Compliance News - 19 November 2010
The Financial Services Authority (FSA) has outlined proposals which focus on enhancing the mortgage sales process, the role of intermediaries and improving disclosure of information for customers. The consultation builds on the FSA’s Mortgage Market Review to date, and a key element is requiring that those selling mortgages ensure that each one sold is ‘appropriate’ for the customer’s needs and circumstances, therefore clarifying the role of the mortgage seller (both intermediary and branch based). This follows earlier proposals by the FSA which looked at responsible lending and the role of the lender and the customer, and which set out that the responsibility to assess whether a customer can afford a mortgage ultimately lies with the lender.
Consultation closes on 25 February 2011.
Consultation closes on 25 February 2011.
In addition key proposals include:
- Replacing the obligation to issue an Initial Disclosure Document to the customer with requirements to clearly and prominently disclose key information about how the intermediary will be paid and the service they offer;
- Changing the trigger points for providing the Key Facts Illustration to minimise information overload on consumers and reduce burdens on firms;
- A requirement for all individuals that sell mortgages to hold a relevant mortgage qualification ensuring appropriate professional standards across all sales;
- Replacing the existing labels used to describe the firm’s service with the Retail Distribution Review’s ‘independent’ and ‘restricted’ labels; and
- Requiring firms to disclose to customers whether they will consider deals that can only be obtained directly from a lender.
Sheila Nicoll, the FSA’s director of conduct policy, said:
"This next step of the Mortgage Market Review recognises the importance of the intermediary and ensuring the quality of every mortgage sale. It also indicates how the intermediary and other sales staff fit into our vision of a sustainable mortgage market that works well for consumers. By clarifying the role and responsibility of mortgage sellers, we are removing the blurring that could take place between the role of seller and lender."
Source: Financial Services Authority
Sheila Nicoll, Director of the Conduct Policy Division, FSA, addressed the Mortgage Industry Conference & Exhibition 2010. She stated “The MMR is no knee-jerk reaction. From humble origins as a post-implementation review of effectiveness way back in 2005 it builds on a great wealth of accumulated evidence and knowledge. Of course it considers the experiences of the market in crisis, but the analysis goes much deeper than that.
We are not proposing instant change. Ours is a steady course, where a Discussion Paper setting out our broad vision has been followed by subsequent consultations inviting more detailed views. Where necessary, we’re also using these consultations to ask more open questions to help inform our thinking. We plan to continue working in this way, as we further develop our thinking on issues such as interest only and the transitional arrangements. We will only act when we are certain that we have identified appropriate remedies, that they are proportionate, and that they will deliver real benefit.
We’re looking for a positive impact across the economic cycle - and this also means we will closely monitor market conditions when deciding when changes should take effect. There is no undue haste on our part, just a real wish to bring about long-term improvement. I know you want to see the same. In conclusion then, we remain keen to work with firms, consumers and all those with an interest so that we arrive at the right answer.
Source: Financial Services Authority
The Financial Services Authority (FSA) has published proposals to ensure that the platform services used to buy and manage investments after January 2013 are fully aligned with standards required by the Retail Distribution Review. From January 2013, the cost of advice will be decided by the client and adviser – not the adviser and product provider, as was the case - and can no longer be hidden from the customer in the cost of the product. Consultation closes on 17 February 2011.
Additionally, advisers will offer either independent advice which is free from restrictions or bias and which reviews the market comprehensively – or alternatively, restricted advice, having to explain the customer the nature of the restriction to their customer. The proposals set out in the paper reflect the important role that platforms already play in the retail investment market, and potentially important role in helping advisers to deliver advice to consumers in a post- commission world.
The main proposals:
- Prevent product providers from making payments that advisers could use to disguise the charge the customer is paying for advice, and which could influence advisers in recommending one product over another. Allowing such payments could totally undermine what we have set out to achieve for consumers by removing commission bias and could leave product charges at an artificially high level;
- Ensure platforms allow their customers to transfer their investments elsewhere without having to cash them in first – a practice which can result in losses;
- Requiring platforms to be upfront about the income they receive from fund managers or product providers. This will make it easier for advisers and consumers to compare different types of platform and the services provided;
- Make sure that customers who invest in funds through platforms are provided with information about the fund from their fund managers, and maintain their voting rights.
Sheila Nicoll, the FSA’s director of conduct policy, said:
"Platforms are an increasingly significant feature of the retail investment market, and they have benefited customers and advisers alike. When the market opens for business in January 2013, the platform services used by advisers and customers must be able to deliver services that are consistent with the aims and objectives of the RDR. They will need to be ready to support a market where commission bias no longer exists and the myth of free advice is dispelled."
