Compliance News - 24 September 2010
FSA – EFFECTIVE CORPORATE GOVERNANCE AND THE WALKER REVIEW
FSA has published PS 10/15 which reports on the main issues arising from Consultation Paper 10/3 Effective Corporate Governance (Significant influence controlled functions and the Walker Review) and publishes final rules.
The CP advanced a range of proposals designed to improve both the quality of governance within firms and the intensity of our supervisory regime. It also contained proposals to implement, where appropriate, the recommendations made by Sir David Walker in his review of corporate governance in banks and other financial institutions.
This paper will be of particular interest to:
• Regulated firms, the parents of regulated firms and those applying for authorisation;
• Individuals who are approved persons and individuals who exert significant influence over regulated firms; and
• Those involved in recruiting employees for controlled functions and in overseeing, developing and administering processes for complying with our approved persons regime.
This PS details the extension in scope of the approved person regime and so will be of interest to both consumers and consumer bodies.
The role of good governance in financial services firms continues to be high on the international and domestic agenda. Since we issued our CP in January, the Basel Committee on Banking Supervision issued a set of principles in March 2010 for consultation. These principles are for enhancing sound corporate governance practices within banking organisations. In June, the European Commission published its Green paper on Corporate Governance.
Domestically, the Financial Reporting Council has now published a new (May 2010) edition of the UK Corporate Governance Code and in July 2010, published The UK Stewardship Code. More widely, Hector Sants’s speech on 17 June 2010 to the Chartered Institute of Securities and Investments conference drew attention to the importance of a firm’s culture in developing good regulatory outcomes and the role that governance plays in this.
The new rules will become effective from 1 May 2011.
Source: Financial Services Authority
FSA – CAPITAL PLANNING BUFFERS
This paper applies to banks, building societies and capital requirement directive (CRD) investment firms, and will be mainly of interest to:
• Board members;
• Members of risk and capital committees (especially those who are non-executive directors);
• Senior management;
• Chief risk officers (as the individuals responsible for implementing and overseeing capital planning within a firm); and
• External auditors
This paper is important for consumers because FSA prudential requirements for BIPRU firms (the prudential rules for banks, building societies and CRD investment firms) are a means for achieving FSA’s consumer protection objective, and clarifying these requirements therefore has a potential impact on consumers.
A capital planning buffer is the amount of capital a firm should hold now so it is available to absorb losses and/or meet higher capital requirements in adverse circumstances, such as an economic downturn. The amount of capital is based on the result of the firm’s stress test. It is intended to enable a firm to meet its ongoing regulatory capital requirements in adverse circumstances outside of the firm’s normal and direct control.
The financial crisis showed the importance of firms holding additional capital buffers now for use during periods of stress. Firms must carry out a ‘firm-wide stress test’ by stress testing individual risks together to see how they cope in adverse conditions. Through this FSA set capital planning buffers. This paper reassures firms, their boards and auditors that the capital planning buffers set under Pillar 2 can be used in adverse circumstances and are not included in a firm’s minimum regulatory capital requirement.
This PS includes some minor Handbook clarifications to make this clear. It also summarises the responses received to the questions raised in CP09/30, describes FSA formal policy and includes the Handbook text that clarifies and formalises this.
Source: Financial Services Authority
FSA – PURE PROTECTION SALES BY RETAIL INVESTMENT FIRMS
This paper sets out the final policy for the changes and additions to FSA rules and guidance, as consulted on in CP10/8, Pure protection sales by retail investment firms. FSA set out proposals on remuneration transparency and sales of pure protection products under the Conduct of Business sourcebook (COBS).
This paper forms part of the Retail Distribution Review (RDR) suite of papers, which address fundamental and persistent problems in the retail investment market, especially how investments are distributed to retail consumers in the UK.
Firms should read the paper for further detail about the final rules after FSA consultation in CP10/8:
• FSA will amend our rules so firms who elect to sell pure protection under COBS (rather than the Insurance Conduct of Business sourcebook) can continue to do so after the RDR is implemented without applying the adviser charging rules to their pure protection sales.
• Once the RDR takes effect, retail investment firms must: o explain how they are remunerated for pure protection services associated with investment advice; and o disclose the amount of commission they receive if the customer then purchases a pure protection product.
• This does not apply to all pure protection sales – only those associated with investment advice. The paper explains what this means.
The rules will come into effect from 31 December 2012.
Source: Financial Services Authority
TCC - RETAIL DISTRIBUTION REVIEW
We have the most comprehensive programme of support and guidance in the market to help Advisers achieve the required qualifications and ultimate business success.
We've put together an innovative range of services, designed with you and your organisation's needs in mind.
TCC provides support across all the examining bodies and is also an approved training provider for the ifs Diploma for Financial Advisers.
