Compliance News - 28 January 2011
It was predicted by us and by those “in the know” and now it has happened – implementation of the Bribery Act 2010 has been deferred for a second time. The first deferment was understandable as the change in Government in May 2010 prompted a review of the impact of the legislation and its effect on UK businesses.
The legislation, which brings in rigorous anti-corruption regulations, was due to come into force in April 2011. The Ministry of Justice was due to publish guidance on interpretation of the Act in January 2011, however the considerable force of comment on the Act and its implementation – not to mention the press and CBI campaigns - has caused the Government to review its implementation.
This has led to a second deferment, which also demands that the Ministry of Justice publish the much anticipated guidance on implementation of Section 9 of the Act on “adequate procedures” as soon as possible.
In addition, a period of three months between publication of the guidance and implementation has been promised, to allow UK businesses time to implement the requirements of the Act.
Our associated contacts are experts on this area of regulation. If you would like an introduction, please contact Joanne Smith, Chief Executive and Creative Officer for an introduction.
The Financial Services Authority (FSA) has published a discussion paper (DP 11/1) to open a public debate about how the FSA, and in future the proposed Consumer Protection and Markets Authority (CPMA), should pursue the objective of consumer protection and specifically the issue of product intervention.
As part of its new consumer protection strategy introduced last year, the FSA has already introduced a more interventionist approach with the aim of anticipating consumer detriment where possible and stopping it before it occurs. The approach aims to reduce consumer detriment by dealing with problems earlier, scrutinising the whole of the product lifecycle from start to finish rather than just focusing on the point-of-sale.
The paper outlines how the FSA has already begun to make a significant shift towards a more interventionist approach with tighter supervision of the governance of product development. But it also sets out a range of future interventions that could be introduced in areas where the potential for customer harm is greatest. These might include interventions such as banning products or prohibiting the sale of certain products to specific groups of customers.
In the foreword to the discussion paper, FSA chairman, Lord Turner, said:
"The crucial issue is how far along this spectrum of earlier and more intense interventions we should progress. This debate comes at a critical time as the scope and powers of the CPMA are being discussed by the government, parliament and stakeholders. It is fundamental to shaping the regulatory philosophy of the new organisation."
"Our analysis has led us to the conclusion that a significant shift in approach is required but there are important tradeoffs to be struck – between consumer protection and consumer choice, between effective regulation to prevent customer detriment and the costs that that will inevitably impose."
Source: Financial Services Authority
The Financial Services Authority (FSA) has banned five mortgage intermediaries and fined one of them £104,000, bringing the total number of mortgage intermediaries banned since December 2006 to 101. Most of the individuals were banned because they are not fit and proper to work in regulated financial services through failings that led to mortgage fraud.
Many of the banned intermediaries operated in London and the South East, but the FSA has taken action against mortgage intermediaries all around the United Kingdom as follows:
- London & South East – 53 prohibitions
- North West & Wales – 20 prohibitions
- North East - 10 prohibitions
- Midlands – six prohibitions
- South & South West – six prohibitions
- Northern Ireland – four prohibitions
- Scotland – two prohibitions
Ninety five of the 101 individuals were prohibited for failings in relation to mortgage fraud. The other six’s failings included:
- Lying to the FSA,
- Failing to take reasonable steps to prevent their businesses from being used to commit mortgage fraud, and
- A serious lack of competence and capability to run an FSA-authorised firm.
Many of the 101 were fined as well as banned, with total fines amounting to £2.5 million. The biggest single fine imposed was £294,500 for a combination of mortgage and life insurance fraud.
Over the last four years the FSA’s Information from Lenders scheme has generated more than 1,000 alerts about mortgage intermediaries. Mortgage lenders participate in the scheme on a voluntary basis and the information they supply is critical in helping the FSA clamp down on dishonesty and other misconduct in the mortgage sector.
As well as lenders, the FSA has also collaborated with numerous police forces across the UK. To date, the police have successfully prosecuted six intermediaries with the FSA’s help.
