Compliance News - 8 February 2011
INDUSTRY NEWS FLASH WEEK ENDED 8 APRIL 2011
Hector Sants, CEO of the FSA, has written to fellow Chief Executive Officers on progress towards moving to the new regulatory structure. In a two page letter which attached the organisation chart effective on 4 April 2011, Mr Sants stated the milestone had been reached with an internal re-organisation to replace the Supervision and Risk business units with a Prudential Business Unit (PBU) and Conduct Business Unit (CBU).
The PBU will be headed by Mr Sants, assisted by Andrew Bailey, a Bank of England secondee. The CBU will be headed by Margaret Cole until Martin Wheatley joins in September 2011.
Mr Sants stated:
“This restructure begins a gradual process to ensure we are ready to transfer to the new structure. Part of this evolution will see us design and pilot new processes and train staff, and until this is done we will continue with integrated supervision of your firm and existing ways of working, such as our ARROW operating framework. As part of the preparation we will be looking at what the changes will mean in practice, such as what supervision will look like in the two successor bodies, how they will interact, and how processes like authorisation will work across two separate organisations.”
“We know this period will bring challenges, but we have a clear plan of what we need to do to make sure we are ready, and we are firmly on track to deliver by the intended timescales. We are focused on making sure our work creates minimal disruption for your firm, and so we will not be introducing any new discretionary initiatives during the transition period.”
Finally, Mr Sants clarified that the Government had to introduce legislation to allow for the formal transfer of power from the FSA to the successor regulators. The legislation must go through debate, scrutiny and amendment in the House of Commons and then the House of Lords. The legislation will then receive Royal Assent, when the Bill becomes law, which was expected to happen during 2012.
Source: Financial Services Authority
In this Consultation Paper, FSA invites comments on miscellaneous amendments to the Handbook. It proposes amendments to:
- the Glossary definition of Holloway sickness policy to capture the features of the Holloway system;
- revise transitional guidance applying to certain firms and the provision of the Remuneration Code requiring payment of at least 50% of variable remuneration in shares or other non-cash instruments;
- making the rules in the Fees manual (FEES) for FSA and the Financial Ombudsman Service and the application of the CFEB levies for the Money Advice Service;
- amend certain prudential rules which would apply to banks’ investments in funds and holding companies which make venture capital investments;
- the guidance for completing data items found in the Supervision manual (SUP) and to make the FSA’s requirements clearer and to correct errors;
- the Supervision manual (SUP) to improve the clarity of the rules, content, related annexes and to facilitate better data quality;
- the Dispute Resolution: Complaints (DISP) sourcebook to reflect how the new statutory power that provides for the FSA to make consumer redress schemes will operate in practice; and
- the Collective Investment Schemes sourcebook (COLL) and the Glossary of definitions as a result of guidelines issued by the European Securities and Markets Authority (ESMA) together with
- other consequential amendments to the Handbook.
Closing dates vary in May and June according to the subject covered.
Source: Financial Services Authority
The Financial Services Authority (FSA) and HM Treasury (HMT) have published a joint review of the UK’s covered bond regulation. The review proposes a number of measures to build on the UK’s existing strong covered bond regime. These will make sure UK covered bonds are readily comparable to those from other countries and can compete on level playing field. The review highlights the quality of the UK regime, and will increase the appeal of UK covered bonds to investors.
The review also provides an update on the UK's engagement with its international partners on other areas of policy which relate to covered bonds. A key issue of current discussion is the scope of proposed ‘bail-in’ powers, which would allow the authorities to impose losses on the creditors of a failing financial institution. The UK believes that in the exercise of any bail-in powers, secured creditors’ rights to collateral should not be over-ridden, and that the claims of covered bond holders in relation to the supporting asset pool should not be affected.
The review proposes the following changes:
The review proposes the following changes:
- Introducing consistent standards of investor reporting: this will increase transparency for investors and highlight the quality of underlying assets, while the use of common standards will make it easier for investors to compare different programmes.
- Requiring issuers to maintain a fixed minimum level of overcollateralisation: a fixed floor will give clarity to investors and aid comparison between the UK’s regulated covered bond programmes and other regimes.
- Designating a regulated covered bond programme as backed by only a single asset type in the legislation: all UK issuers currently only use residential mortgages in their programmes, but the range of eligible assets in the regulations is much broader. This option will allow issuers who use only a single asset type to give greater clarity to their investors.
- Excluding securitisations as eligible assets for regulated covered bond asset pools: no issuers currently include securitisations as collateral in their regulated covered bond programmes. This proposal will emphasise the important distinctions between covered bonds and securitisations, and give greater clarity to investors.
- Creating a formal role of ‘asset pool monitor’ in the legislation: this codifies the existing UK practice of independent, external scrutiny of an issuer’s regulated covered bond programme and will provide added reassurance about the high standards of UK regulated covered bonds.
- Changes to regulatory reporting: updating and consolidating the regulatory reporting that the FSA requires when issuers apply to register with the FSA and on an ongoing basis. This information is used to assess issuers’ applications and as part of the regular stress-testing the FSA conducts on regulated covered bond programmes.
