Compliance News - 29 April 2011
INDUSTRY NEWS FLASH WEEK ENDED 29 APRIL 2011
The FSA held their Solvency II conference on 18 April and key speeches were made by Hector Sants, Chief Executive Officer of the FSA and his senior colleagues.
Mr Sants set the scene by using his address to step back and consider the following questions:
- What did the crisis tell the FSA and financial services industry about insurance?
- Why is the FSA leading the changes for Solvency II?
- How will it benefit the UK?
He then briefly touched on how the FSA is implementing Solvency II and considered the wider impact of Europe on financial regulation in the UK.
Source: Financial Services Authority
Julian Adams and Paul Sharma then spoke in more detail about the FSA’s approach to implementing Solvency II and about the challenges arising from Europe.
Julian Adams focused principally on what the changes would mean for firms, and sought to provide a greater degree of clarity as to what they would see and hear from FSA between leading up to the implementation date, then outlined what FSA will be expecting of firms in the coming months.
Source: Financial Services Authority
Paul Sharma discussed how the FSA is engaging with Europe and the policy timetable used at the FSA to deliver their Solvency II programme. He noted that from 1 January 2011, Europe established a new European Supervisory Authority responsible for European insurance and occupational pensions, called EIOPA. EIOPA’s core responsibilities are to support stability of the financial system, the transparency of markets and financial products and protection of policyholders. It is also envisaged that EIOPA will conduct pan-European analysis of trends in the insurance sector.
This mandate is wide ranging but initially its principal feature will be as the rule-making body in Europe. Going forward, the FSA and successor authorities will thus essentially be a supervisory arm of an EU policy setting body. He noted that it was vitally important that the UK organise itself to effectively influence decision-making, not just in EIOPA but also in the wider European framework. To that end, the FSA, as well as sitting on the Board of Supervisors, was represented on the inaugural Management Board of EIOPA and would be fully engaged with the issues facing the insurance sector at a European level.
This mandate is wide ranging but initially its principal feature will be as the rule-making body in Europe. Going forward, the FSA and successor authorities will thus essentially be a supervisory arm of an EU policy setting body. He noted that it was vitally important that the UK organise itself to effectively influence decision-making, not just in EIOPA but also in the wider European framework. To that end, the FSA, as well as sitting on the Board of Supervisors, was represented on the inaugural Management Board of EIOPA and would be fully engaged with the issues facing the insurance sector at a European level.
The FSA has welcomed the High Court’s dismissal of the British Bankers’ Association’s (BBA) and Nemo Personal Finance Limited’s (Nemo) legal challenge to their payment protection insurance (PPI) measures. The FSA stated that their primary aim had always been to get proper redress, once and for all, for those with genuine complaints.
FSA believe this decision signals the end of years of poor complaint handling and will trigger a dramatic improvement in the way customers are treated when complaining.
There have been more than 1.5 million complaints made about PPI since the Financial Services Authority (FSA) took over regulation of it in 2005. On average, firms have rejected around 60% of the complaints made to them, but some rejected almost all of them. However, the vast majority of complaints referred to the Financial Ombudsman Service (the Ombudsman) are found in the consumer’s favour.
FSA noted that this was not the end of the process as the BBA and Nemo may seek to appeal the court’s judgment.
The FSA has not put a waiver in place so firms must continue to deal with complaints where possible, including letting customers know they can refer their complaint to the Ombudsman if they are unable to progress it. Failure to do so may result in Enforcement action.
Source: Financial Services Authority
The BBA's members will continue to handle all PPI-related complaints in accordance with FSA rules confirms the BBA in a press statement released shortly after the verdict was delivered. The BBA stated:
”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 impacted by the judicial review, and cannot be resolved at this point, then your bank will write to inform you. Until a decision is taken on an appeal, any complaints that are directly affected by the judicial review and can not be decided now will be placed on hold, and we will continue to work closely with the FSA to ensure that all complaints are appropriately handled.
Customers should be assured that all complaints will be reviewed - even those delayed by this judicial review process. There is no deadline for receipt of complaints. If customers have a problem regarding PPI they should contact their bank and, if necessary, complain in the normal way.
We felt compelled to take on a Judicial Review to clarify the standards relating to PPI complaints handling after exhausting all other avenues with the regulators to reach a solution. We consider that process is still ongoing as an application to appeal may be made and will not be completed until the right to appeal is lost or waived or any appeal hearings are resolved. We are presently reviewing the judgment very carefully and considering whether to make an application to appeal, which must be lodged by 10 May 2011.”
Source: British Bankers Association
For those firms who are Banks, Building Societies or CAD investment firms, you have a very small window of opportunity to comment on the guidance consultation issued recently. The Remuneration Code (the Code) was revised to implement the requirements of the third Capital Requirements Directive (CRD3) and came into force on 1 January 2011. The revised Code covers a wide variety of firms, including investment banks, retail banks, building societies, asset management firms, stockbrokers, corporate finance firms and multi-lateral trading facilities.
The new guidance provides tools to help firms comply with our Code and to give further information and guidance in key areas. Although the FSA is consulting on these new tools, firms can begin using them immediately.
