Compliance News - 24 June 2011
INDUSTRY NEWS FLASH WEEK ENDED 24 JUNE 2011
The Financial Services Authority held its Annual Public Meeting at The Brewery in London last week, providing members of the public and interested parties a forum to discuss the FSA’s Annual Report, which was published on 13 June.
In his speech, FSA chairman, Lord Turner discussed the challenges facing the FSA, its performance against its objectives for 2010/11 and the work undertaken over the past twelve months in preparing for the new regulatory structure.
Lord Turner said:
“Our priorities, activities and achievements for 2010 to 2011 were set out in our Annual Report which we published last week. I would like to highlight the key challenges the FSA has faced over the last year, and will face over the next.
Since May last year, the FSA has had to meet a two-fold challenge to deliver our current statutory objectives within a still fragile global financial environment, while at the same time implementing major organisational change.
“Maintaining strong current performance while executing major structural change is – as any business knows – a very difficult challenge. It is one on which the Board has focussed its attention, seeking to ensure that the Executive has processes in place to manage successfully against both objectives.
“We are confident we are making good progress. The FSA will be ready for a smooth transition to the new structures well ahead of the completion of the Parliamentary process. And once an organisation is ready for change, the faster change comes the better. So from our point of view, we hope Parliament will now be able to progress the legislation at a good pace, while still subjecting it to the detailed scrutiny it undoubtedly deserves.
“The structural change will result in two new bodies – the Prudential Regulation Authority and the Financial Conduct Authority, and a vital new Committee – the Financial Policy Committee. As we put these structures in place, we need to build upon major changes introduced by the FSA over the last three to four years, while seizing the opportunity for improved effectiveness which the new structures will give us.
Source – The Financial Services Authority
Tracey McDermott, acting director of enforcement and financial crime at the Financial Services Authority (FSA), has highlighted the continuing importance of financial crime within the future UK regulatory landscape. Speaking at the FSA’s financial crime conference, Tracey McDermott explained that the Financial Conduct Authority (FCA) will assume the FSA’s responsibilities on financial crime and will continue to focus on “the use of firms as a conduit for financial crime”.
She added that the FCA will continue the FSA’s intensive and intrusive supervision of financial crime issues and that the FCA will pursue the objectives of “keeping crooks out of finance, encouraging industry to strengthen its defences, and educating and warning consumers about the dangers they may face”.
The FSA has also today published three documents relating to financial crime:
- a consultation paper which proposes a new guide designed to help firms reduce the risk of their business being used to facilitate financial crime;
- a thematic review of how banks manage their money laundering risks, particularly around their management of high risk customers including Politically Exposed Persons (PEPs), correspondent banking relationships and wire transfer payments; and
- a thematic review assessing the adequacy of lenders’ systems and controls to detect and prevent mortgage fraud.
The proposed financial crime guide aims to improve firms' understanding of the FSA’s expectations in this area and collates existing FSA statements on financial crime, drawn mainly from thematic reviews. It provides guidance on anti-money laundering, terrorist financing, fraud, data security, bribery and corruption, sanctions, and weapons proliferation financing.
The anti-money laundering thematic review focused on how banks manage high risk customers including PEPs, correspondent banking relationships and wire transfer payments. The review found that some banks appeared unwilling to turn away, or exit, very profitable business relationships, including with PEPs, where there appeared to be an unacceptable risk of handling the proceeds of crime.
Among other findings, three quarters of the banks sampled failed to take adequate measures to establish the legitimacy of the source of their customers’ wealth and the source of the funds to be used in the business relationship. The FSA has serious concerns about these findings. So far, two banks have been referred to enforcement following the identification of apparent serious weaknesses in their systems and controls for managing high risk customers including PEPs.
The mortgage fraud thematic review assessed the adequacy of lenders’ systems and controls to detect and prevent mortgage fraud. The report showed that, although lenders have made some improvements, there are still weaknesses common to many firms. As a result of the findings, some lenders will have to implement remedial programmes to strengthen their anti-fraud systems and controls. The FSA will continue to focus on lenders’ compliance in this area.
