FSA – CHAIRMAN CALLS FOR DEBATE

 
The Financial Services Authority (FSA) chairman, Lord Turner, has said there needs to be a fundamental debate in this country, both about how much easy credit should be available in the mortgage market, and how much capital and liquidity banks should be required to hold, without holding back the economic growth necessary for recovery.

Lord Turner will make his remarks in two speeches this week: one, to the British Bankers’ Association (BBA) on the FSA’s new consultation document on responsible mortgage lending; the other, at the London School of Economics’ Future of Finance conference.

At the BBA Lord Turner will say:

“The approach to mortgage market regulation, which pertained in the years before the crisis, reflected numerous different decisions including those which the FSA and its predecessor bodies had made over the preceding years. And those decisions carried, embedded within them, a set of trade-offs and balances between consumer choice and consumer protection and consumer and producer responsibility.

At the time, in the years of the credit boom, the net effect of all those decisions – a dynamic, competitive market in mortgages, with maximum freedom of choice and easily available credit - was one with which most of society seemed happy. We are signalling today a significant shift away from that approach; but how much we shift is not a purely technical issue which can be left to technicians; it is a social and political choice which should merit extensive debate.”

Lord Turner will also say there are fundamental questions the government will have to resolve as it establishes the new Consumer Protection and Markets Authority (CPMA), which is due to be formed in 2012.

“The very words ‘Consumer Protection’ indeed raise issues about what precisely we mean. They cannot mean that consumers will be protected from everything which might go wrong. But they clearly mean more than just fair disclosure of terms. Should they, however, imply bans on specific products as inherently undesirable, or interventions driven solely by identification of apparently excessive profit margins, even if no other indicators of poor practice are present? The establishment of the CPMA focused on consumer protection gives us a major opportunity to debate these choices.”

In his speech to the Future of Finance conference this week, Lord Turner will say that the debate about reforming global finance has to go beyond addressing the symptoms of the financial crisis and address the need for radical structural reform.

“Large bank bonuses for selling over-complex and risky products of little real use to humanity were a major problem, and we need remuneration practices and regulations which make excessive risk taking less likely in future. But that regulatory reform also needs to address more fundamental issues. If we only address banker bonuses and not the fundamental drivers of credit supply instability, we will not adequately reduce the probability of a repeat performance. The central issue is volatility in the availability of credit, first too easily available at too low a cost, then constrained in a credit crunch.”


Source: Financial Services Authority

FSA Website

FSA – CONSULTATION PAPER

In this CP, FSA invite comments on miscellaneous amendments to the Handbook.

FSA propose amendments to:

• The Fees manual, to restrict the FSCS’s right to raise an exit levy for anticipated compensation and/or management expenses to the FSCS levy year in which the firm exits the scheme, and to enable the FSCS to raise an exit levy when a firm stops carrying out activities within a particular activity class or sub-class;

• The explanation of the tariff base for deposit-takers set out in the Fees manual to clarify that, from 31 December 2010, the tariff base of ‘protected deposits’ will continue to apply for all accounts that are excluded from the Single Customer View;

• The Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU), to simplify the regime of liquidity assessment for Simplified ILAS firms, to simplify liquidity reporting requirements, to amend liquidity systems and controls requirements to implement changes to the Banking Consolidation Directive, and to introduce additional guidance to BIPRU TP 30 clarifying how the liquidity floor for mismatch banks is intended to operate;

• The Conduct of Business sourcebook (COBS), to incorporate Recommendation 20 of the Walker Review on Corporate Governance, which states that we should require institutions that are authorised to manage assets for others to disclose clearly on their websites or in other accessible form the nature of their commitment to the Stewardship Code or their alternative business model;

• The pensions rules in COBS, in order to make it clear that contracting-out comparisons should only reflect the period up to abolition of contracting-out (April 2012);

• The Banking Conduct of Business sourcebook (BCOBS), to provide guidance in relation to exercising a right of set-off on retail consumer accounts and to make a minor drafting amendment to guidance relating to information about compensation arrangements;

• The Title Transfer Collateral Arrangements (TTCA) rules and the money due and payable to the firm provisions in the Client and Assets Sourcebook (CASS), to strengthen protection for retail clients who place money and assets with investment businesses, as well as to ensure a consistent application of our client money and asset rules;

• Sections D1 and E, as well as the replacement of section D2, of the Retail Mediation Activities Return (RMAR) of Chapter 16 in the Supervision manual (SUP), following from changes to the capital resources computation and connected requirements for Personal Investment Firms, and professional indemnity insurance requirements;

• Guidance notes to data item FSA015 of Chapter 16 in SUP, to clarify guidance on regulatory reporting via FSA015 and facilitate more effective data gathering;

• Chapter 16 Annex 24R and Chapter 16 Annex 25G of SUP, to include capital buffer planning data in reporting of capital adequacy in FSA003; and

• Chapter 10 of SUP, to correct a technical error and, in so doing, clarify the types of firm for which the significant management function, CF29, is relevant.

