Compliance News - 20 May 2011
INDUSTRY NEWS FLASH WEEK ENDED 20 MAY 2011
The Bank of England and the Financial Services Authority have published a joint paper entitled “The Bank of England, Prudential Regulation Authority - Our approach to banking supervision” setting out the current thinking on how the future Prudential Regulation Authority (PRA) will approach the supervision of banks, building societies, credit unions and investment firms.
Hector Sants, FSA chief executive and PRA chief executive designate, said:
"The PRA's purpose is fundamentally different from that of previous regulatory regimes and will lead to a significantly different model of supervision to that which was in use pre-2007. In designing this new model we have incorporated both the lessons learned from the last financial crisis and those from firm failures of the past. The new regulatory model will be based on forward looking judgements and will be underpinned by the fact that the PRA has a single objective to promote the stability of the UK financial system and in consequence will be a very focused organisation. The new supervisory approach will build on the more intensive approach adopted by the FSA since the crisis."
The paper was presented and discussed at a conference in London last week for CEOs and senior managers of firms that will come under the PRA's supervisory control. The paper outlines:
- the principles underlying the PRA's approach;
- the scope of the PRA;
- the PRA's risk assessment framework;
- the PRA's forward looking, judgement-led approach to supervision;
- the approach to policy-making that will support the judgement-led model; and
- the approach to authorising firms and approving individuals.
The PRA will be responsible for supervising both insurance companies and deposit-takers. A companion paper will be published in June 2011 to cover the PRA's approach to supervising insurance companies.
Source: Financial Services Authority
Nausicaa Delfas, Head of Conduct Risk, FSA, made the keynote speech at the Retail Conduct Risk Seminar at the Queen Elizabeth II Conference Centre, Westminster, London. Referring to the recent report on suitability, entitled “Suitability: establishing the risk a customer is willing and able to take and making a suitable investment solution” she stated that the report highlighted some important drivers of unsuitable investment selections, which are common across different firms and product areas.
It highlighted problems in the way firms are making investment selections to reflect the needs and circumstances of their customers, and in particular how investments can fail to reflect the risk their customers are able and willing to take.
It highlighted problems in the way firms are making investment selections to reflect the needs and circumstances of their customers, and in particular how investments can fail to reflect the risk their customers are able and willing to take.
Ms Delfas then went on to discuss the following topics:
- why is FSA focussing on this area?
- what is going wrong?
- examples of enforcement cases.
- where to next?
This is a very important topic for all firms that give advice and a read of the speech is highly recommended as it adds an extra dimension to the content of the paper, particularly with reference to enforcement cases and the FSA’s views.
Source: Financial Services Authority
David Lawton, Head of Market Infrastructure and Policy, FSA addressed the Xtrakter Annual User Conference and Forum. He referred to the extensive European agenda that will shape the regulatory framework in the next decade, specifically referring to:
- The Alternative Investment Fund Management Directive, which was agreed at the end of last year, and commenting that work is now underway on the more detailed implementing measures.
- Bringing credit rating agencies (CRAs) into regulation. FSA was in the process of registering CRAs under the new legislation and noting that the Commission had initiated discussions on a possible further round of legislation, focused on measures to strengthen competition in the CRA market, and to reduce the (sometime mechanistic) reliance which regulators and investors can place on ratings.
- New short-selling regulations, which will enhance disclosure of short positions, notably in equity markets, and restrict uncovered short sales of equities and sovereign debt.
- Measures related to clearing houses and the derivatives markets, addressed in the Commission proposals for a Regulation on over-the-counter (OTC) derivatives, central counterparties and trade repositories (known by a previous acronym - EMIR).
- Reviews of the Markets in Financial Instruments Directive (MiFID), and the Market Abuse Directive (MAD), where proposals are expected from the Commission before the summer break.
- And, later in the year, a review of the Transparency Directive (TD), a draft Directive on securities law, and a regulatory framework for Central Securities Depositaries.
After discussing primary markets, trading, non equity transparency, transaction reporting and post-trade regulatory data, he concluded that there was an extensive regulatory agenda. An important strand running through the middle of it was enhanced transparency. However, markets should be stronger and more resilient as a result.
For the market, this will bring:
- greater disclosure of equity derivative and equity short positions;
- better consolidation of equity trading data;
- structured regulatory transparency for non-equity trading; and
- suitably aggregated position data in key commodity and derivatives markets, provided by exchanges and trade repositories.
For regulators, there will be enhancements to the ‘toolkit’ from:
- reporting of short positions in sovereign debt;
- access to post-trade transparency data held in APAs;
- more extensive transaction reporting; and
- the extensive data on derivatives trades held in trade repositories.
Source: Financial Services Authority
The ABI announced on Monday 23 May that beneficiaries will receive life insurance payments more quickly after bereavement, as the ABI issues new guidance to insurers cutting the time it takes from four months to just four weeks. Over 32,000 life insurance claims are made by families who have lost a loved one every year in the UK, many of which will now be able to benefit from this change.
The insurance industry recognised that financial hardship can arise due to the lengthy legal process associated with winding up a deceased person’s estate. Working with the Law Commission, the ABI found a solution to get around the legal process to ensure a beneficiary can access a life insurance payout quickly and therefore avoid any unnecessary financial stress.