Source – The Financial Services Authority
The Consultation Paper on the proposed Financial crime: a guide for firms (the Guide) is important to all financial-services firms and their advisers as it explains steps that firms can take to reduce the risk of being used to further financial crime and by doing so help themselves to meet relevant legal obligations.
The Guide does not contain rules and imposes no new requirements on firms – so firms will not have to ‘comply’ with its contents. However it does contain guidance, in the form of self-assessment questions and examples of good and poor practice, which firms can use to assess and improve their existing approaches to meeting their legal and regulatory obligations in relation to financial crime.
The version of the Guide on which FSA is consulting includes guidance arising from two new thematic review reports, which are being published at the same time as this CP. They are: “Banks’ management of high money-laundering risk situations” and “Mortgage fraud against lenders”.
The Guide is not intended to compete or conflict with existing industry guidance like the Joint Money Laundering Steering Group’s guidance for the financial services sector.
Source – The Financial Services Authority
The insurance industry has a key role to play in helping UK consumers manage their financial commitments, but first it needs to improve its reputation, ABI Director General Otto Thoresen said at the industry’s most important gathering of the year.
His call came on the day that ABI and KPMG publishes a survey of 57 insurance leaders, which highlights concerns about the new regulatory structure, the influence of the EU, and shows that reputation is seen as the industry’s biggest weakness.
ABI Director General, Otto Thoresen said:
“The reputation of UK financial services firms was undoubtedly harmed by the banking crisis. Insurers are not banks. Despite this, we have to tackle our reputation head-on and we have a good platform to do this from. Consumers recognise the importance of insurance, and every day insurers pay out £173 million in pensions and life insurance and £58 million in general insurance claims, such as on motor and household. Yet, despite the valuable role insurance plays in millions of people’s lives, the public perception of our industry is not high. We need to do something about this.”
The survey shows what executives think about the strengths of the industry and the impact of regulatory and economic pressures. It was conducted alongside the ABI’s quarterly consumer survey of over 2,500 UK adults.
The key findings show:
• Industry leaders think that the industry’s greatest strength is helping customers at their time of need (top answer at 39%), closely followed by its contribution to the economy (21%)
• The industry’s ability to help people when they need it is also the top answer for customers (18%)
• But executives believe the industry’s greatest weakness is its reputation, cited as top by a third of people, ahead of how the industry interacts with customers
• Two thirds of executives recognise that more needs to be done to show customers that it delivers a good service, in light of wider implications of the financial crisis
On regulation, the Survey data shows that:
• Almost half of industry leaders surveyed say that the new UK ‘Twin Peaks’ regulatory structure will do nothing to improve customer trust. Over half of consumers believe that they are responsible for the products they buy; only 4% think that this is the job of the regulator.
• The growing impact of Europe and EU regulation is being felt by firms. 98% of industry leaders are somewhat or very worried about the impact of the EU on the UK market. Nearly a half are worried about ensuring a coherent regime, with a third very concerned that the EU does not understand the need for a cost benefit analysis when proposing new regulation. Consumers are also sceptical: only one in ten thinks EU intervention is appropriate; 57% think that the EU intervenes too much in Britain’s financial services.
It is also very clear that the industry needs a lot more convincing that Government is serious about making the UK the most competitive location in the G20 ahead of the Treasury’s consultation on controlled foreign companies:
• Over half of industry executives are neutral on whether recent tax changes make it more likely they will stay in the UK
• Over half of the executives surveyed did not put the UK in their top three locations to base their business, based on the tax and regulatory regime.
His call came on the day that ABI and KPMG publishes a survey of 57 insurance leaders, which highlights concerns about the new regulatory structure, the influence of the EU, and shows that reputation is seen as the industry’s biggest weakness.
