FSA – FEEDBACK TO TURNER REVIEW CONFERENCE DISCUSSION PAPER

Continuing their response to The Turner Review, FSA have summarised feedback received to The Turner Review Conference Discussion Paper (DP09/4), published in October 2009 and have outlined where they will consider this in their future work programme. Those with a general interest in the financial services industry will be interested in this publication. Elements of The Turner Review Conference Discussion Paper and this Feedback Statement are broader than The Turner Review, which focused on banking and investment banking activities. This paper will therefore be of interest to other types of regulated firms, including insurance companies.

Although consumers and consumer groups may be less interested in this debate, there are implications for the global regulatory framework and global banking system as FSA move forward, which have clear implications for consumers. The global financial industry is now recovering from the financial crisis which began over two years ago. However, the world’s financial markets and their regulators still face difficult challenges.

Since publication of The Turner Review, FSA has been working to design a new regulatory framework for the banking industry, however, there is still much to be done. This paper summarises the feedback received to The Turner Review Conference Discussion Paper, which outlined FSA thinking on systemically important banks and the cumulative impact of capital and liquidity reform. It also sets out where the feedback will be considered in the FSA’s future work.

The responses received to The Turner Review Conference Discussion Paper, other papers, and FSA’s ongoing dialogue with international counterparts, firms, trade bodies and other parties will continue to inform the regulator’s thinking as they develop policy proposals. The FSA is working with the Basel Committee’s Macro-prudential Group to develop proposals to address the risk of systemically important banks. Specifically, the FSA is developing proposals for consultation in 2010/2011 on Recovery and Resolution Plans, as reported in the FSA’s Business Plan.


Source: Financial Services Authority

FSA Website

FSA – PUBLISHES REVIEW OF “WITH PROFIT” SECTOR

The Financial Services Authority (FSA) has published the findings of its comprehensive review into the operation of with-profits funds. The review focused on whether firms are treating their with-profits policyholders fairly, looking specifically at how senior management in firms have implemented FSA rules.

The review showed the performance of firms is mixed. Some firms are performing satisfactorily; however, a significant number of firms are not adequately demonstrating the practices the FSA expects from a well-run with-profits business.

The two main areas of concern are:

• Ineffective governance of with-profit funds, especially in how independent challenge is provided by firms' with-profits committees, which means that policyholders' interests may not be properly protected; and

• Significant weaknesses in the quality of consumer literature - the FSA is not satisfied that all firms are doing enough to ensure that policyholders receive sufficiently comprehensive, timely and clear information to help them understand their policies.

The FSA is addressing these concerns. Firms have been told to take action quickly to improve their operations; for example, several firms have been directed to make immediate changes to their governance arrangements to better protect policyholders' interests. The FSA will be monitoring firms' responses closely, and will consider disciplinary action if firms do not address the concerns. Two firms have been referred to the FSA's enforcement division for further investigation.

The review showed that some aspects of the rules around with-profits could be further strengthened to provide greater protection for policyholders. This will be the subject of further policy work and the FSA will set out any proposed changes in a consultation paper by the end of 2010.


Source: Financial Services Authority

FSA Website

FSA – ICOBS POST IMPLEMENTATION REVIEW

In 2008, the Insurance: Conduct of Business Sourcebook (ICOBS) replaced the old Insurance: Conduct of Business (ICOB) sourcebook. The approach taken in ICOBS varied in several respects to that taken in the original ICOB regime.

FSA have conducted a post-implementation review to:

• Assess the effects of taking a more principles-based approach on general insurance markets;

• Determine whether new rules for protection products are being implemented as intended and assess the impact of more detailed oral disclosure requirements on consumer outcomes; and

• Examine consumer outcomes in the Private Medical Insurance (PMI) market.

Post-Implementation Review (PIR) findings:

The effects of taking a more principles-based approach on general insurance markets: Analysis did not show that firms have changed their processes due to the move to more principles-based regulation, in ways which have negatively affected consumer outcomes in general insurance markets.

FSA did not see any immediate requirement for rule changes as a result of this analysis; however they will continue to monitor emerging business models in these markets – including situations where intermediaries are involved in the product design process – and intervene where FSA see potential for consumer detriment.

The extent to which firms have implemented the new rules for protection products and the effectiveness of more detailed oral disclosure requirements: FSA found that firms are not meeting specific oral disclosure rules in Critical Illness Cover (CIC) telephone sales in several areas and consumer research indicates that consumer understanding of CIC remains poor.

FSA intended to test if improved oral disclosure results in improved consumer understanding; however, the unexpected lack of compliance in surveyed firms means FSA have been unable to come to any conclusion on the effectiveness of oral disclosure.