Responses to the consultation paper must be received by Friday, 1 July 2011.
Source: HM Treasury
The ABI has announced that the long-standing Concordat and Moratorium on Genetics, agreed with the Department of Health, has been extended to 2017.
The moratorium means the results of a predictive genetic test will not affect a consumer's ability to take out any type of insurance other than life insurance over £500,000.
Above this amount, insurers will not use adverse predictive genetic test results unless the test has been specifically approved by the Government. Only around 3% of all policies sold are above these limits. The only test that is approved is for Huntington’s Disease.
Nick Starling, the ABI’s Director of General Insurance and Health, said:
“The Concordat and Moratorium on the use of predictive genetic test results works well for consumers. It means people can insure themselves and their families, even if they have had an adverse result from a predictive genetic test. The moratorium has proved effective since its introduction in 2001 and has now been extended to 2017.”
Health Minister Anne Milton said:
“This is an excellent agreement that has benefited both patients and consumers. The extension of the moratorium will ensure that the public continue to have confidence in using predictive genetic tests and being insured."
To provide ongoing certainty for consumers, the ABI and the Department of Health undertake planned reviews three years before the end of each extension. This announcement follows the 2011 review; the next review will take place in 2014.
Source: Association of British Insurers
The Law Society reported that more than 700 firms have so far applied to join its Conveyancing Quality Scheme (CQS), and it is still not too late for other conveyancing firms to apply. The Society is to start a consumer advertising and PR campaign in support of CQS at the end of April, after which the profession should expect to be asked by lender and consumer clients whether their firms are accredited under the CQS.
The CML hopes that the CQS will create a trusted conveyancing community that will deter fraud, recognise high-quality services for home-buyers and lenders, and deliver a robust assessment and monitoring procedure for the solicitors’ firms that are admitted.
The lender body supports a CQS that represents a credible means of driving up standards among conveyancers, and improving lender and consumer confidence.
Once the CQS achieves the Law Society’s goal of providing a "confidence boost" for the lender market, the CML expects the CQS to become a prerequisite for membership of lenders’ conveyancing panels.
In addition to the self monitoring and quality assurance required of member firms, the Law Society monitors accredited firms to ensure standards are maintained, carrying out a random monitoring and assessment visits. The Society will launch a consumer campaign at the end of April aimed at informing home buyers and the public about the scheme and how it benefits them.
Source: Council of Mortgage Lenders
A string of natural disasters wreaked havoc across the world last year, costing the global economy $218 billion – more than three times the figure in 2009.
2010 saw four major earthquakes, vast floods across Asia, tornadoes, wind and hailstorms, heat waves and wildfires as well as winter ice and snowstorms. The total bill to the global insurance industry from these catastrophes reached over $43 billion – 60% more than in the previous year, according to a study published by Swiss Re.
“2010 was not only characterised by severe earthquakes that ranked among the deadliest, costliest and most powerful in history, but also by a series of extreme weather events, such as major floods,” says Thomas Hess, Swiss Re’s Chief Economist.
“2010 was not only characterised by severe earthquakes that ranked among the deadliest, costliest and most powerful in history, but also by a series of extreme weather events, such as major floods,” says Thomas Hess, Swiss Re’s Chief Economist.
Source: Lloyd’s
The FSCS has set the annual levy for 2011/12 at £217m. Following the publication of the Plan and Budget 2011/12 in February, the FSCS refined its compensation and claims projections for the coming year in the light of the latest trends over recent months, and reduced the levy by £23m.
Compared to the indicative levy amounts announced in the Plan and Budget, with the exception of the Life and Pensions Intermediation sector, the proposed levy for each part of the industry either remains unchanged, or has been reduced. The base costs levy of £34m announced in the Plan and Budget (which is included in the £217m) also remains unchanged.
The FSCS has confirmed that, in relation to the interim levy announced in January, any recoveries it makes in respect of claims against investment intermediaries paid in the 2010/11 levy year will first be credited to the Investment Fund Managers in order to repay the cross-subsidy triggered by last year’s interim levy of £326 million.
As the costs of pursuing recoveries are management expenses, they will be funded by Investment Intermediaries, but the costs of recoveries will be met from the proceeds before any funds are paid to the fund management sector. This is in accordance with the FSA FEES rules, which were introduced as part of the changes to our Funding Model in 2008.
FSCS Chief Executive, Mark Neale, said:
“We are pleased to announce a levy that is £23m less than originally projected, firms and trade bodies have emphasised to us the impact our levies have on the businesses that must pay them. In particular, we are mindful of the fact that, in addition to this levy, investment firms will have received their bills in respect of the interim levy we announced in January.
I want to assure all of our levy payers that we only raise funds that we expect to require and that we pursue recoveries against third parties whenever it is reasonably possible and cost effective for us to do so. These recoveries will be used to help offset the costs of compensating consumers when firms fail.”
I want to assure all of our levy payers that we only raise funds that we expect to require and that we pursue recoveries against third parties whenever it is reasonably possible and cost effective for us to do so. These recoveries will be used to help offset the costs of compensating consumers when firms fail.”
Source: Financial Services Skills Council
