Compliance News – 4 March 2011
INDUSTRY NEWS FLASH WEEK ENDING 4 MARCH 2011
The Financial Services Authority (FSA) has published its first Retail Conduct Risk Outlook (RCRO), which examines how a range of current, emerging and potential risks could impact customers. The RCRO is a key component in the FSA’s consumer protection strategy to identify risks earlier, proactively intervene earlier in the product chain and prevent consumer detriment.
The report’s analysis of current and upcoming risks informs how the FSA will set its priorities and deploy its resources. These will be outlined in the FSA’s Business Plan, next month. The RCRO analyses the environment in which the FSA, authorised firms and consumers operate. It assesses the main macroeconomic trends, the changing regulatory landscape, developments in firms and markets, and key issues affecting consumers – and the risks these all pose.
Some of these are issues are current, and are subject to ongoing FSA activity, some are emerging, and others have yet to develop but could cause consumer detriment in the future.
Introducing the new publication, Adair Turner, FSA chairman said:
“The Retail Conduct Risk Outlook is a timely reminder of the consumer protection challenges facing the FSA, its successor bodies and financial firms over the coming years. It analyses how environmental trends may influence how firms treat their customers, and assesses the resulting potential for poor customer outcomes. The RCRO informs our dialogue with firms and consumer representatives on conduct risk and will play an essential part in our work to mitigate the potential risks to customers in the future.”
Source: Financial Services Authority
Respond by Wednesday 16 March!!!!
This guidance is likely to be of most relevance to BIPRU firms, eligible insurers and investment firms. The material takes the form of responses to questions raised by members of the industry during two rounds of presentations that were held in April/May and September/October 2010.
Summary of the key issues:
Questions were asked in the following areas.
Scope of application of the requirement
Process – timings, definition of business model failure
Scenarios - how many, time horizon, incorporation of management actions
Governance
Use of the outputs of the exercise
Source: Financial Services Authority
Hector Sants spoke at the BBA conference and in a brilliant and visionary speech stated:
“I will focus my remarks today on five topics:
- the consumer protection agenda;
- the consumer protection ‘tool kit';
- the markets agenda;
- the importance of Europe; and
- the FSA’s transitional arrangements.”
This is a clear path to the future – essential reading for all regulatory professionals.
Source: Financial Services Authority
The decision by the European Court of Justice (ECJ) to ban the use of gender in insurance policies from December 2012 is disappointing news. The insurance industry has fought against the possibility of this for the last decade and will now do everything possible to manage negative effects for customers. Before this judgment insurers were able to take gender into account when assessing a person’s risk. Today’s judgment means that insurers will be legally prevented from taking a person’s gender into account when pricing insurance from December 2012.
The judgment will particularly affect products which take account of the risk differences between men and women such as motor insurance and some annuity products. For example, young female drivers pay less for motor insurance because they are less likely to have accidents and therefore women make fewer claims than men. For life insurance, women on average pay less to reflect their longer life expectancy, while pension (annuity) income for males is often higher because men typically have fewer years in retirement.
Maggie Craig, ABI’s Acting Director General, said:
“This gender ban is disappointing news for UK consumers and something the UK insurance industry has fought against for the last decade. The judgment ignores the fact that taking a person’s gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance. Insurers will now study this judgment carefully to manage negative effects for customers. Insurers will work hard to ensure that the UK insurance market remains one of the most competitive in the world offering a strong choice of products and prices for customers.
“It will be crucial to ensure this news does not put people off having vital insurance that protects them against accident or illness, or provides an income in retirement. Insurance remains good value for people and not all customers will be equally affected as the use of gender can vary significantly between products and different companies. Each company will have to respond to the ban in the way they feel is in their customers’ interests. Adaptation during this transition period until December 2012 will be challenging, but all insurers will be doing everything they can to ensure as smooth a change as possible for customers. Insurers will comply with the law and work proactively with the Financial Services Authority to ensure stability for the UK insurance market, its customers and investors.”
The judgment will particularly affect products which take account of the risk differences between men and women such as motor insurance and some annuity products. For example, young female drivers pay less for motor insurance because they are less likely to have accidents and therefore women make fewer claims than men. For life insurance, women on average pay less to reflect their longer life expectancy, while pension (annuity) income for males is often higher because men typically have fewer years in retirement.
