Compliance News - 4 February 2011
The Financial Services Authority (FSA) has announced its proposed Annual Funding Requirement (AFR) for 2011/12. The AFR for 2011/12 is £500.5m, up from £454.7m in 2010/11, a gross increase of 10.1% in overall funding. The increase will be borne by larger firms, reflecting the resources applied to intensive supervision of high impact firms.
However, the enforcement fines the FSA imposes during the previous year are returned to the industry by way of discounts to their fees in the following year. This means that in total firms will pay 2% less than last year.
Most firms authorised by the FSA pay a minimum fee, with further variable fees to be paid depending on the type of business a firm conducts. The gross minimum fee for firms will remain unchanged from last year but, taking into account the enforcement fines discount, the net minimum fee will be 9.4% less than last year: 43% of the FSA’s authorised firms will only pay the minimum fee.
The increased AFR will be used to fund much of the work that was started last year as the FSA continues to implement key areas of the substantial international regulatory reform agenda whilst maintaining increased supervision of firms and delivering on its statutory objectives. The key areas that the AFR will be used for in the coming year are:
- Delivering effective, on-the-ground supervision of firms;
- Completing the organisational and technological change that underpins the move to an intensive supervisory regime;
- Continuing to deliver a tough and determined enforcement approach that achieves results;
- Taking forward the domestic and international policy agenda, particularly in respect of the banking agenda set by the Basel Committee;
- Ensuring that the wider policy agenda primarily mandated by the European Union is delivered, and;
- Preparing the FSA move to the new structure of the Prudential Regulatory Authority and Consumer Protection and Markets Authority.
The total cost of implementing regulatory reform is yet to be calculated. The HM Treasury consultation document issued in July 2010 made an initial estimate of £50m and work is under way to quantify this more precisely. In 2011/12, the FSA believes the direct costs will be £10.9m. The FSA also estimates that there will be substantial indirect costs as staff reschedule other work to create the capacity needed to implement the changes.
This will involve a temporary increase in The FSA’s risk appetite in some areas, which is expected to predominantly focus on smaller firms and this is reflected in the fee allocation for this year. This will be set out in more detail in next month’s Business Plan.
Source: Financial Services Authority
During October/November 2010 the FSA held a series of Breakfast meetings for firms supervised within the FSA’s Retail Firms Division. The events focused on the some key issues relating to governance, identified through supervisory work. The resulting letter summarises the main points of discussion and good practice identified through those discussions.
The guidance relates only to those topics discussed at the Breakfast meetings and is not intended to reflect the full range of issues relating to good governance.
The letter addresses issues relating to:
- The selection, induction and training of Non-Executive Directors,
- The components of board effectiveness and the role of Board effectiveness reviews,
- Evidencing challenge and
- Effective risk appetite statements.
Firms have two weeks to respond to this – closing date 16 February.
Source: Financial Services Authority
The FSA have produced Consultation paper CP11/03 which is entitled 'Product disclosure: Retail investments – changes to reflect RDR Adviser Charging and to improve pension scheme disclosure'.
These changes will be of interest to:
- Pension scheme providers or SIPP operators;
- Firms advising on or arranging personal pensions;
- A product provider that provides retail investment products other than personal pensions and
- Consumers and consumer bodies.
FSA have explained their approach by stating that their product disclosure rules are designed to mitigate the information imbalance which exists between customers and providers of retail financial services. Retail products often work in complex and opaque ways, and customers will typically have little or no experience of the products, since they do not buy them regularly.
Thus FSA’s rules seek to ensure that firms give consumers enough information about a product’s charges, risks and main features to enable them to make an informed decision. This should be done in a way that makes it easier for consumers to compare similar products. To meet FSA’s ‘fair, clear and not misleading’ requirement, the information should be clearly presented and written in plain and succinct language. It should give the customer key information but not overload them with detail.
FSA published the final RDR rules on Adviser Charging (which apply to all investments falling under the new definition ‘retail investment product’, including individual personal pensions) and the final rules on Consultancy Charging (which apply to group personal pensions) last year. The Adviser Charging rules ban commission for advised sales of investments, and the Consultancy Charging rules ban commission for all sales of group personal pensions. Product providers will need to amend their KFIs to reflect this by the end of 2012.
The changes FSA are proposing now to reflect the RDR rules mainly apply to disclosure rules for personal pensions. However, product providers selling investments other than pensions will still need to amend their KFIs to reflect the RDR ban on commission, and, in the Consultation Paper, FSA looks at the implications of the RDR rules for product providers.