Responses close in August or September depending on the chapter.


Source: Financial Services Authority

FSA Website

FSA – DISAPPOINTED BY LOW STANDARDS IN CRITICAL ILLNESS INSURANCE

Oral sales of critical illness insurance are consistently failing to meet acceptable sales standards, the Financial Services Authority has claimed. This is despite stricter rules introduced when the old insurance rulebook was replaced by the Insurance Conduct of Business Sourcebook (ICOBS) in 2008.

In a move towards more principles-based regulation, ICOBS did away with many regulations that had proved unnecessary, but it also introduced detailed selling standards for protection products, such as critical illness and payment protection insurance (PPI), where specific problems had been identified.

In particular, FSA research had shown that consumers did not understand protection policies and that this was due in part at least to the poor explanations they were given during the sales process. The new rules required firms selling these products orally to make sure customers were given enough information to be able to make an informed decision.

The FSA has now carried out a post-implementation review of ICOBS to see what effect these changes have had on firms' behaviour. The answer is: not much. The regulator carried out a call listening exercise involving 11 firms selling critical illness insurance, including building societies, banks, direct insurers, financial services/advice networks and one comparison website. In all, 234 completed sales calls were analysed. The results, published on 30th June, were disappointing.

"Overall compliance with ICOBS was unacceptable and all firms failed on some or most of our requirements in the majority of their calls," the FSA's report concludes.

Clear explanations about limitations and exclusions to the cover were provided in only 5% of calls analysed. Fifty percent of the calls failed to offer any explanation at all. The rest were unclear or incomplete. Firms also failed to explain that the insurance did not cover all illnesses and 82% failed to explain limitations and thresholds on those illnesses that were covered.

Just over half of the calls drew the customer's attention to the duty to disclose all material facts to the insurer and the consequences of failing to do so, but 39% did not. Customers were also left in the dark about how the policy would pay out, with 30% of calls failing to explain that payment would be in a lump sum rather than a monthly income and 26% leaving it unclear.

The regulator found no real difference in selling standards between policies sold directly or via an intermediary, or between cover sold as an add-on to life term assurance or as a standalone product.


Source: Out-Law.com

Out-Law Website

ABI – FASTER TRANSFERS FOR PENSION CUSTOMERS

Pension and annuity providers using Origo’s Options transfer initiative have reported continued progress in Q1 2010, according to figures released today by the ABI. The news means more customers are experiencing faster transfers than ever before when moving to a new pension or annuity provider.

Average transfer times remained steady for the third successive quarter, at 11 calendar days for OMO transfers, despite the addition of several new providers and a major increase in the numbers of transfers completed via the service. Twenty providers are now using Options for OMO and Immediate Vesting Personal Pension (IVPP) transfers, with 13 providers live for pension transfers.

The improvements achieved to date by Options have also been extended to customers with occupational defined contribution pension schemes, following the extension of the service to cover these types of transfers in June. Further new joiners are also expected in the coming months.

Open Market Option (OMO)
Over 14,000 OMO and IVPP transfers were completed on Options in Q1 2010, up 53% since Q1 2009. The average Q1 transfer time was 11 calendar days – down from a pre-Options industry average of 31 days. 36% of transfers were completed in less than seven days, and a further 47% in less than 14. Abbey Life and Windsor Life joined this part of the service in April, as did Scottish Life in July.

Pension Transfers
Average pension transfer times have fallen from a pre-Options industry average of 36 days to just 10 calendar days in Q1 2010. Over 9,000 pension transfers were completed in Q1, with 44% of these completed in less than seven days and a further 44% in less than 14 days. Abbey Life, Friends Provident, AXA and Nucleus are the latest providers to go live for pension transfers, bringing the total to 13. Nucleus is the first wrap provider to join Options, with others expected to follow shortly.

Maggie Craig, ABI Director of Life & Savings, said:

“Options is proof of the industry’s commitment to improving customer service, not just in the OMO and pension transfers space but more broadly. The initiative has handled major increases in volumes and participating providers with ease and, in the case of pension transfers, even delivered improvements on the previous quarter. This is testament to the efforts of participating providers and Options itself.”

