FSA – PUBLISHES RULES ON ADVISER CHARGING

The Financial Services Authority has published new rules that will remove commission bias from advice on retail investment products, helping to restore consumer confidence in this market.

The Retail Distribution Review (RDR) aims to put the customer in charge by providing them with vital information about the cost and nature of the advice they are receiving. They will be able agree the cost of that advice with their adviser, rather than it being decided by the provider of the product. From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product.

In addition, firms will not be able to accept commission in return for recommending specific products. Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs. The changes also mean firms offering independent advice will have to demonstrate that their recommendations are based on a comprehensive and unbiased analysis of the market, and that any product selection is made in their clients’ best interests.

However, if a firm chooses to limit it's product range to certain investments or strategies, then the services it offers are restricted, and this should be clearly set out for customers.
Paying upfront need not hinder consumers’ access to financial advice. If a customer feels they do not want, or cannot afford, to make an upfront payment, the product provider can facilitate the cost of the advice being included in the cost of a product. But the fundamental point is that the cost of the advice will be agreed between the consumer and the adviser, not between the adviser and the product provider.

Sheila Nicoll, FSA director, conduct policy:

“If this market is to survive, and thrive in the future, people need to know their adviser is acting in their best interests, and is well qualified to carry out that role. Today’s new rules are designed to boost confidence and trust in the retail investment market by removing commission bias, actual or perceived, and exploding the myth that investment advice is free. It is vital that consumers know not only the cost of financial advice, but also its value. There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.”

The policy statement is accompanied by a discussion paper on Platforms and a consultation paper on Pure Protection.


Source: Financial Services Authority

FSA Website

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The Consulting Consortium

FSA – MORTGAGE MARKET REVIEW FEEDBACK

The Financial Services Authority has published its Mortgage Market Review feedback statement summarising the responses received following its Mortgage Market Review discussion paper, which was published on 19 October 2009.

The FSA received a wide range of constructive and positive responses from firms, consumers and their representative bodies, and other stakeholders and is continuing ongoing detailed discussions with a number of these stakeholders.

The feedback statement provides the opportunity to report on the feedback received so far; to clarify specific aspects of the FSA’s proposals; and to outline next steps.

The Mortgage Market Review DP set out proposals for major reform of the mortgage market and actively invited debate on a number of key mortgage issues. The FSA moved quickly to consult on two of the issues it raised and in January 2010, published a consultation paper on the strengthening of its arrears rules and the extension of our approved person regime.

The FSA will be consulting on firm policy proposals drawing on the Mortgage Market Review DP and the feedback responses received later in the year.


Source: Financial Services Authority

FSA Website

FSA – DELIVERING THE RIGHT REGULATORY FRAMEWORK

Sheila Nicoll made a speech before the Association of Luxembourg Funds Industry (ALFI).


Source: Financial Services Authority

FSA Website

FSA – BUILDING SOCIETIES – FINANCIAL AND CREDIT RISK MANAGEMENT

The Sourcebook gives building societies guidance as to how they can match their treasury and credit risk management capabilities to their business model in order to meet rules that are mainly located in:

• The Senior Management Arrangements, Systems and Controls Sourcebook (SYSC);

• The General Prudential Sourcebook (GENPRU); and

• The Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU).

This paper responds to comments readers made to CP09/17. It should be read by building societies, although smaller mortgage banks may also find it useful.

In this paper, FSA responds to points respondents raised about the technical substance of guidance in CP09/17, as well as general concerns about FSA approach to rules and guidance, flexibility within risk management models and how consistent FSA proposals are with other policy initiatives.

FSA also give feedback on comments received on their cost-benefit analysis and compatibility statement.

FSA reconfirm their message that societies are free to choose any business model they wish (subject to statutory constraints) as long as they have the appropriate risk management framework in place to manage the risks associated with that model.

This paper summarises significant changes FSA have made to the Handbook. It also shows how the Building Societies Sourcebook’s (BSOCS) guidance coordinates with the new liquidity regime timelines (published in PS09/16).


Source: Financial Services Authority

FSA Website

ABI – RDR STATEMENT – On the right road, but more needed to widen access

Responding to publication of the FSA’s latest Retail Distribution Review (RDR) papers, ABI Director of Life and Savings Maggie Craig said:

“The FSA’s proposals will really help consumers who already use financial advice by enabling them to better understand how they are charged and whether the advice they receive is fully independent or not. The ABI has supported the objectives of the RDR since it began in 2006 and we continue to believe these changes are essential to rebuild consumer confidence.”