FSA have written to the firms involved in the call listening exercise, setting out the various failings identified and requiring them to take steps to ensure they address gaps in their compliance with FSA rules. FSA will follow this up as part of their more intensive supervision activity in relation to conduct risks, which for the largest groups will include a rolling programme of conduct assurance work and detailed outcomes testing. FSA will take further regulatory action where they find evidence of persistent failure to meet their standards.

Consumer outcomes in the PMI market:

FSA have not found clear evidence to suggest that removing detailed rules has increased the risk of consumer detriment in the PMI market, or that there are risks of consumer detriment relating to PMI that can be addressed by changing FSA’s regulatory approach.


Source: Financial Services Authority

FSA Website

FSA – JON PAIN TO LEAVE IN 2011

The Financial Services Authority (FSA) has announced that Jon Pain, managing director of Supervision and an FSA Board member, has decided to leave the organisation in 2011.

Hector Sants said:

"Following the announcement that the FSA will be split in 2012, Jon Pain has decided that there will not be a suitable role for him in the new structure. So, it is with regret that I have to announce that Jon has decided to leave the FSA next year. However, he has agreed to carry on as managing director of Supervision until the switch over to the new structure within the FSA, which we hope to achieve in January 2011."

"I would like to express my appreciation for Jon’s outstanding contribution and strong leadership in his time at the FSA. He joined in September 2008 and he has been at the forefront of both managing the financial crisis and developing our new regulatory approach. I fully understand his decision to look for a new challenge once the reorganisation is complete and wish him all the best for the future both professionally and personally.”


Source: Financial Services Authority

FSA Website

FSA AND FRC – ENHANCING AUDITORS’ CONTRIBUTION TO PRUDENTIAL REGULATION

The Financial Services Authority (FSA) and the Financial Reporting Council (FRC) have issued a discussion paper which considers ways of enhancing auditors' contribution to regulation. High quality corporate reporting, audit and assurance support effective governance and underpin market confidence and market discipline. Together with effective communication between the FSA, regulated firms and their auditors, they are critical to achieving the FSA's objectives relating to market confidence, financial stability and consumer protection. They are also central to the FRC's complementary objectives in promoting high quality corporate governance and reporting to foster investment.

The purpose of the paper is to stimulate debate on the role of auditors following the financial crisis. The paper, therefore, explores how the FSA, the FRC and auditors can work together more effectively to enhance auditors' contribution to prudential regulation.

The paper:

• Questions aspects of the quality of audit work relevant to prudential regulation - in particular, whether the auditor has always been sufficiently sceptical and has paid sufficient attention to indicators of management bias when examining key areas of financial accounting and disclosure which depend critically on management judgement;

• Outlines the FSA's concerns about auditors' work on client assets and how auditors fulfil their legal obligation to report to the FSA;

• Explores a variety of ways in which changes are being made and further changes could be made by the FSA, the FRC and auditors to increase the effectiveness with which auditors undertake their work; and

• Examines the regulatory environment in which auditors operate more widely and suggests measures to enhance how auditors contribute to prudential supervision.


Source: Financial Services Authority

FSA Website

FSA – PUBLISHES LIST OF RDR ADVISER QUALIFICATIONS

The Financial Services Authority (FSA) has published the final list of qualifications retail investment advisers will need to pass before 1 January 2013. This provides the certainty advisers need to prepare for the implementation of Retail Distribution Review (RDR) requirements.

Qualifications and ongoing study form part of the FSA’s plan to enhance the reputation of the retail investment market by instilling greater professionalism and ethics. Increasing customers’ trust and confidence in the sector is vital for its future.
The FSA is consulting on whether advisers will also be required to hold a Statement of Professional Standing confirming that they are qualified to give advice, have kept their knowledge up-to-date and subscribe to a code of ethics. The statements will be issued by FSA-accredited professional bodies.

To be accredited, the bodies will have to promote professional excellence, and prove their ability to apply a consistently high standard of checks on advisers. Setting the same requirements for all bodies will help deliver a uniformity of standards across the industry.

Confirming its proposal from December 2009 not to create a new Professional Standards Board, the FSA itself will set the standards it expects of investment advisers, and will supervise and enforce this through increased oversight of individual advisers.


Source: Financial Services Authority

FSA Website

For more information on how TCC can help you cope with RDR and all the RDR Training requirements, please call us on 020 7645 8808 or email us.

Alternatively, download our RDR Summary White Paper here.


Source: The Consulting Consortium

TCC Website

FSA – BACKS OFT BAN ON “READ AND UNDERSTOOD” CONTRACTS

Even if a company has asked a consumer to confirm that they should not rely on that assertion to ignore complaints about unfair contract terms, the FSA said.

The FSA said that the practice of including a checkbox for consumers to confirm that they have read and understood terms and conditions is a breach of the Unfair Terms in Consumer Contracts Regulations.