“Origo won its second award for Options in March, scooping the ‘Best Use of Business-to-Business E-Commerce’ award at the Financial Sector Technology awards. This follows its award for ‘Innovation in Business Improvement’ at the Scottish Financial Enterprise Awards in October 2009.


Source: Association of British Insurers

ABI Website

CML – FRAUD: FSA INFORMATION FROM LENDERS SCHEME AND SUPERVISORY ACTION

These links contains information on the following:

• The FSA information from lenders scheme
• The reporting criteria
• Suspected fraud
• Contact details
• Outcomes of the scheme to date and next steps


Source: Council of Mortgage Lenders

CML Website

FSCS – COMPENSATION PAYMENTS RE WILLS & CO

Customers of Wills & Co Stockbrokers Limited (Wills & Co) are a step closer to having their complaints against the firm considered by the FSCS.

The FSCS has declared Wills & Co in default, which means it is satisfied that the firm is unable, or likely to be unable, to pay claims against it. The FSCS can now start considering claims for compensation against the firm.

FSCS are now working with the firm’s directors and the Financial Ombudsman Service (FOS) to ensure that all investment complaints that have been made against the firm are transferred to us, along with all relevant company records. Once FSCS have received the complaint files and company records, FSCS will send out application forms to these customers to enable them to apply for compensation.

Customers of the firm that have already registered a complaint with the firm do not need to take any further action at this point. FSCS will contact all registered claimants as soon as they are able to provide details of the claims process and an application form to complete.


Source: Financial Services Compensation Scheme

FSCS Website

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Source: The Consulting Consortium

TCC Website

LLOYD’S – AM BEST RATING

A.M. Best has affirmed Lloyd’s financial strength rating of A (Excellent) reflecting our strong capitalisation, good financial flexibility, good prospective financial performance and excellent global business profile.

Luke Savage, Lloyd’s Finance Director, said:

“We’re pleased that A.M. Best has reaffirmed our ratings and focused on our strong performance. The market will be facing some challenges in the next few years; however, it is good to see that A.M. Best recognise Lloyd’s strong operating model and business profile. ".

A.M. Best’s assessment
The rating agency’s reasons for reaffirming Lloyd’s ratings are robust, citing the following points:

Strong capitalisation
A.M. Best expects Lloyd’s to maintain its strong capitalisation despite anticipated deterioration in industry performance during the current more challenging phase in the insurance cycle.

Good financial flexibility
Financial flexibility is enhanced by a diverse capital structure and Lloyd’s continues to draw investment from both corporate and non-corporate capital.

Good prospective performance
A.M. Best highlighted that performance in 2010 is likely to be weaker than the excellent level achieved in 2009, particularly following the Chilean earthquake and Deepwater Horizon oil rig catastrophes. Despite this, the overall combined ratio of the market is expected to deteriorate from 86% in 2009 to between 95% and 100%.

Excellent business profile
Lloyd’s excellent position in the global insurance and reinsurance markets as a specialist provider of property and casualty business was noted by A.M Best. Its competitive strength derives from its reputation for underwriting expertise, innovation and flexibility, while its network of licences provides access to a wide international client base.

Strong operating model
The broker subscription model, which allows large and complex risks to be shared between market participants, supported the market after the financial turmoil of 2008 highlighted the benefit for insurance buyers of spreading risk among different counterparties.

This is the 6th year in succession that the market has maintained it's A rating.


Source: Lloyd's of London

Lloyd's Website

FOS – PENSION REVIEW CALCULATIONS

This technical note explains how — since 1 October 2005 — FOS have dealt with redress for complaints about pension sales that do not fall in the period covered by the regulatory Pensions Review. FOS take a different approach for these complaints because they are not a “closed” group relating to a specific fixed period, as Pensions Review cases were.

For the Pensions Review, the regulators (the PIA and subsequently the FSA) laid down a methodology and assumptions (for example, the discount rate to be used to value future benefits) which the regulator revised from time to time – for the last time in April 2003. The Pensions Review has now effectively drawn to a close. And the FSA’s Pensions Review Bulletin 27 announced that – unless exceptional circumstances arose – it would not be updating those assumptions last revised in April 2003. It said that firms should continue using those assumptions for Pensions Review cases, regardless of the future date of settlement.

This raised the issue of what approach firms and the ombudsman service should take for similar pension cases falling outside the boundaries of the Pensions Review.


Source: Financial Ombudsman Service

FOS Website

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Source: The Consulting Consortium

TCC Website