“However, the FSA must now act to help those consumers who cannot afford, or do not need, full financial advice. It is clear that the RDR changes will mean that full advice services will move further up market, meaning that even more consumers will need an alternative advice option. To meet this need, the ABI has developed proposals for a new advice service know as simplified advice."

"This is a process-driven advice service designed to provide consumers with a suitable recommendation based on a limited assessment of their financial needs. Research undertaken by the ABI highlights a strong demand for this service amongst consumers. The ABI’s proposals are also popular amongst key industry stakeholders."

“To make simplified advice a reality, greater certainty is now needed from both the FSA and the Financial Ombudsman Service on how these processes would be judged, the appropriate qualifications needed by those facilitating such a process and how consumers should pay for this service."

“The RDR reforms will leave a very different landscape of advice for consumers. We now need a full education programme from the FSA to explain how, come 2012 when the reforms are due to begin, consumers will be able to access the appropriate financial advice they need. This would allow the RDR to become truly effective.”

“We are pleased the FSA has recognised that protection products are different from investment products, in particular that commission on pure protection products does not lead to poor consumer outcomes."

"Compared with investment products the cost to customers are more transparent and customers can compare protection products more easily. By allowing commission to continue in the protection market, consumers will be able to access advice and products which allow them to protect themselves and their families.”


Source: Association of British Insurers

ABI Website

ABI – BUDGET 2010 COMMENTS – LOST OPPORTUNITIES ON SAVINGS AND COMPETITIVENESS

Overall response

Responding to the Budget speech Kerrie Kelly, Director General of the ABI, said:

“We are relieved that this Budget did not contain any further harmful changes to pension saving, given the damaging and over-complicated reductions in tax relief that will come into effect in 2011."

“This recession has seen people pay off debt rather than start to save, but the government now needs to introduce real measures to encourage a savings culture. The commitment to increasing the ISA limit by inflation is useful and we also welcome the freezing of CGT which benefits holders of mutual funds. But these measures will only help existing savers when the UK’s principal challenge is to increase the number of people saving and the amount they are prepared to put aside."

“With ABI research proving that confidence in the benefits of saving has remained low, we need urgent action which we did not get to promote saving and ensure any economic recovery is built on strong foundations of good personal financial habits."

“This was a missed opportunity to help global businesses operating in the UK. It was particularly disappointing that the Chancellor found extra money to help the creative industries sector while delaying yet again any commitment on the issue of profits earned abroad not being taxed if brought back to the UK which is a vital issue for the UK insurance sector. The UK is now lagging behind on areas of corporate and personal taxation at a time when other countries are actively trying to attract businesses away from the UK."

Business

Infrastructure Fund

Responding to the setting up of a Green Investment Bank, Peter Montagnon, Director of Investment Affairs at the ABI, said:

“Insurers need long term investments to pay out their long term liabilities such as annuities. The UK insurance industry has been calling for such long term investment opportunities and a government-backed investment fund is an idea worth pursuing. However it must be commercially viable and stand up against other financial instruments, regardless of whether it is aimed at supporting socially useful projects. This will be crucial in determining its ability to sell itself to long-term investors. ABI members and other investors would want to be closely consulted on the design of any new body to ensure it works.”

International Bank Levy

Commenting on the Chancellor’s comments on a proposed international agreement on a banking levy Peter Montagnon, Director of Investment Affairs at the ABI, said:

“Investors need to be convinced that such a tax would be helpful since it will take money that should be being used to shore up banks' capital. If there is to be such a levy, it must be international and recognise the difference between insurance and banking. Its focus should be on ensuring banks do not develop excessive leverage based on insufficient capital.”

Economics

Commenting on the Chancellor’s comments on public borrowing and repaying the national debt, Dr Rebecca Driver, Chief Economist at the ABI, said:

“It is probably appropriate that today’s Budget only makes modest headway in unwinding the huge fiscal stimulus over the last few years. However dealing with Government debt cannot be put off forever and the key issue will be to deliver the adjustments needed without undermining UK competitiveness.”


Source: Association of British Insurers

ABI Website

CML – RESPONSE TO 2010 BUDGET

The Council of Mortgage Lenders cautiously welcomes the Stamp Duty concession for first-time buyers, but warns that there will be genuine practical barriers to effective implementation. It would clearly be far simpler - but more expensive - to exempt all properties under £250,000, rather than to impose the additional first-time buyer restriction.

First-time buyers (at least as recorded by the CML) typically include a high proportion of "returners", who have previously owned property but no longer do so. Yet the HMRC guidance note says that to qualify, the purchaser "must not...have previously acquired a major interest in ...residential property....anywhere in the world". It is not clear how this will be verified.