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 info@theconsultingconsortium.com
Source: The Consulting Consortium
FSA – REMUNERATION, EUROPE AND THE AIM
Dan Waters, Director, Conduct Risk, and Asset Management Sector Leader, spoke at the AIMA Annual Conference 2010.
He covered Remuneration and FSA Consultation on the Rumeration Code and concluded as follows:
“It is clear that implementing the European remuneration requirements, which are emerging through a number of directives, is going to be a real challenge. The FSA is committed to working with all sectors of the asset management industry to ensure that our implementation is thoughtful and proportionate, addressing legitimate regulatory concerns around systemic risk and investor protection, while also ensuring that unnecessarily burdensome requirements are avoided. We will need the active and constructive engagement of all of our stakeholders to achieve that. I look forward to that enterprise.”
Source: Financial Services Authority
FSA AND FINRA - SIGN CO-OPERATION AGREEMENT
The Financial Services Authority (FSA) and the US Financial Industry Regulatory Authority (FINRA) have entered into a Memorandum of Understanding (MOU) to support more robust cooperation between the two regulators. The MOU establishes a strong framework for enhancing the ability of the FSA and FINRA to oversee the world’s largest securities firms and markets.
The agreement will facilitate the exchange of information on firms and individuals under common supervision, support collaboration on investigations and enforcement matters, and allow further sharing of regulatory techniques, including approaches to risk-based supervision of firms. The agreement was signed by Jon Pain, FSA’s managing director of supervision and FINRA’s Chairman and CEO Richard Ketchum.
Jon Pain said:
“Given the linkages between our markets, it is vital that both regulators cooperate closely with each other, this MOU will enhance the supervision of firms and financial markets in both the UK and the U.S.”
Richard Ketchum added:
“To ensure consumer protection and market integrity in today’s global market, regulators must work together with key regulatory partners. Under this agreement, the FSA and FINRA will be able to share information more freely and expeditiously in support of the oversight of common firms and investigations into wrongdoing.”
Source: Financial Services Authority
FSA Website
FSA Website
FSA – ANNOUNCES CEFB CHAIRMAN
The Financial Services Authority (FSA) has announced the appointment of Gerard Lemos as the chairman of the Consumer Financial Education Body (CFEB). Gerard Lemos is a partner at social researchers Lemos&Crane where he leads the research team. He is the author of numerous books and reports about social policy and is a non-executive director of the Crown Prosecution Service.
CFEB is an independent body, created in April 2010 by the Financial Services Act 2010, responsible for helping consumers understand their finances better. It provides impartial information, education and advice through a national financial advice service.
Hector Sants, FSA chief executive, said:
"I am delighted that Gerard is to become chairman of the Consumer Financial Education Body. Gerard is taking up his role at a critical time for the new body as it prepares to set up the national financial advice service, establish its operational independence and develop a long term strategy.”
The new body is also continuing the programme of work established by the FSA, including projects to help young people, students, employees, new parents, and other targeted groups of consumers such as people facing redundancy, approaching retirement and those via its work with non-profit organisations.
Source: Financial Services Authority
CML – BANK OF ENGLAND ANALYSIS ON THE PRICE OF LENDING
The Council of Mortgage Lenders welcomes analysis by the Bank of England of the influences on the pricing of new lending. In contrast to some of the media coverage of it, the article itself clearly makes the point that the factors influencing pricing are many and complex - a point that the CML has been making consistently.
The Bank's analysis also explains that, while margins may indeed be higher on new business than they used to be in the past, there are valid reasons for this. Indeed, the Bank says that:
"Lenders are seeking to rebuild net interest margins...in part through a higher mark-up on new lending. This is consistent with lenders rebuilding capital through retained earnings, an important part of the ongoing adjustment process for the UK banking sector and a factor that should ultimately lead to lower funding costs."
The analysis explains that new pricing reflects the need for lenders to take account of the low net interest margin caused by the ongoing low interest rate environment. With many existing mortgages on very low rates, and with new funding costs unable to match these, the other factors exerting pressure for higher pricing - such as higher funding costs and higher credit risk costs - are exacerbated.
CML chief economist Bob Pannell commented:
"The Bank sets out a clear explanation of the influences on the pricing of new lending. Two particularly striking observations leap out. First, the pricing of new secured lending is emphatically downwards, compared with the price of new unsecured lending which is emphatically upwards. Second, the fact that lenders are seeking higher returns on new business is a logical response - even a desirable one - that should help lenders rebuild capital, improve investors' perceptions, and ultimately bear down on funding costs over time."
Source: Council of Mortgage Lenders
CML – GROSS LENDING DECLINES IN AUGUST
Gross mortgage lending declined to an estimated £11.4 billion in August, down 14% from £13.3 billion in July and 6% from £12.1 billion in August 2009, according to new data from the Council of Mortgage Lenders.
