Compliance News - 7 January 2011
Prime Minister David Cameron has called on banks to pay smaller bonuses this year. Speaking on the BBC's Andrew Marr show he said banks should be more "socially responsible". The Royal Bank of Scotland (RBS), which is majority-owned by the taxpayer, should not be "leading the way" on bonuses but should be a "back marker", he said. However "micro-managing" the banks was not the answer, he added.
Tentative
There have been unconfirmed reports that RBS's chief executive, Stephen Hester, is to get a substantial bonus for his work in 2010. The Sunday Telegraph reported that RBS's board is poised to award Mr Hester a cash-and-shares bonus of £2.5m at their meeting next month. But Mr Cameron said the details of Mr Hester's pay packet was "pure speculation". The BBC has learned that there have been only tentative discussions on Mr Hester's bonus and business editor, Robert Peston, said that any extra payment would almost certainly be in shares.
The British Bankers' Association (BBA) said new rules meant large cash bonuses were a thing of the past. Its statement said: "For all the key people, bonus targets have to be agreed with the regulator, most of the bonus has to be locked away for several years and it can be clawed back. "The smaller part of any bonus package may be paid straight away if the Financial Services Authority agrees, but as the rest is in shares which have to be retained for some time, any cash will go straight to the taxman. This is a tougher regime than any other country."
Scapegoats
The Shadow Chancellor, Alan Johnson, speaking on Sky News, said the government had legislation on the statute books which would allow it to force the banks to publish details of bonuses of more than £1m, but had failed to do so. Mr Johnson said: "On transparency they won't act on a law that is already there and on bonuses themselves Nick Clegg said they would not stand 'idly by'. It looks like they are standing 'idly by'."
Mr Cameron warned against "banker-bashing", saying that it was too easy to make banks the "scapegoats" for the recession. But he said that the banks needed to do more to increase their lending. He added: "What I want to see is socially responsible banks behaving responsibly, and proper agreements on lending to businesses, large and small." He defended his government's action on banks, saying that his was one the first governments in the world to introduce a banking levy.
Source: BBC
This item deals with proposed guidance on Assessing Suitability: Establishing the risk a customer is willing and able to take and making a suitable investment selection. This proposed guidance relates to the Conduct of Business sourcebook (COBS) 9.2 rule(s) in the FSA Handbook. The purpose of the guidance is to help firms improve the standards by which they are providing investment advice or discretionary management services to retail customers.
This guidance is likely to be of most relevance to firms providing investment advice or discretionary management services to retail customers. It is also relevant to providers of risk-profiling and asset-allocation tools, including those provided as part of a platform or a network.
In terms of the background to this consultation, FSA consider that the level of unsuitable advice (and quality of private client discretionary management services) they see in the market remains a significant concern. A review of existing FSA intelligence from previous work, and new information gathered from firms on their risk profiling and asset allocation methodologies highlighted failings in how firms establish the risk a customer is willing and able to take and how they make subsequent investment selections.
FSA has seen an increasing trend of firms adopting risk-profiling and asset-allocation tools to support, supplement or replace aspects of more traditional ‘know your customer’ approaches. They do not prescribe how firms establish the risk a customer is willing and able to take or how they make investment selections but this review highlights the risks and weaknesses of different approaches whether or not firms use tools.
FSA has seen an increasing trend of firms adopting risk-profiling and asset-allocation tools to support, supplement or replace aspects of more traditional ‘know your customer’ approaches. They do not prescribe how firms establish the risk a customer is willing and able to take or how they make investment selections but this review highlights the risks and weaknesses of different approaches whether or not firms use tools.
Summarising the key issues, this report considers:
- How firms establish and check the level of investment risk that retail customers are willing and able to take (in the wider context of the overall suitability assessment);
- The potential causes of failures to provide investment selections that meet the risk a customer is willing and able to take; and
- The role played by risk-profiling and asset-allocation tools, as well as the providers of these tools.
Source: Financial Services Authority
FSA Website
FSA – FINES RBS AND NATWEST £2.8M FOR POOR COMPLAINT HANDLING
The Financial Services Authority (FSA) has fined Royal Bank of Scotland (RBS) and National Westminster Bank (NatWest) £2.8m for multiple failings in the way they handled customers’ complaints, responding inadequately to more than half the complaints reviewed by the FSA.
Please click on the link below to read the full article.
