortgages flowing up from lower arrears bands where arrears are worsening. It is notable that, unlike the lower arrears bands, the higher bands are showing less of a decline, suggesting that there is still a significant segment of borrowers whose arrears may have been stabilised through lender forbearance or other support, but whose situation is not improving enough to enable them to claw their way out of problems. These finely-balanced arrears cases are the ones who may be at most risk of tipping into repossession if there are negative changes such as higher interest rates or reduced benefit support. Source: Council of Mortgage Lenders |
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CML – REPORTS SECOND QUARTER BUY–TO–LET RESULTS
 The freezing up of the buy-to-let mortgage market that emerged as an unwelcome side-effect of the credit crunch appears to have eased a little, according to the latest buy-to-let survey results from the Council of Mortgage Lenders.
While buy-to-let lending still remains very subdued and ongoing challenges remain, in the second quarter of 2010 the number of buy-to-let mortgages taken out was 24,900. This was13% up on the 22,000 in the first quarter, and 15% higher than the 21,600 in the second quarter of 2009. The value of buy-to-let lending in the second quarter was £2.4 billion, of which £1 billion was remortgaging. Although business is only just over a quarter of its level of three years ago, both the number and the value of buy-to-let loans were at their highest level since the fourth quarter of 2008 (other than in the fourth quarter of 2009 - where demand was artificially inflated by the end of the stamp duty concession). As at the end of June, there were 1.26 million buy-to-let mortgages outstanding, worth a total of £149 billion. By value, buy-to-let mortgages accounted for 12% of all mortgages, the highest proportion since records began. In the buy-to-let market, arrears cases have improved markedly. Repossession rates remain higher than in the owner-occupier market, however, not least because of the extended forbearance that lenders extend to home-buyers to try to help prevent them losing the homes in which they live. In the buy-to-let market, a "receiver of rent" may also be appointed, instead of the lender taking possession of the property. Source: Council of Mortgage Lenders |
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CML – FIXED RATE MORTGAGES GAIN POPULARITY IN JUNE
48% of new borrowers took out a fixed rate mortgage in June, the highest proportion so far in 2010, according to new data from the Council of Mortgage Lenders. Fixed rates had proved unpopular this year compared to the last several years due to an historic low bank rate with little prospect of the rate rising. But with fixed rate prices falling they are starting to find favour again.
House purchase lending increased significantly in June. There were 52,000 loans advanced (worth £7.6 billion), up 19% in volume (23% in value) from May 2010 and up 14% in volume (27% in value) from June 2009. This is now the twelfth consecutive month in which lending has been higher than its year-earlier levels. Lending for remortgage also increased, though only modestly, in June. There were 27,000 loans for remortgage, worth £3.4 billion, up from 26,000 (worth £3.2 billion) in May 2010 but down from 34,000 (worth £4.2 billion) in June 2009. Source: Council of Mortgage Lenders |
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FSSC – NEW NEWSLETTER PUBLISHED
Please click on the link below for the new newsletter published by the Financial Services Skills Council.
Source: Financial Services Skills Council |
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FOS – PPI INSURANCE HELP PAGES
 Click here for the official Financial Ombudsman Service guidance. There is new guidance following the FSA guidance and decisions this week.
Source: Financial Ombudsman Services |
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FSA – UNREGULATED COLECTIVE INVESTMENT SCHEMES
The FSA published its findings following a review of the promotion of unregulated collective investment schemes (UCIS) by small firms.
An UCIS is a collective investment scheme (CIS) that is neither authorised nor recognised by the FSA pursuant to Part XVII of the Financial Services and Markets Act 2000 (FSMA). An UCIS may be established, operated and/or managed in the UK or in a jurisdiction outside the UK. An UCIS is described as unregulated because it is not subject to the same restrictions as an authorised or recognised CIS, for example, in terms of their investment powers and how it is run. Although the schemes themselves are not authorised or recognised by the FSA, persons carrying on regulated activities in the UK in relation to an UCIS will be subject to FSA regulation, including Handbook requirements like the Conduct of Business Sourcebook (COBS). FSA's findings Firms were unaware of the statutory restriction under section 238 FSMA on promoting an UCIS to the general public. This provides, in brief, that an FSA authorised person is precluded from promoting an UCIS unless an exemption applies. Firms failed to use the available exemptions under: • The Financial Services and Markets Act 2000 (Promotion of Collective Investments (Exemption) Order 2001 (SI 2001/1060) (PCIS Order), that includes certified high net worth individuals, certified sophisticated investors and self-certified sophisticated investors; or • COBS 4.12, for example, persons who are already participants in an UCIS; persons for whom the firm has taken reasonable steps to ensure that investment in an UCIS is suitable and are established or newly accepted clients of the firm; • Or who are eligible counterparties or professional clients. The most common reason for non-compliance with the requirements as to promotion of an UCIS was firms’ lack of knowledge and awareness of regulatory requirements for the promotion of an UCIS, as well as a lack of understanding of what amounts to a ‘financial promotion’. Firms sold UCIS to customers for whom they may not be suitable. Firms failed to demonstrate suitability of advice due to failure to obtain (and retain on file) adequate "know your customer" information. The FSA found the most common reason for this failure to be inadequate consideration by advisers of the high proportion of customers’ overall portfolios which had been invested in an UCIS. This appeared to misbalance the risk tolerance within their portfolios and therefore did not match customers’ attitude to risk. As a result of their findings, the FSA: • Required 11 firms to vary their Part IV permission so they cease advising on, arranging or otherwise promoting, any UCIS or any other scheme or product which involves investment in such unregulated scheme, to any of their customers, until a full review has been completed by a skilled person and any required remedial actions undertaken; • Required these 11 firms to appoint a skilled person, nominated or approved by the FSA, under section 166 FSMA to review their UCIS promotions; • Is considering referring a number of firms to its Enforcement and Financial Crime Division due to concerns of non-compliant promotions and customers that may not be eligible to have received promotions of an UCIS; and • Required five firms to carry out past business reviews of the UCIS advice they have given. What firms should be doing The FSA's main concerns include: • Firms’ lack of awareness of regulatory requirements for UCIS; • Firms’ lack of understanding of the UCIS market and their risks; and • UCIS promoted and recommended to customers who were not eligible for this type of investment. The FSA will continue monitoring developments in this market and the results of their supervisory activities and, if necessary, consider whether further regulatory action is required. Therefore, firms should: • Ensure they comply with all of the applicable regulatory requirements in respect of promotion of an UCIS to the general public and, where this is not the case, they should take appropriate action (including remedial); • Ensure that, where they have been advising retail customers to invest in an UCIS without explicit regard to the statutory restrictions, they should check with their professional indemnity (PI) insurer whether their PI cover remains valid; • Review their selling practices to ensure that suitable advice on UCIS is delivered; • Review their systems and controls especially in relation to financial promotions (including checking when and whether a customer is eligible to receive promotions of an UCIS) and risk profiles of customers; and • Consider temporarily ceasing promotion of, advising on and/or arranging further UCIS transactions, including transfers from one UCIS to another, until they have reviewed and aligned their UCIS financial promotion processes and practices to the requirements of section 238 FSMA, the PCIS Order and COBS 4.12. Source: Pinsent Masons |