Source: Financial Services Authority
The Financial Services Authority published its enhanced liquidity regime in October 2009 which introduced both tougher qualitative and quantitative standards for firms. At that stage the FSA took the decision not to tighten quantitative standards.
Since then, the Basel Committee has moved further towards introducing minimum global liquidity requirements that would be implemented through EU law. The FSA will consider how best to calibrate the UK regime once these international proposals have been finalised.
Given this development, the FSA does not believe it is appropriate to set industry-wide transition requirements for the UK’s larger banks at this stage, although they should expect to at least meet any new international standards by the currently proposed implementation date of 1 January 2015.
Source: Financial Services Authority
Financial Services Authority (FSA) chairman, Lord Turner, has met with US Securities and Exchange Commission (SEC) chairman Mary L Schapiro as part of the SEC-FSA Strategic Dialogue sessions established in 2006. During the meeting, the agencies shared views regarding the oversight of over-the-counter derivatives trading, high-frequency trading, recent regulatory initiatives regarding credit rating agencies, and cross-border enforcement information-sharing between the FSA and SEC.
Lord Turner and Chairman Schapiro also restated their agencies’ commitment to working together to improve regulation and oversight of their securities markets, particularly with regard to globally active regulated firms with a presence in both countries.
Lord Turner and Chairman Schapiro also restated their agencies’ commitment to working together to improve regulation and oversight of their securities markets, particularly with regard to globally active regulated firms with a presence in both countries.
Lord Turner said:
"As regulators, we all now face issues that cross borders and require international co-ordinaton. It is important that we are able to find common ground in approaching these issues and this continuing dialogue with the SEC forms a key part of this process."
"As regulators, we all now face issues that cross borders and require international co-ordinaton. It is important that we are able to find common ground in approaching these issues and this continuing dialogue with the SEC forms a key part of this process."
SEC chairman Schapiro said:
"Both the SEC and FSA are in the process of drafting vital new rules for our own markets. Meetings like this with our UK counterparts at the highest levels give the Commission a better understanding of how similar market concerns are viewed in London. Given the international nature of the recent financial crisis, this exchange of views can only improve the regulatory solutions we develop to these challenging problems."
"Both the SEC and FSA are in the process of drafting vital new rules for our own markets. Meetings like this with our UK counterparts at the highest levels give the Commission a better understanding of how similar market concerns are viewed in London. Given the international nature of the recent financial crisis, this exchange of views can only improve the regulatory solutions we develop to these challenging problems."
Source: Financial Services Authority
The ECJ has decided, in AXA UK PLC, that the administration of direct debit arrangements for dentists is subject to VAT because it is "debt collection" and therefore outside the VAT exemption for services related to finance. The decision is an important one on the scope of the VAT exemption for financial services and will have implications for outsourcing or other services structures which include similar arrangements.
Source: Pinsent Masons
ABI good practice guidance launched at the beginning of the year is making it easier and clearer for consumers to compare and buy general insurance products, such as motor and household insurance, online, the ABI said. The voluntary guidance has now been adopted by price comparison websites representing 80% of the insurance price comparison website market. It is also relevant to insurers and intermediaries offering insurance online. It was been developed by the ABI, leading insurance comparison websites, The British Insurance Brokers Association and Which?
The first review of the implementation of the guidance highlights that all participating comparison websites are now:
The first review of the implementation of the guidance highlights that all participating comparison websites are now:
- Clearly displaying the total excess payable, and explaining the difference between any voluntary and compulsory excess.
- Highlighting any additional add-ons that are part of the premium quoted to the customer.
- Making customers fully aware of the consequences of knowingly entering inaccurate information.
- Informing customers how long their quotes are valid for and allowing them to review their information before they buy a policy.
Nick Starling, the ABI’s Director of General Insurance and Health, said:
“This guidance is helping millions of customers buying general insurance get the best policy for their needs before they click to buy. Over two-thirds of customers use the internet to arrange their motor insurance alone, and the speed and convenience of going online must be balanced by ensuring that people understand the terms and conditions of the policies they are comparing. We are working with participating comparison websites, insurers and intermediaries on areas where further improvements can be made, to ensure that the customer gets the best possible experience when arranging insurance online.”
“This guidance is helping millions of customers buying general insurance get the best policy for their needs before they click to buy. Over two-thirds of customers use the internet to arrange their motor insurance alone, and the speed and convenience of going online must be balanced by ensuring that people understand the terms and conditions of the policies they are comparing. We are working with participating comparison websites, insurers and intermediaries on areas where further improvements can be made, to ensure that the customer gets the best possible experience when arranging insurance online.”