The key contents are as follows:
- Template for assessment of compliance with Remuneration Code (for firms in proportionality Tier 2) plus
- Template for assessment of compliance with Remuneration Code (for firms in proportionality Tiers 3 and 4) These templates are designed as tools for firms in Tier 2 and Tiers 3 and 4 respectively to document their remuneration policies, practices and procedures.
The templates set out the principal questions that FSA are likely to ask if they carry out a review of the firm’s remuneration policies. It would be good practice for firms to use the template as it provides our expectation of the level of detail which should be included.
- Guidance on the rule on guarantees (SYSC19A.3.40R) This document provides guidance regarding the rule on guarantees, in particular whether prior approval or notification to the FSA is required.
- Guidance is set out in the context of the type of award and the status of the recipient (Code Staff or non-Code Staff).
- Guidance on the rule on retained shares or other instruments (SYSC19A.3.47R(2)) This document provides guidance on the rule requiring shares or other instruments paid out as part of variable remuneration to be subject to an appropriate retention policy. The guidance sets out the FSA's expectations with respect to the retention period as well as FSA’s views regarding the tax aspect.
- Frequently Asked Questions on the Remuneration Code
Source: Financial Services Authority
The ABI has called for a balanced approach by the FSA on product regulation that reflects the diversity of retail financial services markets in the UK. The FSA does not need to develop new rules and regulations or introduce further radical interventions which risk stifling the market and restrict consumer choice.
As recommended in the ABI’s response to the FSA’s discussion paper on product intervention, the regulator would be better served focusing on more effective, proactive and consistent supervision and enforcement of existing rules that underpin the core principle of treating customers fairly. This will address any developing market failures and increase consumer confidence in the industry.
Otto Thoresen, the ABI’s Director General, said:
Otto Thoresen, the ABI’s Director General, said:
“We want to see a balanced risk based regulator which oversees a market which delivers positive outcomes that meet consumer needs and expectations. This will only be achieved by maintaining a healthy level of consumer choice and market competition. Meeting this objective requires the Government and the regulator to recognise the inter-connectivity of a series of initiatives that form part of an overall package of reforms at both the UK and EU level. Any major change should not occur in isolation, but has to fit with the whole suite of existing and planned regulatory developments.
“We do not consider that the FSA’s Discussion Paper is well placed within the wider regulatory reform context, so we urge the FSA and the Government to ensure that the forthcoming ‘vision document’ for the FSA takes a holistic view that is focused on delivering good consumer outcomes.”
“We do not consider that the FSA’s Discussion Paper is well placed within the wider regulatory reform context, so we urge the FSA and the Government to ensure that the forthcoming ‘vision document’ for the FSA takes a holistic view that is focused on delivering good consumer outcomes.”
Source: Association of British Insurers
The annual growth of the banks’ net mortgage lending was 2.3% in March, remaining substantially ahead of the 0.7% for the whole mortgage market in February.
BBA statistics director, David Dooks said:
"Uncertainty about future prospects for the economy is a significant factor behind these statistics. Weak trading activity is discouraging businesses from borrowing to expand and most are oriented towards repaying debt and reducing their operating costs; larger corporates are also using the capital markets less. Householders also remain focused on paying down debt, leading to a net contraction of unsecured borrowing and low net mortgage lending, although new mortgage lending is holding up fairly well”.
Source: British Bankers Association
Natalie Ceeney, Chief Executive and chief ombudsman has written the leader article on this edition which is unsurprisingly about PPI. She says “I am sure that, by now, every reader of Ombudsman newswill have heard about the High Court’s judgment on the handling of consumer complaints about payment protection insurance (PPI).
In a very clear ruling issued on 20 April, Mr Justice Ouseley rejected, on all counts, the legal challenge on the approach to handling PPI complaints, brought against the Financial Ombudsman Service and the FSA by the British Bankers Association (BBA) – on behalf of a number of high-street banks.
This High Court ruling means that financial businesses should now be following the FSA’s rules, which require them to investigate their customers’ PPI complaints properly and fairly. The ruling also means that businesses should be working constructively with the ombudsman service to resolve those complaints that they cannot sort out directly with consumers.
The PPI complaints workload has been the biggest challenge the ombudsman service has faced over the last year. In the last twelve months we have received over 100,000 new complaints alleging mis-selling of PPI – more than half of our total caseload and more than double the number of PPI cases we received in the previous year.
The approach taken by the businesses involved in this legal action has meant that we have not been able to resolve as many of these cases as we would have hoped. This has led to delays, uncertainty and frustration for the consumers involved – large numbers of whom have seen little or no progress on their PPI complaints for many months.
As an organisation that aims to provide a good customer service, we have not enjoyed having to explain these significant delays to large numbers of our customers.
This is why – now we have a clear-cut ruling from the High Court – we all need to work together to resolve these complaints as quickly as possible. It will greatly benefit allof our reputations to do so.”
The edition also covers articles on financial complaints involving gadgets and electrical appliances and an analysis of the FOS’s long-established approach to compensation for distress and inconvenience, as well as the ever popular Q&A session.
Source: Financial Ombudsman Service