The proposals on disclosure requirements applying to personal pension schemes intend to clarify what a self-invested personal pension (SIPP) is and improve the quality and usefulness of personal pension scheme disclosure. The proposals bring together various product disclosure issues, including:
- Amending the key features illustrations (KFIs) that firms are required to give their clients (this comes from the Retail Distribution Review rules on Adviser and Consultancy Charging);
- Enhanced disclosures in relation to personal pension schemes marketed as SIPPs; and
- Potentially replacing monetary projections by inflation-adjusted projections for personal and stakeholder pensions (both individual and group). FSA is seeking views on this before consulting in the second half of 2011.
FSA plan to publish a Policy Statement giving a response to feedback in the second half of 2011, and any final rules will come into force as follows:
- The rules to reflect the RDR Adviser and Consultancy Charging requirements – 31 December 2012; and
- The rules on pension scheme disclosures – 6 April 2012.
In terms of the International dimension of these changes, FSA is monitoring the European Commission’s progress with the Packaged Retail Investment Products review (PRIPs). Although not yet finalised, the intention, subject to the outcome of consultation by the Commission, is that any new requirements will not apply to most personal pensions.
The Commission sought views by the end of January 2011, and intends to put forward detailed proposals in the context of the reviews of the Markets in Financial Instruments Directive and the Insurance Mediation Directive.
Comments should reach FSA by 3 May 2011.
Source: Financial Services Authority
The Financial Services Authority (FSA) has announced the appointment of Martin Wheatley as the new managing director of its Consumer and Markets Business Unit. The appointment is effective from 1 September 2011, and at that time he will also join the FSA Board.
In a separate announcement made by HM Treasury, Martin Wheatley is also confirmed as the CEO designate of the Consumer Protection and Markets Authority (CPMA), one of the two successor regulatory bodies that will be formed from the future division of the FSA. The CPMA is expected to be established by the end of 2012.
Martin Wheatley joins the FSA after serving a five year term as CEO of Hong Kong’s Securities and Futures Commission. Prior to this, he held various roles including Deputy Chief Executive of the London Stock Exchange Group plc and sat on the FSA’s Listing Authority Advisory Committee.
Hector Sants, FSA chief executive, said:
“We look forward to Martin joining us later this year. He will join our executive team at a time of considerable change, as the FSA continues to deliver its intensive supervisory approach, influence the international regulatory policy agenda and design the structure of the two future authorities. As one of our managing directors his remit will include supervision, markets and the regulation of firms’ conduct.”
Martin Wheatley said:
“I am looking forward to taking up my new role, in particular the opportunity to help shape the creation of a new regulatory authority is a challenge I relish. I want to ensure the CPMA will deliver a regulatory regime that ensures market confidence and delivers strong consumer protection.”
Adair Turner, FSA chairman, said:
Adair Turner, FSA chairman, said:
“Over the next two years the FSA needs to design and launch our two successor bodies; the Prudential Regulation Authority within the Bank of England and the CPMA. I am very pleased that from September Martin will be joining us to play a key role in shaping the design of the CPMA, which he will subsequently lead as CEO.”
Source: Financial Services Authority
New proposals to help people in financial difficulties would streamline the process of debt management and deliver a better and fairer deal for customers, claim the British Bankers' Association and Accenture.
In their report, “A New Model for Dealing with Personal Debt”, it is claimed 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.
Source: British Bankers’ Association
The CML welcomes publication of the Treasury Committee's report on financial regulation, and in particular the Committee's view that the authorities should take enough time in introducing reforms to ensure that we end up with rules that are "effective but proportionate." The CML agrees with the Committee that "it is more desirable that the government gets these reforms right than sticks to an arbitrary timetable."
The CML echoes the Committee's view that urgency could be counter-productive in reinforcing stability and certainty, and increases the risk that initial reforms could require further changes later, with unnecessary additional costs for consumers and firms. The Committee also says it is concerned that proposals for regulatory reform contain little information about costs.
The CML also welcomes the announcement that Martin Wheatley will become the chief executive designate of Consumer Protection and Markets Authority (CPMA). The CML looks forward to working constructively with him and his colleagues at the CPMA in delivering the goal of effective and proportionate regulation of the mortgage sector.
The lending industry agrees with the Treasury Committee's view that proper regulation of conduct should produce good outcomes for consumers and that branding the CPMA as a 'consumer champion' would be "inappropriate, confusing and potentially dangerous." The CML endorses the Committee's view that the regulator should see competition in financial services as an objective and strive for "a balance between preventing abusive behaviour and ensuring regulation does not impose excessive costs and restrictions."
Source: Council of Mortgage Lenders