Source: Association of British Insurers
The Council of Mortgage Lenders has submitted its response to the Financial Services Authority's consultation paper (CP 10/16) on responsible lending. The CML shares the FSA’s vision to "deliver a sustainable market for all participants and which is flexible for consumers", but believes the policy and rules as drafted will not deliver these outcomes.
The CML calls on the government to ensure a proper policy debate, and calls on the FSA to take greater account of the market environment and to reconsult on a more proportionate set of rules after a thorough and complete impact analysis.
Source: Council of Mortgage Lenders
The Financial Services Authority's latest mortgage market review consultation paper on distribution and disclosure (CP 10/28) appears to intend to push the market towards a greater proportion of advised sales, and to tip the balance of responsibility for product choice further away from consumers, the Council of Mortgage Lenders believes.
Under the proposals, when mortgages are sold by intermediaries rather than directly by lenders, intermediaries would no longer be responsible for assessing the affordability of a mortgage for a customer, yet would be required to consider the appropriateness of the mortgage (which seems difficult in the absence of a formal requirement for an affordability assessment).
Under the proposals, when mortgages are sold by intermediaries rather than directly by lenders, intermediaries would no longer be responsible for assessing the affordability of a mortgage for a customer, yet would be required to consider the appropriateness of the mortgage (which seems difficult in the absence of a formal requirement for an affordability assessment).
And, because the FSA believes that few customers in practice shop around or use disclosure information to inform their mortgage choices, it is proposing an increased level of advice or quasi-advice in the form of an "appropriateness test" to be applied to all customers in all cases by the person selling the mortgage. In turn, this has led the FSA to conclude that all mortgage sellers should have the same level of qualification, whether or not they are making a product recommendation.
CML director general Michael Coogan commented:
"The big theme running through the mortgage market review, reflected again in this latest consultation paper, is a shift in the balance of responsibility away from the consumer. We will need to assess carefully whether there is a risk that, in following this path, the FSA embeds a culture of consumer apathy in the mortgage market, where someone else will always to be available to blame for the consumer's financial decision if it goes wrong.
While we fully accept lenders' responsibilities to assess affordability in a realistic and practical way, we think there is a big question mark about whether this is the right route to take if we want to achieve financial capability and responsible borrowing by consumers."
While we fully accept lenders' responsibilities to assess affordability in a realistic and practical way, we think there is a big question mark about whether this is the right route to take if we want to achieve financial capability and responsible borrowing by consumers."
Source: Council of Mortgage Lenders
Gross mortgage lending in October was an estimated £12.4 billion, unchanged from September but down 9% from £13.6 billion in October 2009, according to new data from the Council of Mortgage Lenders. This is the lowest October total since 2000 (£9.9 billion).
The month-on-month annual comparison is likely to continue to decrease a little in the coming months, because underlying lending volumes rose sharply in the latter part of 2009 as borrowers rushed to take advantage of the stamp duty concession before the end of the year.
In a speech at the Council of Mortgage Lenders’ 2010 Mortgage Industry Conference and Exhibition, CML Chairman Matthew Wyles said the industry was likely to end 2010 having done around £137 billion gross lending, and around £9 billion net lending. The market remains subdued.
Source: Council of Mortgage Lenders
After almost a decade of development regulators are now putting the finishing touches to Solvency II, new rules governing European insurers’ capital adequacy.
The regime is set to modernise the way European insurers are supervised, further developing the industry’s risk management and fostering regulatory harmonisation across Europe and with key insurance markets around the world.
Regulators require insurers to put aside minimum levels of capital to back the risks they assume and ensure that they are able to meet their commitments to policyholders. However, the current EU framework governing insurer’s capital requirements, Solvency I, has been in place since the 1970s and is now out of step with the advances in risk management championed by leading insurers and regulators.
Its replacement, Solvency II, has been a long time in the making - EU regulators first recognised the need for a more harmonised and modern approach in the 1990s. However, the project is now nearing completion with implementation measures and regulatory guidelines due in 2011, ready for the planned start date of 1 January 2013.
Solvency II is being watched carefully by regulators overseas, keen to establish a level playing field with Europe or just learn from best practices. It is considered by some as a potential model for future insurance regulation internationally and includes mechanisms for greater cooperation with non-EEA regulators.
In particular, leading insurance markets in Bermuda and Switzerland have revised their own regulatory regimes to bring them in line with Solvency II. These countries are working with the EU to achieve “equivalence” of policyholder protection, which should increase security further through coordinated supervision of insurance groups and reduce the cost of compliance for those operating across borders.
In the long term regulatory equivalence could see greater alignment with other supervisory regimes, notably the US and Japan, which are at differing stages of reforming their own risk-based framework.
Source: Lloyds of London