"Firms should provide consumers with an opportunity to read a contract, understand it and ask questions about any aspects of the contract that they are unsure of," said guidance published by the FSA. "A declaration requiring consumers to agree that they have read and understood a contract is, in our view, unfair. This is because the statement may not be true and may not reflect what has actually happened."

"Consumers may not have either read or understood the contract and so are not in a position to declare that they have in fact done so. In this instance, the declaration is effectively meaningless and does not reflect the circumstances in which the particular consumer signs their contract," it said.

"The law requires consumers to be given an opportunity to examine all the terms in a contract. A declaration of this nature could be used by a firm to claim that it gave customers an opportunity to read a contract when it did not actually do so. The firm could argue that because a consumer has signed to say that they have read and understood a contract, this means the firm has fulfilled its obligation to allow the consumer to examine all the terms. This may not in fact be true. Therefore the use of a declaration in this way is unfair," the FSA said.

"It is preferable for ‘have read and understood declarations’ instead to give a clear warning to consumers that they should read and understand terms before signing them and that consumers should ask questions if they do not understand any terms," said the FSA guidance.

The FSA said that it is perfectly fair for companies to ask consumer to declare some things, but only things that are within the direct experience of the consumer.

"Consumers are in the best position to know personal information such as their age, gender or address. They are also best placed to know facts such as whether or not they have had any insurance claims refused before, or whether they have any pre-existing medical conditions," said the FSA guidance. "Because the consumers know this information, we may well regard it as acceptable for consumers to sign declarations in respect of it."


Source: Out-Law.com

Out-Law Website

FSA – SMALLER WHOLESALE INTERMEDIARIES NEWSLETTER AND ANOTHER DEPARTURE

Introduction from Tony Brooke-Taylor, Financial Services Authority, Head of Wholesale Insurance Department.

It’s just two months since our first Smaller Wholesale Insurance Intermediaries Newsletter and already we have a number of important things to tell you about.

One of the key issues that featured in the last edition was our focus on financial crime. Since then, many businesses have been considering the implications of the Bribery Act 2010, which was passed into the statute book in April and is expected to become law later this year.

In May, we also published a report on the findings of our review of anti-bribery and corruption systems and controls in commercial insurance intermediary firms. While our report illustrated ways in which meeting our standards could be helpful in addressing some of the requirements of the Bribery Act, the main theme was that many of the firms we reviewed failed to meet our expectations.

We intend to make this a key area of our approach to reviewing smaller firms, and we provide more detail about this in our newsletter. If you have not already studied the report, I would recommend that you do so as we intend to make this a key part of our approach to reviewing smaller firms.

On a more personal note I wanted to let you know that I shall be leaving the FSA at the end of June to return to the industry. In my four years here a lot has changed.

One of the developments that I am most pleased about is the way that the insurance intermediary sector has responded to being regulated and – although I would say this – the way that the supervisory teams have developed an approach to working with the smaller firms in this sector. I look forward to watching the continued development of the regulatory relationship from the industry side. My successor, Andrew Bulley, is a very experienced regulator, with a recent background in insurance and I know he will ensure that this good progress continues.


Source: Financial Services Authority

FSA Website

FSSC – PARTNERSHIP WITH CAREER ACADEMIES UK TO HELP ATTRACT AND RETAIN TALENT

The FSSC have announced that they are joining forces with Career Academies UK as part of their ongoing efforts to raise awareness of the career opportunities available in the sector. The partnership will see key members from the FSSC's careers management team sitting on the boards for local advisory panels that work closely with schools and colleges running the Career Academy programme. In addition, they will offer Guru Lectures which will provide students with an honest, independent and objective overview of the breadth of careers available, which is part of a wider campaign to help encourage new entrants and talent to the sector.

Liz Field, Chief Executive at the FSSC said:

"If we want to ensure the UK maintains its leading role in the international financial services market, it’s crucial that we connect with and influence young people at the career decision-making stage. Getting new entrants into this market has always been challenging, even before the recent financial crisis. Many of the roles in financial services - although stimulating and rewarding to the right individual are unheard of by young people and often harder to wrap their heads around compared to other options. We are in the best position to be able to offer information and advice that is truly independent. We hope that our partnership with Career Academies UK helps encourage more students to consider a career in financial services."

James McCreary, Chief Executive of Career Academies UK, said:

"We are delighted to be working with FSSC to provide support for students planning a career in financial services, as well as their teachers. As someone with a background in banking myself, I know how important it was to have access to good advice and guidance when I was starting out in the sector. We hope that as a result of this new partnership we will be able to raise the aspirations of even more young people and inspire them to aim high in their future career."


Source: Financial Services Skills Council

FSSC Website