Source: Financial Services Authority
Legal costs have rocketed in the past decade and now account for a huge proportion of the value of a claim in dispute. However, the UK’s Coalition Government is showing a willingness to tackle the issue, proposing reform of both legal aid and civil litigation costs.
Costly practice
Since “no win no fee” litigation (known as conditional fee arrangements) was introduced in 2000, the cost of taking a dispute to court has risen to new highs. For insurers this means more expensive claims handling, making some uneconomic to defend even if they are perceived to have little merit. Typically, legal costs now account for 40% of a disputed claim and can easily exceed the total value of smaller claims, according to industry statistics.
Since “no win no fee” litigation (known as conditional fee arrangements) was introduced in 2000, the cost of taking a dispute to court has risen to new highs. For insurers this means more expensive claims handling, making some uneconomic to defend even if they are perceived to have little merit. Typically, legal costs now account for 40% of a disputed claim and can easily exceed the total value of smaller claims, according to industry statistics.
Reforming civil litigation
In November the government proposed sweeping reform of the civil litigation system, including reducing access to legal aid and backing recommendations to reduce legal costs put forward by Lord Justice Jackson in his review of January. Lord Justice Jackson’s proposals, as taken up by the government in its recent consultation paper, would reform “no win no fee” litigation in the UK. The Lloyd’s market has little exposure to disputes that are funded by legal aid, which was scaled back in the 1990s and largely limited to criminal cases and family disputes. However, the move sends out a positive signal that the government is serious about reducing the legal costs, which are a major burden to public sector organisations like the National Heath Service and Local Authorities.
In November the government proposed sweeping reform of the civil litigation system, including reducing access to legal aid and backing recommendations to reduce legal costs put forward by Lord Justice Jackson in his review of January. Lord Justice Jackson’s proposals, as taken up by the government in its recent consultation paper, would reform “no win no fee” litigation in the UK. The Lloyd’s market has little exposure to disputes that are funded by legal aid, which was scaled back in the 1990s and largely limited to criminal cases and family disputes. However, the move sends out a positive signal that the government is serious about reducing the legal costs, which are a major burden to public sector organisations like the National Heath Service and Local Authorities.
Containing legal costs
The Jackson proposals are generally welcomed by the insurance industry. However it is not clear whether the proposed reforms would reduce the total burden of legal costs because some measures proposed by Lord Justice Jackson’ work in favour of insurers’ interests whilst others work against them, Noonan says. As a result the reforms are likely to be neutral in terms of reducing legal costs overall, he says.
The Jackson proposals are generally welcomed by the insurance industry. However it is not clear whether the proposed reforms would reduce the total burden of legal costs because some measures proposed by Lord Justice Jackson’ work in favour of insurers’ interests whilst others work against them, Noonan says. As a result the reforms are likely to be neutral in terms of reducing legal costs overall, he says.
Engaging with the consultation process
The LMA is currently taking soundings from the market ahead of submitting its response to the MoJ consultations on legal aid and on civil litigation costs.
The LMA is currently taking soundings from the market ahead of submitting its response to the MoJ consultations on legal aid and on civil litigation costs.
The LMA has set up a working group made up of motor and liability claims managers to review the MoJ’s consultation paper on Lord Justice Jackson’s proposals and will be submitting a full response in February. Lloyd’s insurers support Lord Justice Jackson’s key proposals that conditional fee arrangements and after the event premiums should be irrecoverable. They also accept that, as part of the interlocking package of reforms, general damages for pain and suffering should be increased by 10% to help successful claimants meet their liabilities for fees.
Further reform proposed
A further MOJ consultation is due in February 2011 that deals with Lord Justice Jackson’s proposal to reform the Courts’ claims process. In April this year a fast track claims process was introduced that speeds up the process of motor claims. Insurers would like to see this extended to include public liability and employers’ liability claims. Insurers would also like industry wide calibration of the tools used to assess damages in personal injury claims. This would reduce disputes and speed up the claims process further.
A further MOJ consultation is due in February 2011 that deals with Lord Justice Jackson’s proposal to reform the Courts’ claims process. In April this year a fast track claims process was introduced that speeds up the process of motor claims. Insurers would like to see this extended to include public liability and employers’ liability claims. Insurers would also like industry wide calibration of the tools used to assess damages in personal injury claims. This would reduce disputes and speed up the claims process further.
Source: Lloyd’s of London
The FOS deal with 2,500 stockbroking and portfolio management complaints a year and have set up a special resource page.
Source: Financial Ombudsman Service
FOS Website
FOS Website