Maggie Craig, ABI’s Acting Director General, said:
“This gender ban is disappointing news for UK consumers and something the UK insurance industry has fought against for the last decade. The judgment ignores the fact that taking a person’s gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance. Insurers will now study this judgment carefully to manage negative effects for customers. Insurers will work hard to ensure that the UK insurance market remains one of the most competitive in the world offering a strong choice of products and prices for customers.
“It will be crucial to ensure this news does not put people off having vital insurance that protects them against accident or illness, or provides an income in retirement. Insurance remains good value for people and not all customers will be equally affected as the use of gender can vary significantly between products and different companies. Each company will have to respond to the ban in the way they feel is in their customers’ interests. Adaptation during this transition period until December 2012 will be challenging, but all insurers will be doing everything they can to ensure as smooth a change as possible for customers. Insurers will comply with the law and work proactively with the Financial Services Authority to ensure stability for the UK insurance market, its customers and investors.”
ABI-commissioned research by Oxera carried out in autumn 2010 highlighted the possible impact of removing gender from assessing risk:
- For motor insurance: women under the age of 25 could see an average rise of 25 per cent to their premium.
- For annuities: men approaching retirement could see an eight per cent reduction in annuity rates while rates for women approaching retirement could rise by six per cent.
- For life insurance: women could see a rise of as much as 20 per cent in the cost of cover, while men could see a fall of 10 per cent.
Source: Financial Services Authority
The new blueprint for UK financial regulation has the potential for great success if it maintains an emphasis on practical cooperation between institutions; Angela Knight told a conference of British Bankers’ Association members.
Government plans to create new regulatory institutions could bring significant benefits to the financial markets as long as they have genuine democratic accountability and agree to work together to change the financial system for the better, the BBA chief executive told her members at a BBA conference on regulatory reform.
She told the conference at the BBA in London:
“The new regulators will have to ensure that when they use their significant new powers to maintain financial stability that they consider government economic policy as well.
“The new regulators will have to ensure that when they use their significant new powers to maintain financial stability that they consider government economic policy as well.
“For example, there is currently a potential conflict between the Government’s housing policy and aspects of the Financial Services Authority’s mortgage market review. If a bubble – say a housing bubble – begins to inflate, regulators need to consider the social consequences of the actions they take. Whatever regulatory tools they use, the consequence is the same: people do not get their houses in the way they expected, nor at the prices they hoped for. In a modern democracy this will be controversial. There will need to be wider discussions with society.
“The Financial Conduct Authority must also set in place a framework for a closer working relationship with the Financial Ombudsman Service, clarifying, interpreting and agreeing the standards required to meet important principles such as fairness to customers. The Ombudsman is a dispute resolution authority; the FCA will be the regulator.
“And the FCA will also be judged against its effectiveness in protecting the interests of all consumers – not just offering knee-jerk responses to the issues currently attracting media attention. The FCA will need to earn the confidence of consumers, but to do this effectively it will need a more measured and considered approach.”
Source: British Bankers’ Association
A highly respected individual has announced his resignation. Michael Coogan, director general of the Council of Mortgage Lenders, has announced that he will be stepping down from his role in August. Having successfully navigated the CML through the post-credit crunch period, and with the CML on a stable and successful course, he now wishes to seek a fresh professional challenge.
Michael Coogan has been director general of the CML since December 1996, when the organisation became independent from the Building Societies Association. He was previously head of the legal and policy department of the combined BSA and CML, having originally joined as a lawyer within the policy team in 1987 after previous roles with the Greater London Council, the Consumers Association, and as a barrister.
Commenting on his decision, Michael said: “The CML is an exceptional trade body, and I am exceptionally proud to have led it through some exciting times. With the credit crunch behind us, a very capable executive team, a new Chairman with a supportive and committed board, and a strong long-term business plan in place, the time is now right for me to seek a fresh challenge, safe in the knowledge that the CML will continue to go from strength to strength over the coming years."
Source: Council of Mortgage Lenders