ABI Director General, Otto Thoresen said:
“The reputation of UK financial services firms was undoubtedly harmed by the banking crisis. Insurers are not banks. Despite this, we have to tackle our reputation head-on and we have a good platform to do this from. Consumers recognise the importance of insurance, and every day insurers pay out £173 million in pensions and life insurance and £58 million in general insurance claims, such as on motor and household. Yet, despite the valuable role insurance plays in millions of people’s lives, the public perception of our industry is not high. We need to do something about this.”
The survey shows what executives think about the strengths of the industry and the impact of regulatory and economic pressures. It was conducted alongside the ABI’s quarterly consumer survey of over 2,500 UK adults.
The key findings show:
• Industry leaders think that the industry’s greatest strength is helping customers at their time of need (top answer at 39%), closely followed by its contribution to the economy (21%)
• The industry’s ability to help people when they need it is also the top answer for customers (18%)
• But executives believe the industry’s greatest weakness is its reputation, cited as top by a third of people, ahead of how the industry interacts with customers
• Two thirds of executives recognise that more needs to be done to show customers that it delivers a good service, in light of wider implications of the financial crisis
On regulation, the Survey data shows that:
• Almost half of industry leaders surveyed say that the new UK ‘Twin Peaks’ regulatory structure will do nothing to improve customer trust. Over half of consumers believe that they are responsible for the products they buy; only 4% think that this is the job of the regulator.
• The growing impact of Europe and EU regulation is being felt by firms. 98% of industry leaders are somewhat or very worried about the impact of the EU on the UK market. Nearly a half are worried about ensuring a coherent regime, with a third very concerned that the EU does not understand the need for a cost benefit analysis when proposing new regulation. Consumers are also sceptical: only one in ten thinks EU intervention is appropriate; 57% think that the EU intervenes too much in Britain’s financial services.
It is also very clear that the industry needs a lot more convincing that Government is serious about making the UK the most competitive location in the G20 ahead of the Treasury’s consultation on controlled foreign companies:
• Over half of industry executives are neutral on whether recent tax changes make it more likely they will stay in the UK
• Over half of the executives surveyed did not put the UK in their top three locations to base their business, based on the tax and regulatory regime.
Source – Association of British Insurers
The Council of Mortgage Lenders had welcomed the announcement by the Financial Services Authority that it will delay until early autumn publication of its next mortgage market review consultation paper. It is no surprise that such a large and complex piece of work, which needs to contain a full cost-benefit and impact analysis of the FSA’s proposals, may take longer to complete than originally expected.
The CML agrees with the FSA that the analysis required to allow an informed debate on the issues needs to be of the highest quality and clearly presented. Taking sufficient time needed to fulfil these objectives will not only allow the FSA to produce a comprehensive paper, but one that may be better integrated with the proposed European directive on responsible lending and borrowing.
Potentially, this could help avoid possible conflict and wasted work in implementing two different sets of regulatory measures in quick succession. If so, a more streamlined implementation of regulatory reform could lead to a considerable cost saving for UK firms and consumers.
Commenting on the FSA’s announcement, CML director general Michael Coogan said:
"We are pleased that the FSA wants to take time to get it right. The regulator has already indicated that it will be cautious about implementing change while the mortgage market recovers. The current muted state of the market presents no regulatory threat, so there is no need to rush. We now look forward to continuing to work with the FSA (and its successors the Financial Conduct Authority and Prudential Regulation Authority) to implement the right sort of regulatory reform for the mortgage market."
Source – The Council of Mortgage Lenders
Natalie Ceeney, Chief Ombudsman, has made a speech on perception of the insurance industry by the public. According to the Edelman Trust Barometer 2011, only 52% of people said they “trusted the insurance industry to do what is right” – compared with 68% of people who trusted the telecommunications industry. A survey by the Chartered Insurance Institute last year revealed that 83% of students would never consider a job in insurance.
Source – The Financial Ombudsman Service
