FSA – ROYAL ASSENT FOR FINANCIAL SERVICES ACT 2010

The Financial Services Act 2010 received Royal Assent on 8 April, resulting in a number of changes to the Financial Services Authority’s objectives, powers and duties. The main changes were:

• Financial stability:
The new financial stability objective for the FSA includes a duty for the FSA to determine and review its financial stability strategy, in consultation with the Treasury

• Consumer education:
The FSA is also required to establish a new consumer financial education body. When this body is fully operational, it will assume the FSA’s current responsibilities in relation to financial education

• Enforcement powers:
Notable changes here include the power to suspend individuals, and firms, along with the ability to fine those who are carrying out a role that needs FSA approval without the necessary approval being in place. The time limit to issue a warning notice against an individual increases from two years to three years from the time the FSA first becomes aware of the misconduct

• Remuneration:
The FSA will have the power to specify that remuneration agreements in breach of its remuneration rules are void

• Consumer redress scheme:
This clause would give the FSA the power to impose a consumer redress scheme. It will come into effect only by order of the Treasury.

Some of the new powers require the FSA to make rules, or publish statements of policy. The FSA will publish a consultation paper in due course concerning implementation of the provisions in the Act.

The changes announced in the Financial Services Act 2010 were anticipated in the FSA's Business Plan for 2010/11, published in March, and the FSA will continue to execute these business priorities.

Source: Financial Services Authority

FSA Website

FSA – PENSION SWITCHING

The Financial Services Authority has published the findings of its follow-up work to improve the quality of pension switching advice. The findings will see a number of firms carry out past business reviews that will deliver more than £150 million in redress to customers.

The FSA’s work has seen great improvement in the market with many firms reviewing past sales and procedures to deliver improved outcomes for customers. However, there remain a number of firms still giving high levels of unsuitable advice.

As part of a range of actions designed to improve the pension switching market, the FSA carried out further assessments of 22 firms that posed the highest risk of offering poor advice, following an initial thematic review in 2008. In total, six firms have been referred to the FSA’s enforcement division as a result of work on pension switching, two of which have already been publicised.

In addition to failings previously identified, the FSA’s follow-up work highlighted additional concerns. Some advisers were found to be offering ‘portfolio advice services’, where the additional costs were not justified for a particular customer; the FSA also saw examples of tied advisers not investigating a customer’s existing pension arrangements.

Since the original thematic review in 2008 the FSA has taken a wide range of actions to reduce the risk of poor advice being given. These included:

• Writing to over 4,500 firms (a ‘Dear Compliance Officer’ letter) setting out the standards the FSA expects of firms

• Publishing a pension switching suitability assessment template to provide firms with a resource to assist them; and

• Hosting 18 regional roadshows, attended by 1,500 small firms, providing further guidance and support in light of the thematic review’s findings.

Source: Financial Services Authority

FSA Website

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FSA – ISSUES FINES OF £2.4 M FOR TRANSACTION REPORTING FAILURES

The Financial Services Authority (FSA) has fined three firms a total of £4.2m for failing to provide accurate and timely transaction reports to the FSA. One of the firms is a bank, one is a market maker trading on electronic markets, and one is an agency broker.

Firms are required to have systems and controls in place to ensure they submit accurate data for reportable transactions by close of business the day after a trade is executed. The FSA uses this data to detect and investigate suspected market abuse: insider trading and market manipulation.

All three firms were found to have committed multiple breaches that resulted in failures to provide transaction reports promptly and correctly to the FSA.

One firm was also found to be in breach of FSA Principles as the firm did not have adequate systems and controls in place to meet the transaction reporting requirements and failed to take adequate steps to review its processes and the accuracy of its transaction report data. Each firm could have prevented the breaches by carrying out regular reviews of its data. Despite repeated reminders from the FSA during the course of 2007 and 2008, none of the firms did this.

The firms have taken steps to improve their processes and resolve the errors, resubmitting reports to the FSA where necessary. The firms cooperated fully with the FSA in the course of the investigations and agreed to settle at an early stage. In doing so each firm qualified for a 30% discount. Without the discounts the total fines would have been £6m.