As well as lenders, the FSA has also collaborated with numerous police forces across the UK. To date, the police have successfully prosecuted six intermediaries with the FSA’s help.
Source: Financial Services Authority
The Financial Services Authority (FSA) announced that on 24 January it confirmed the transfer of the business of Kent Reliance Building Society to OneSavings plc under the Building Societies Act 1986. Copies of the decision will be sent to the building society and to the member of the society who made representations.
Source: Financial Services Authority
FSA Website
Source: Financial Services Authority
FSA Website
Sheila Nicoll, Director of Conduct Policy, FSA, addressed the Money and Pension Panel at the Christiansborg Palace, Copenhagen, Denmark on the two key strands of FSA’s consumer protection policy.
After making reference to DP 11/1, referred to above, Ms Nicoll went on to make remarks about the reform of the European financial regulatory infrastructure, and a number of specific European Union (EU) legislative developments relating to consumer protection. The changes to regulation emanating from the EU are major and, for that reason, the portion of the speech that referred to these has been set out below with the topics highlighted for easy perusal.
After making reference to DP 11/1, referred to above, Ms Nicoll went on to make remarks about the reform of the European financial regulatory infrastructure, and a number of specific European Union (EU) legislative developments relating to consumer protection. The changes to regulation emanating from the EU are major and, for that reason, the portion of the speech that referred to these has been set out below with the topics highlighted for easy perusal.
“We are very pleased to contribute to the EU discussion the knowledge and understanding we have gained from our own review of our mortgage market. We have been in close dialogue with the Commission and Members of the European Parliament to share those experiences and findings.
To turn to a few other specific areas of EU-level activity, we have long been supportive of the aims of the European Commission’s initiative on Packaged Retail Investment Products (PRIPs). We think that similar standards should apply across products and services which investors see as clear alternatives to each other. There is no point having tough rules on UCITS, for example, if rules can be circumvented by using a substitutable product. This is reflected in our existing regime in the UK.
We also believe that there are some changes to the MiFID conduct of business rules that could usefully support some of our national initiatives such as the Retail Distribution Review and our work on product intervention. But, consistent with my earlier comments, we would be receptive to some who might argue that they do not need interventions like ours.
We are generally supportive of the review of the Insurance Mediation Directive, and have been actively working to influence the Commission’s thinking through our involvement in the drafting of advice provided to the Commission by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS).
We remain interested in the Commission’s thinking on access to basic payment accounts – they consulted on some high-level ideas last year and we await developments.
As far as investment funds are concerned, the package of reforms to the UCITS Directive comes into force on 1 July, with a transitional period of a year for the Key Investor Information Document, on which we will make final rules in 2011 before the implementation deadline.
We now, of course, turn to the UCITS V proposals affecting UCITS depositories and the remuneration of employees of UCITS management companies. We will be participating in negotiations alongside HM Treasury, and subsequently on any implementing measures through European Securities and Markets Authority (ESMA).
Finally, we are working closely with the UK government on all these issues and on other dossiers such as the current negotiations of the Deposit Guarantee Schemes Directive and Investor Compensation Scheme Directive.
Source: Financial Services Authority
Thousands of motorists are putting their motor insurance cover at risk and driving illegally by knowingly giving false information or failing to disclose important facts, such as motoring convictions, according to survey findings published by the ABI. They face not only a criminal conviction, but a lifetime of more expensive and harder to obtain insurance, and difficulties in accessing other financial products, such as credit.
The number one temptation to get cheaper car insurance is for a parent to insure a vehicle in their name as the main driver, with their son or daughter down as an occasional driver, when in fact they are the main user – commonly known as ‘fronting’. Over a half of motorists surveyed said they would not rule out doing this, despite the fact that it is fraud and could invalidate their insurance and led to a criminal conviction.
