Compliance News - 6 August 2010
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HMT – THE CHANGING FACE OF FINANCIAL REGULATION
On 26 July 2010, HM Treasury published a consultation paper setting out detailed proposals for the reform of the financial services sector, following on from the announcement made by Chancellor, George Osborne in his Mansion House speech delivered on 16 June 2010. The paper sets out details of the proposals to reform the existing tripartite regulatory system, and in particular addresses the following fundamental areas:
(1) Macro-prudential regulation; (2) Prudential regulation of individual firms; and (3) Consumer protection and markets regulation. The UK financial system is currently regulated under a tripartite model made up of HM Treasury, the Bank of England and the Financial Services Authority, which collectively are responsible for financial stability. One of the main criticisms of the current system is that only one organisation (the FSA) has responsibility for all financial regulation of firms, as well as the supervision of market conduct and consumer protection. In addition, no single institution was given the authority to monitor the financial system as a whole. The Government now seeks to address these weaknesses in order to avoid a repeat of the financial crisis and to build a stronger financial system. The paper proposes abolishing the FSA and transferring its functions to three new bodies: (1) The Financial Policy Committee (FPC) which will sit within the Bank (2) The Prudential Regulation Authority (PRA), which will be a subsidiary of the Bank and will conduct the prudential regulation of banks and other deposit-takers, insurers, and broker-dealers/investment banks; and (3) The Consumer Protection and Markets Authority (CPMA), which will be responsible for the regulation of conduct of business for all financial institutions, including the conduct of firms supervised by the PRA and secondary market conduct generally. In addition, the Government had previously announced the creation of a serious economic crime agency which would be responsible for prosecuting criminal law breaches currently prosecuted by the FSA. Although this remains planned, no further details are provided in the current Consultation Paper. Financial Policy Committee The Government highlights that “there must be a dedicated focus on macro-prudential analysis and action, to ensure that risks developing across the financial system as a whole are identified and responded to.” It has therefore proposed creating a new Committee within the Bank (the FPC), which will monitor the financial system as a whole, rather than individual institutions in isolation. The FPC’s primary statutory objective will be to protect financial stability, by: • Improving the resilience of the financial system in identifying and addressing aggregate risks and vulnerabilities across the system; and • Enhancing macro-economic stability by addressing cyclical imbalances through the financial system. The FPC’s main functions are divided into three main areas: • Monitoring the system to identify risks to financial stability; • Taking the necessary action required to address any vulnerabilities or imbalances identified; and • Communicating its analysis and information about any action taken to Parliament and to the public. To enable the FPC to carry out its role, the Government intends to provide it with a number of ‘macro-prudential tools’. These tools are still being considered and further details will be set out in secondary legislation. The PRA will be required to implement any FPC decisions on macro-prudential policy and the CPMA will be required to implement any macro-prudential policy where it applies to conduct regulation. Prudential Regulation Authority It is essential for macro-prudential regulation of the financial system to be harmonised with the prudential regulation of individual firms, or ‘micro-prudential’ regulation. The PRA’s primary objective will therefore be to “promote the stable and prudent operation of the financial system through the effective regulation of financial firms, in a way which minimises the disruption caused by any firms which do fail.” The PRA will be responsible for the authorisation, regulation, and day-to-day prudential supervision of all firms that are subject to significant prudential regulation. The Consultation Paper sets out by way of example the following activities which would be regulated by the PRA: • Taking deposits; • Effecting and carrying out contracts of insurance; and • Dealing in investments as principal. Therefore, the following types of firm will be regulated by the PRA: • Banks and other deposit-takers (including building societies and credit unions); • Broker-dealers and investment banks; and • Insurers (including friendly societies). The Treasury will specify the exact scope of the PRA’s regulation but the FPC will monitor the boundaries of regulation and make recommendations to the Treasury about any firms and activities it believes should be brought under the wing of the PRA, whilst the PRA will be responsible for drawing up the prudential rules for the firms it monitors, including, for example, on remuneration. Consumer Protection and Markets Authority The CPMA will be dedicated to promoting confidence in financial services and markets. This objective has two strands: (1) The protection of consumers through a strong consumer division within the CPMA; and (2) The promotion of confidence in the integrity and efficiency of the UK’s financial markets. The CPMA will be responsible for the conduct of business regulation of all financial institutions, even if they are prudentially regulated by the PRA. It will regulate all conduct, including the retail conduct of a business if a firm provides services to consumers; and market conduct if the firm participates in dealings in wholesale financial markets. The CPMA will be solely responsible for the authorisation and supervision of all financial institutions not regulated prudentially by the PRA, and will “write the prudential regulatory framework for those firms.” The CPMA’s powers and functions will be based on a modified version of the legal framework set out in the Financial Services & Markets Act (2000) (FSMA), enabling the CPMA to carry out its conduct-focused responsibilities more effectively. These powers and functions include: • Making the rules which govern the conduct of financial firms in both the retail and wholesale sectors, including prudential rules for firms outside the PRA’s scope, for example, in relation to systems and controls where these relate to conduct; • Granting permission for all regulated activities classified as ‘non-prudential’; • The supervision and enforcement of compliance with conduct of business rules, which may relate to both prudential and non-prudential activity; and • Approving individuals to perform conduct-related controlled functions within firms that are also prudentially regulated by the PRA, and all controlled functions for firms that are solely regulated by the CPMA. Consultation period The Treasury has requested comments and feedback on the proposals made in the Consultation Paper by 18 October 2010. The Government will then prepare more detailed proposals, including draft legislation, for further consultation in early 2011. The intention is for legislation to be brought forward to implement the reform programme in the first session of Parliament with a view to securing Royal Assent within two years. Source: HM Treasury |
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FSA – MORTGAGE LENDERS ROUND UP
 The FSA have published their latest newsletter covering the following topics: • Responsible lending proposals • Individual accountability • Unfair contract terms • New arrears rules • Early repayment charges • On-line notifications • Upcoming FSA events • Mortgage fraud update • Mortgage payment protection insurance Source: Financial Services Authority |
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FOS – TECHNICAL INFORMATION ON CALCULATING COMPENSATION
The Financial Ombudsman Service has published technical information on calculating compensation, in particular “being deprived of money”. Source: Financial Ombudsman Service |
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TCC – BUSINESS MONITORING
 The Consulting Consortium can provide clients with all the services expected of a business monitoring unit (BMU) from its Operations Centre in Leeds.
The Operations Centre is staffed with individuals holding the appropriate financial services qualifications. The activities of a BMU include the following: • Case Selection • File Retrieval • Case Review • Feedback • Remedial Action management • Quality Assurance • Appeals against Review Grades • Reporting and Management Information • Ongoing review of internal Business Standards For further information please contact us on 020 7645 8808 or visit our website. Source: The Consulting Consortium |