This is the lowest August total since 2000 (£11.1 billion). Lending volumes are likely to remain below last year’s level in the coming months as activity was buoyed by the upcoming end of the stamp duty holiday in the last few months of 2009.
In their market commentary, CML chief economist Bob Pannell commented:
“We face the prospect of a difficult second half of the year. However, the Bank of England is likely to keep interest rates at record lows for longer to support the economy. This will continue to alleviate payment pressures for many borrowers.”
Source: Council of Mortgage Lenders
CML Website
CML Website
CML - WHO CARES ABOUT HOUSING?
Virtually everyone (96%) believes that the UK has housing problems, according to new research undertaken for the Council of Mortgage Lenders by YouGov, and outlined at the CML's "Future Housing" conference today by CML chief economist Bob Pannell.
The biggest problem is seen as the fact that young people cannot afford to buy, or take on too much debt to do so, cited by 80% of respondents. Too many people on housing waiting lists (48%), housing market boom and bust (44%), the cost of moving house (37%), and the lack of supply of new homes (35%) were also seen as problems - but each of these was cited by fewer than 50% of respondents, paling by comparison with the perceived plight of young would-be first-time buyers.
Yet consumers appear sceptical about whether the government can make a difference. While 15% thought it likely or very likely that the government could improve first-time buyer affordability over the next five years, 80% thought it unlikely or very unlikely.
Indeed, there was a high degree of scepticism about the likelihood of the government alleviating any of the problems identified. In every case, the proportion of people who felt help was unlikely exceeded the proportion who felt it was likely. However, the balance of opinion was less negative about the likelihood of government addressing energy efficiency (-2%), the size of new homes (-10%), and the prospect of some social tenants transitioning to the private sector (-14%).
Source: Council of Mortgage Lenders
FSCS – NO PLANS TO CHANGE CURRENT INVESTMENT LIMIT OF £50,000
The Financial Services Compensation Scheme has stated:
“Recent reports in the media have suggested that the FSCS plans to cut the compensation cover for investments. This is inaccurate. The FSCS has no plans to reduce compensation protection for investments as suggested, nor is it able to do so. The rules that the FSCS applies when assessing clams are made by the Financial Services Authority (FSA). These include rules that set the FSCS compensation limits. The FSCS cannot depart from these rules.
The FSCS compensation limit for investment claims is currently £50,000 per person, per authorised firm. The European Commission is considering harmonisation of compensation limits across Europe to €50,000 for investment claims. This proposal is currently set out in a draft directive which is subject to debate amongst Member States. A final decision has not yet been made by the Commission.”
Source: Financial Services Compensation Scheme
FSCS – BUT THE NEXT DAY THEY ANNOUNCED QUITE THE OPPOSITE!
Protection for depositors will increase in January 2011. The current limit for Deposits is £50,000. The FSCS limit for deposits will increase on 31 December 2010 following European legislation. The FSA plan to issue a consultation shortly on increasing the coverage limit to the equivalent of €100,000.
Source: Financial Services Compensation Scheme
FOS – PPI CLAIMS
With complaints about payment protection insurance (PPI) continuing to make up a large proportion of the ombudsman's total workload, the ombudsman service hosts a forum for financial services businesses dealing with PPI complaints – to set out the ombudsman's long-published approach to PPI.
Source: Financial Ombudsman Service
FOS Website
FOS Website
BIS – CORPORATE GOVERNANCE AND ECONOMIC SHORT-TERMISM
Business Secretary Vince Cable has announced that the Government will carry out a comprehensive review into corporate governance and economic short-termism.
Mr Cable said:
"We will look at the economic impact of takeovers, shareholder responsibility, corporate incentives and pay– all the factors that can help us build a framework founded on long-term economic logic."
“Short-termism and shareholder disengagement are an increasing problem for our economy. Short-term investors and financial gamblers value a quick buck above all else, for example, by driving company boards into accepting takeover bids that make no economic sense. We need shareholders that act like long-term owners, alive to the risks of instability and the broader consequences of how the companies they own behave."
“I welcome the Takeover Panel's decision to look into the rules on takeovers, but this is just part of a broader picture. My department is complementing this work with a comprehensive review that will ask fundamental questions about corporate governance and short-termism. Alongside ongoing work into the shape of regulation and narrative reporting, we aim to put responsible shareholders back in the driving seat of our economy."
The Government will launch a comprehensive consultation in the autumn. Areas it may cover include:
• What drives market short-termism?
• Do boards set out their long-term objectives sufficiently clearly?
• How can we encourage shareholders to become more engaged in the company’s future?
• Do shareholders have sufficient opportunity to vote on takeover bids?
• Do target boards do enough to consider whether the bid represents value for their shareholders in the long-term?
• Does the way in which directors are paid unduly encourage takeover activity?
Source: Department of Business Innovation and Skills
BIS Website
BIS Website