ABI-commissioned research among 2,600 adults highlights the lengths some would go to get cheaper motor insurance by trying to deceive insurers:
The number one temptation to get cheaper car insurance is for a parent to insure a vehicle in their name as the main driver, with their son or daughter down as an occasional driver, when in fact they are the main user – commonly known as ‘fronting’. Over a half of motorists surveyed said they would not rule out doing this, despite the fact that it is fraud and could invalidate their insurance and led to a criminal conviction.
ABI-commissioned research among 2,600 adults highlights the lengths some would go to get cheaper motor insurance by trying to deceive insurers:
- Over half (53%) think it is acceptable or borderline behaviour for an older, lower-risk person to insure a vehicle in their name when a younger higher-risk driver is the actual main driver.
- One in five drivers would not rule out exaggerating the number of years since they last claimed.
- 12% might be tempted not to disclose relevant motoring convictions.
- One in ten would not rule out changing details, such as their age, address or occupation, in order to get cheaper car insurance.
Source: Association of British Insurers
A hearing to determine whether changes in complaints handling demanded by the Financial Services Authority and Financial Ombudsman Service are wrong in law began in the High Court last week. The British Bankers' Association has asked the court to determine whether the regulators can impose new requirements on firms which go beyond what was stated in the FSA's own rulebook - specifically those on handling complaints about payment protection insurance (PPI) sales.
The BBA said:
"This is an impossible situation for both banks and their customers, as there is no legal clarity about how complaints should be handled. Customers expect their complaints to be handled on a fair and consistent basis, and our members are committed to doing so. But our members’ actions must be assessed on the basis of a proper understanding of the relevant law and regulation. We do not believe the FSA or the FOS have properly applied the law in this area, but we have been unable to reach agreement with them on this point.”
"This is an impossible situation for both banks and their customers, as there is no legal clarity about how complaints should be handled. Customers expect their complaints to be handled on a fair and consistent basis, and our members are committed to doing so. But our members’ actions must be assessed on the basis of a proper understanding of the relevant law and regulation. We do not believe the FSA or the FOS have properly applied the law in this area, but we have been unable to reach agreement with them on this point.”
"To date, the UK banking industry has implemented every reform on PPI sales and complaint handling required by the regulators. It has now been told to implement changes which would effectively apply new standards to past sales. We feel that these go beyond the rules and regulatory requirements which were developed by the regulator over time, and we believe this to be wrong in law. We have been left with no option but to test the true legal position through the judicial review process, having exhausted all other avenues for discussion. No one wants to go to court but the law needs to be clear."
In the meantime BBA members continue to handle all PPI-related complaints in accordance with FSA rules. Where the assessment of the complaint would not be affected by the judicial review, these complaints will be handled in the normal way. If the complaint will be affected by the judicial review, and cannot be resolved at this point, then the bank will write to inform the customer. It remains a matter for individual BBA members to determine the details of how to handle complaints by their customers. But customers should be assured that all complaints will be reviewed - even those delayed by this judicial review process.
Source: British Bankers’ Association
New proposals to help people in financial difficulties would streamline the process of debt management and deliver a better and fairer deal for customers, said the British Bankers' Association and Accenture in a report jointly published. The report, A New Model for Dealing with Personal Debt, says that a clearer range of options for people working to resolve their debt would avoid confusion and worry.
The report calls for greater consistency in the way debt advice is provided and in how creditors deal with customers in financial difficulties, in order to ensure fairer and more consistent results. It recommends changes in four key areas:
- Creation of a single body to regulate debt advice, with a single debt management license and sole responsibility for delivering a national over-indebtedness strategy;
- Simpler debt remedies, and increased emphasis on early intervention and resolution;
- Better use of customer information to identify people at risk of losing control of their debts, to offer early help; and
- Helping customers to help themselves by improving financial education and providing a single, online debt advice portal.