Source: Financial Services Authority

FSA Website

FSA – QUARTERLY CONSULTATION NO 24

FSA has published their regular collection of proposed rule changes and are seeking comment.

The areas affected are as follows:

• FEES Manual – special project fees
• Prudential sourcebook for Insurers
• General Prudential sourcebook
• Prudential sourcebook for Banks, Building Societies and Investment Firms
• Conduct of Business sourcebook
• Client Assets sourcebook
• Supervision Manual
• RMAR Section A
• Listing Rules and Disclosure and Transparency Rules

Comments should be received by 6 June 2010.


Source: Financial Services Authority

FSA Website

FSA – LORD TURNER ADDRESSES THE INSTITUTE FOR NEW ECONOMIC THINKING

In a detailed and wide ranging speech entitled “Economics, conventional wisdom and public policy” at the Inaugural Conference of the Institute for New Economic Thinking in Cambridge last week, Lord Turner covered the following headlines:

• Specific institutions: too big to fail
• Inherent dangers of fractional reserve banking
• Inherent problems of liquid financial markets

Lord Turner concluded his speech by stating:

“To sum up therefore, we need new economic thinking, but even more importantly, we need to ensure that the public policy debate is not constrained by acceptance of an over-simplified version of one strain in economic thinking, nor constrained by the assumption that evolved institutional structures are necessarily unchangeable, but open to the great variety of insights which good economics has always given us.”


Source: Financial Services Authority

FSA Website

ABI – IVIS REVIEW 2009

The ABI’s Institutional Voting Information Service (IVIS) review shows that serious breaches in governance led to a much higher vote against companies in 2009, than even 12 months ago. IVIS does not provide voting advice but indicates concerns through a colour code system. Following a red topped report, which indicates a matter of serious concern, an average of 30% of shares were not voted in favour of management last year compared with 13% in 2008.

Of all reports published in 2009 12% were red, 20% were amber and 68% were blue, indicating no areas of major concern. The review also found that executive pay inflation slowed last year with base salaries for FTSE 100 Chief Executives rising by 5.3%. Average bonus payouts were also down to around 90% of base pay compared with over 110% in 2008.

IVIS has reviewed voting issues at over 8500 FTSE All-Share meetings since January 2000, in line with guidelines on governance, sustainability and remuneration. These guidelines are set by the ABI Investment Committee, which includes many of the largest investors in UK plc shares. IVIS subscribers hold 30% of the FTSE All-Share.

Peter Montagnon, the ABI’s Director of Investment Affairs, said:

“Welcome signs of restraint continue with 51% of FTSE 100 companies having now frozen base pay for their chief executives, but it is also clear that shareholders are ready to signal their impatience with companies whose remuneration approach does not take account of the impact of the economic downturn. This mood appears likely to continue in 2010. Given the strong public focus on remuneration, it is more important than ever that companies develop policies which are properly focused on linked pay to performance in delivery of agreed strategy.”


Source: Association of British Insurers

ABI Website

ABI – TRADE CREDIT INSURERS PAY RECORD AMOUNT IN CLAIMS

Latest ABI figures show that trade credit insurance helped UK businesses by dealing with 22,791 claims in 2009. The total amount paid in claims rose from £164m in 2008 to £320m in 2009, a 95% increase year-on-year. These figures reflect the ongoing effects of the global recession and the liquidity crisis on UK business.

Nick Starling, the ABI’s Director of General Insurance and Health, said:

“Whilst trade credit insurers paid out a record amount in claims to policyholders during 2009, Q4 marked a significant improvement with number of new claims received down -23% on previous quarter. This is consistent with the end of the downward trends observed in various sectors of the economy and the corresponding reduction in levels of corporate failures observed in Q4 2009. The outlook for 2010, although improved from 2009, remains highly uncertain, which reinforces the importance of protection and risk management services provided by trade credit insurers."


Source: Association of British Insurers

ABI Website