The new process is simple. The life insurer will ask the main beneficiary to complete a declaration where they agree to pay back any money they receive from the policy if the legal process decides they were not the rightful recipient.
Otto Thoresen, the ABI’s Director General, said:
“Dealing with bereavement is hard enough, without the added stress of worrying about money. This new life insurance claims process means the time it takes on average to receive a payout will drop from four months to just four weeks. We believe that this will go some way to alleviating financial hardship for a deceased person’s dependents, especially families on lower incomes who have few other assets available to rely on.”
Source: Association of British Insurers
Firms that deal in on-exchange derivatives will be interested in the latest FSA proposed guidance which affects SUP 17 transaction reporting. However, they will need to be quick about it, as the closing date is 2 June.
Derivative transactions conducted through derivative exchange platforms (e.g. BClear, flex options on the Turquoise Derivatives Exchange (formerly EDX London) are on exchange instruments traded off order book and should be reported accordingly. This applies regardless of whether those derivatives are fungible or differ in any characteristics from an exchange standardised instrument.
When a transaction conducted through the exchange platform is in an ISIN instrument, the transaction should be reported as an ISIN transaction.
Firms are not required to report transactions in Aii instruments conducted through the exchange platform until the Zen implementation hard go-live date (13 November 2011). From the hard go-live date, firms are expected to report these as Aii transactions.
Following consultation with firms, trade bodies and exchanges, FSA are revising their guidance in order to:
- provide clearer and simpler guidance that removes the need to distinguish between transactions for fungible and non-fungible derivative instruments conducted through exchange platforms;
- provide guidance that reflects more accurately the status of the transactions and is easier for firms to integrate into their transaction reporting systems; and
- extend the guidance from just Alternative Instrument Identifier (Aii) derivative transactions to all derivative transactions (ISIN and Aii) conducted through EEA derivative exchange platforms.
Source: Financial Services Authority
The announcement from the Bank of England and the Financial Services Authority on the future approach to banking supervision is an important step forward, according to the British Bankers’ Association [BBA] chief executive, Angela Knight.
She said the banking industry was fully supportive of sensible, considered reform and welcomed the opportunity created by the formation of the Prudential Regulation Authority to take forward the lessons we have all learned while retaining good points from the FSA. She also highlighted the importance for the new body of attracting high calibre staff as supervisors as well as the importance of:
- balancing the regulatory authorities’ core statutory objectives;
- ensuring the macro-prudential element of the regulatory toolbox is introduced in an internationally coordinated way;
- accountability and transparency;
- working hard on relationships with other European Union members; and
- engaging effectively with the European Banking Authority and other international bodies.
Mrs Knight said:
"The banking industry in the UK is fully supportive of sensible and considered reform and has already made significant strides in overhauling and enhancing its own working practices. Today’s announcement, setting out the authorities’ approach to banking supervision in the future, is a welcome step forward offering a real opportunity to progress the lessons we have all learned to create a stronger regulatory framework for the future.”
"The banking industry in the UK is fully supportive of sensible and considered reform and has already made significant strides in overhauling and enhancing its own working practices. Today’s announcement, setting out the authorities’ approach to banking supervision in the future, is a welcome step forward offering a real opportunity to progress the lessons we have all learned to create a stronger regulatory framework for the future.”
Source: British Bankers’ Association
The Financial Ombudsman Service has published its annual review covering the 2010/11 financial year. The review shows that during the year:
- the ombudsman handled over a million front-line enquiries and complaints from consumers – around 4,000 each working day
- around 1 in 5 of the initial consumer enquiries we received turned into a formal dispute requiring the involvement of adjudicators and ombudsman – a record 206,121 new cases, up 26% on the previous year
- 51% of the new cases were about the sale of payment protection insurance (PPI) with the number more than doubling to 104,597 – the highest number ever received in a year about a single financial product
Natalie Ceeney, chief executive and chief ombudsman, said:
“This year has been the busiest in our ten-year history – with over 200,000 disputes referred to us and a million front-line enquiries. This reflects the increased confidence of an ever more diverse range of consumers getting in touch about a wider range of problems and issues. Aside from PPI cases, over the year we’ve seen encouraging signs of improvements in the way that some businesses are handling complaints – and it’s good to see that the number of disputes about some other financial products has now started to fall.”
Statistics from the ombudsman’s annual review show:
- the number of investment complaints dropped by 30% and banking complaints fell by 9%
- the ombudsman resolved almost half of all disputes (apart from PPI) in three months and three quarters within six months
- the ombudsman’s involvement resulted in compensation for consumers in 51% of cases
- complaints about consumer credit, travel insurance and motor insurance increased, while complaints about health insurance, current accounts and home contents insurance fell
- half of the total number of disputes referred to the ombudsman service involved four of the UK's largest financial services groups – while 2,131 businesses had just one complaint each
- 78% of adults said they were aware of the Financial Ombudsman Service – with awareness of the ombudsman highest in the Wales and lowest in Northern Ireland
Source: Financial Ombudsman Service