Paul Ross, BBA policy director and co-author of the report, said:
"Our vision is to provide a clear and coherent process to help people facing debt difficulties, to intervene early where possible and to provide a simple debt resolution solution if those early attempts do not succeed. We want to unravel the red tape to bring about a more financially responsible solution for customers. Customers are currently faced with too many confusing options for resolving their debt, and may set out too early on expensive legal procedures when a more common sense approach would be better for everyone."
David Parker, senior executive in Accenture’s Financial Services group and co-author of the report said:
"As the Government considers changes to consumer credit regulation, now is the right time to get real change under way and ensure that there are effective safety nets for consumers in financial distress. The changes we are proposing will have a fundamental impact on the way debt is managed through the rehabilitation of debtors and the prevention of new or repeated debt behaviour. However, agreement to implement a new debt management framework must be reached by all relevant stakeholders, including the government, regulatory and advice bodies, as well as lenders and borrowers."
"As the Government considers changes to consumer credit regulation, now is the right time to get real change under way and ensure that there are effective safety nets for consumers in financial distress. The changes we are proposing will have a fundamental impact on the way debt is managed through the rehabilitation of debtors and the prevention of new or repeated debt behaviour. However, agreement to implement a new debt management framework must be reached by all relevant stakeholders, including the government, regulatory and advice bodies, as well as lenders and borrowers."
Source: Accenture
The Council of Mortgage Lenders broadly welcomes the Treasury's announcement that the regulation of second charge lending will be transferred to the FSA; that mortgage protections will be maintained when a mortgage book is sold to an unregulated entity; and that all sale and rent back providers will need to conform to the same standards of consumer protection.
However, this further extension of regulation adds to the already onerous burden of implementing the new mortgage regulatory requirements that will fall to the FSA and its successor, the CPMA. The CML will work constructively with the regulator to try to achieve an implementation process that maximises efficiency to deliver the key outcomes.
CML director general Michael Coogan said:
"With yet more mortgage activities to become regulated, as well as the Mortgage Market Review to finalise, it is more important than ever to focus on the key outcomes that regulation needs to deliver, otherwise implementation could become unmanageable for both firms and the regulator. We are working closely with the FSA to try to construct an effective regulatory system that brings the right results for consumers, firms and the financial system."
"With yet more mortgage activities to become regulated, as well as the Mortgage Market Review to finalise, it is more important than ever to focus on the key outcomes that regulation needs to deliver, otherwise implementation could become unmanageable for both firms and the regulator. We are working closely with the FSA to try to construct an effective regulatory system that brings the right results for consumers, firms and the financial system."
Source: Council of Mortgage Lenders
Insurance companies are sizing up the impact of UK regulatory overhaul.
The disbandment of the Financial Services Authority (FSA) into two new regulatory bodies may be two years away, but the impact is already being felt.
For the insurance industry, the prospect of two new regulatory bodies – the Prudential Regulation Authority (PRA) and Consumer Protection and Markets Authority (CPMA) – comes at a critical time.
The new oversight will come into force precisely as it prepares for the transition to the Solvency II Directive, Europe’s new principles-based regime for the insurance sector.
The fact regulatory overhaul has come on the back of the global financial meltdown is also of concern. While the insurance sector was not responsible for the banking crisis, it could nevertheless suffer from overzealous moves to regulate the financial services industry as a whole.
In an Insurance Day editorial, Lloyd’s Director of General Counsel Sean McGovern pointed out that so far the consultation on the new regulatory structure makes little mention of the insurance sector.
“This is symptomatic of the challenge insurers face in ensuring that politicians and policymakers understand the difference between insurance and banking, and resist the temptation to simply treat all of financial services in the same manner,” he wrote.
“This is symptomatic of the challenge insurers face in ensuring that politicians and policymakers understand the difference between insurance and banking, and resist the temptation to simply treat all of financial services in the same manner,” he wrote.
Source: Lloyd’s of London
The FSSC has stated that it supports the RDR professionalism strand but stresses the need not to lose sight of consumers by reducing access to advice or making the processes overly bureaucratic and costly. The full response is available through the link below.
Source: Financial Services Skills Council
