Compliance News - 30 July 2010
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PAYMENT PROTECTION INSURANCE (PPI)
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FSA – NEW APPROACH
A new approach to financial regulation: judgement, focus and stability.
Issued: 26 July 2010 Open date: 26 July 2010 Close date: 18 October 2010 This consultation has launched to gather views on the Government’s proposals to reform the UK’s financial regulatory framework, providing the Bank of England with control of macro-prudential regulation and oversight of micro-prudential regulation. This consultation is aimed at financial services firms, including banks, building societies, insurance firms, Independent Financial Advisors, exchanges, brokers and related trade associations, as well as consumer representatives. • A new approach to financial regulation: judgement, focus and stability • Impact Assessment • Press notice: Pn 32/10 Financial Secretary to the Treasury launches consultation on the implementation of financial regulation reforms announced at Mansion House • Speech by The Financial Secretary to the Treasury, Mark Hoban MP, at the London Stock Exchange, 26 July 2010 Source: Financial Services Authority |
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FSA – REMUNERATION CODE
The Financial Services Authority has announced plans to update its Remuneration Code to take on board remuneration rules required by the Capital Requirements Directive (CRD 3) and the Financial Services Act 2010 (FS Act). The FSA also reports on the implementation of the Code so far, lessons learned from last year’s implementation and discusses progress made in achieving international alignment.
The FSA’s current Code applies to the largest banks, building societies and broker dealers. However, CRD3 will bring over 2,500 firms within the scope of the Code. These include all banks and building societies, asset managers, hedge fund managers, UCITS investment firms as well as some firms that engage in corporate finance, venture capital, the provision of financial advice and stockbrokers. The FSA does not intend the final rules to be super-equivalent to the CRD3 requirements unless required to do so by UK legislation. The existing Code requires that firms apply ‘remuneration policies, practices and procedures that are consistent with and promote effective risk management’. Although the Code is broadly consistent with CRD3 provisions and the FS Act, the FSA is required to make some changes to ensure full alignment. In particular, the Code will be strengthened in the following ways: • Scope of the Code – As the scope of the Code is expanded, the FSA is committed to applying a proportional approach to implementation and will ensure that ‘institutions shall comply with the principles in a way and to the extent that is appropriate to their size, internal organisation and the nature, the scope and the complexity of their activities’. • Application – the FSA is consulting on the group of employees to which the Code applies (‘Code staff’). These will include senior management and anyone whose professional activities could have a material impact on a firm’s risk profile. The consultation paper sets out examples of the key positions in firms that the FSA believes should be subject to the Code. The onus will be on firms to identify their Code staff in the first instance, but their lists will be subject to review and challenge by the FSA. • Deferral – at least 40% of a bonus must be deferred over a period of at least three years for all ‘code staff’. At least 60% must be deferred when the bonus is more than £500,000. • Proportion in shares – at least 50% of any variable remuneration components must be made in shares, share-linked instruments or other equivalent non-cash instruments of the firm. These shares will need to be subject to a minimum retention policy. • Guarantees – firms must not offer guaranteed bonuses of more than one year. Guarantees may only be given in exceptional circumstances to new hires for the first year of service. • Strengthening of capital base – firms must ensure that their total variable remuneration does not limit the ability to strengthen their capital base. Total variable remuneration must be significantly reduced in circumstances where the firm produces a subdued or negative financial performance. • Voiding provisions – a new rule will be introduced which defines instances where breaches of the code may render a contract void and/or require recovery of payments made. • Severance payments – should reflect performance over time and failure must not be rewarded. • Pensions – CRD3 states that enhanced discretionary pension benefits should be held for five years in the form of shares or share-like instruments. Implementation of the Code so far Whilst it will take time to assess the full impact of the Code in contributing to effective risk management, all firms within scope that have paid bonuses since 1 January 2010 have adhered to the FSA’s Code. Successful implementation has resulted in more demanding standards in a number of areas and has shifted the composition of remuneration structures to forms more consistent with effective risk management. More generally, the FSA has seen stronger and more independent remuneration committees and greater recognition of the need to consider risk when setting remuneration policies and signing off bonus policies. Next steps The consultation period closes on 8 October 2010. The FSA intends to issue a policy statement in November 2010 with rules effective from 1 January 2011. The text of the CRD3 was agreed in early July, and its remuneration provisions will come into force on 1 January 2011. This is a tight timetable, and the FSA is urging all firms within its scope to start preparing for its introduction as soon as possible. The FSA has proposed some transitional provisions to give smaller firms some leeway in implementing certain provisions. Source: Financial Services Authority |
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FSA – HEDGE FUNDS
This paper sets out the results of the Financial Services Authority’s latest Hedge Fund and Hedge Fund as Counterparty surveys conducted in April 2010. These are designed to highlight the potential risks hedge funds could pose to financial stability through credit or market channels. FSA have an important role in assessing and mitigating systemic risk that market participants pose − including hedge funds − as they carry out supervisory and regulatory functions.
FSA conduct these two surveys every six months, which aim to examine and identify these risks, and inform supervisory work. The Hedge Fund Survey (HFS) began in October 2009 and the Hedge Fund as Counterparty Survey (HFACS) has been running since 2005. FSA have published a paper discussing the outcomes of the October 2009 surveys. Source: Financial Services Authority |
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FSA – LIFE INSURANCE NEWSLETTER
The newsletter covered the following topics:
• The with profits regime review • From ICAS to Solvency II • Preparing your firm for Solvency II • Annual report • Small insurers seminar • Credible deterrence and recent enforcement cases • Unfair contract terms • New online services • Small firms financial crime review • Regulatory developments in complaints handling Source: Financial Services Authority |
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FSA – GENERAL INSURANCE NEWSLETTER
The newsletter covered the following topics:
• Anti-bribery and corruption financial crime report • From ICAS to Solvency II • Regulatory developments in complaints handling • MPPI • Tracing employers liability insurance • Small firms financial crime review Source: Financial Services Authority |
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CML – LATEST LENDING FIGURES
 The Bank of England lending data for June confirms that a quiet mortgage market is set to remain into the autumn. The gross lending figure (not seasonally adjusted) was £12.9 billion in the month, a little lower than the CML’s earlier estimate of £13.1 billion. And the number of approvals for both house purchase and remortgaging were lower than in June last year.
CML economist Paul Samter commented: “The number of loans approved for house purchase fell by 4% on a seasonally adjusted basis from 49,641 in May to 47,643 in June and was down 6% on a year ago. This is the first time the annual rate has turned negative since April last year, but it is likely to remain so in future months as comparison is made with a rather stronger market towards the end of last year." "Remortgaging activity remains at exceptionally subdued levels – with 24,949 approvals in the month, down 3% from May and consistent with refinancing activity remaining at a decade long low. This low demand is being driven both by the lack of demand among those existing borrowers enjoying low rates, and tighter criteria that may be constraining those borrowers who do wish to remortgage.” Source: Council of Mortgage Lenders |
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FOS – OMBUDSMAN NEWS – ISSUE 87
This covers the following topics:
• Insurance case studies involving travel or holidays; • Cases where a bank incorrectly credits an account with money meant for someone else; • A snapshot of our complaint figures for the first quarter of this financial year; and • Natalie Ceeney, chief executive and chief ombudsman, on the information and insight to be gleaned from customer complaints. Source: Financial Ombudsman Service |