The CML cautiously estimates - given the problems noted above - that over the coming 12 months there are likely to be some 136,000 newly exempt first-time buyers under the new concession, resulting in foregone revenue of £224 million. This may be largely offset by the increase in Stamp Duty to 5% (up from 4%) on around 10,000 property transactions over £1 million, which the CML estimates could equate to around £250 million of additional revenue.

The CML also welcomes the retention of the existing higher rate of Support for Mortgage Interest until the end of the year. Although wider long term reform would be desirable, this is a sensible and helpful measure that means those people who do qualify for help under the extremely tight eligibility criteria are at least likely to see their mortgage interest payments met under the scheme.

The CML notes a number of other relevant announcements in the Budget documentation, including confirmation that the government plans to transfer the regulation of second charge lending - including existing second charge mortgages - from the OFT to the FSA. The CML welcomes this announcement, which reflects the CML's long-held view that a single regulator for all secured lending is the most appropriate approach.

Finally, the CML broadly welcomes the government's willingness to work with the mortgage industry on the industry's proposal that an income verification service should be offered to lenders offered by HM Revenue & Customs to enable lenders to verify mortgage applicants' income with greater certainty.

CML director general Michael Coogan commented:

"The Budget offers a modest potential boost to the housing and mortgage market in terms of reducing transaction costs for first-time buyers, and potentially improving efficiencies for lenders. But as always the devil is in the detail, and the detail is confused. The stamp duty concession in particular looks like a tax loophole waiting to happen."

"While the Chancellor rightly welcomes the fact that the government-supported banks exceeded their mortgage lending commitments last year, the Budget was disappointingly light on any detail of how the government proposes to work with the industry as a whole to find a route back to a sustainable and reliable funding framework to safeguard the ability to deliver the lending needed to support future demand."


Source: Council of Mortgage Lenders

CML Website

FOS – MORTGAGE COMPLAINTS

David Thomas, Principal Ombudsman, gave the keynote address on mortgage compliants at the Council of Mortagge Lenders annual conference.


Source: Financial Ombudsman Service

FOS Website

FOS – ISSUES NEW STANDARD FORMS ON PPI COMPLAINTS

Following consultation with consumer and financial-services stakeholders, the ombudsman had launched the payment protection insurance consumer questionnaire and business response form – to help make the process for handling PPI complaints across the financial-services sector more efficient, co-ordinated and consistent.


Source: Financial Ombudsman Service

FOS Website

Since 2005 the FSA has taken enforcement action against 22 firms and has imposed fines of £11.8 million over poor PPI selling practices. With complaints regarding PPI having increased from 833 in the year 2004/2005 to 31,066 in the year 2008/2009, the FSA see the PPI market as one of the focuses for enforcement, fines and redress exercises in the coming years.

TCC can provide assistance to firms, large and small, who are involved in the PPI market. For more information on how TCC can help you cope please call us on 020 7645 8808, email us or click here.

The Consulting Consortium

FOS – OMBUDSMAN BUDGET APPROVED

The Financial Ombudsman Service’s 2010/2011 budget (for the year from 1 April 2010) has been approved by the boards of the ombudsman service and the Financial Services Authority (FSA) – in line with statutory requirements.

The ombudsman service is gearing up to receive 190,000 new cases in 2010/2011– and to resolve a record 210,000 cases (a 27% increase on the forecast for 2009/2010).

Both the amount of the case fee and the total levy payable by financial businesses has been frozen at 2009/2010 levels. The total budget of £115,675,000 (up 25% from 2009/2010) reflects an increase in cases resolved, and case fees collected, as well as an adjustment in reserves. The average cost of handling a case will fall to £551.


Source: Financial Ombudsman Service

FOS Website

BERR – POST OFFICE BANKING

Business Secretary Lord Mandelson announced a major expansion of the financial services offered by the Post Office, in a drive to put banking back into the heart of communities and making the Post Office network of 11,500 branches more sustainable. He also announced £180m of new funding for the Post Office.

Publishing the Government’s response to its consultation on Post Office banking, Lord Mandelson said:

“Since the global banking crisis we have set about reinventing the financial services industry piece-by-piece, building a system that is fairer, trusted and more responsible. Today is the next step in that process. The Post Office is a well-loved community institution and this move will bring more banking services back to the heart of those communities.”

Business Minister Pat McFadden said:

”The Post Office can provide a range of good value, simple financial products for everyone. These are the clear messages that people have given us and we are acting on them – a major step towards making the Post Office a sustainable neighbourhood banking service.”

The measures announced by the Government mark a step change in banking at the Post Office and demonstrate the Government’s ongoing commitment to the Post Office network.


Source: News Distribution Service

NDS Website