FSA – CHAIRMAN SAYS PAST ASSUMPTIONS ABOUT THE BENEFITS OF UNLIMITED FINANCIAL SERVICES LIBERALISATION AND INNOVATION HAVE TO BE CHALLENGED

Policymakers and regulators have to be prepared to challenge recent assumptions about the unlimited expansion and liberalisation of the global financial services sector, Lord Turner said.

Speaking at the Reserve Bank of India in Mumbai, Lord Turner, chairman of the FSA, said that both the Asian crisis of 1997 and the recent crisis had made clear that expansion in the scale and sophistication of financial activity is not always beneficial to the global economy. While a consensus has developed over the last two decades in support of ever greater growth and liberalisation of financial markets, this has been based on ideology more than on firm evidence.

Instead, the evidence of both the financial crises of the last 13 years is that there are inherent risks in this ideology. The Asian crisis was rooted in short term capital flows which proved highly susceptible to irrationally exuberant momentum effects and to sudden contagious losses of confidence.

The latest crisis was “rooted in over- exuberant credit extension in developed markets, and in the development of complex and opaque forms of securitised credit and of new and risky forms of maturity transformation”.

Although speculators can play a useful role in providing liquidity and market information, it is also possible for speculators to produce “destabilising and harmful herd and momentum effects”.

There is now growing agreement about the regulatory change needed to create a more stable system, such as higher bank capital and liquidity and more capital against trading books. But these responses do not address more fundamental questions such as the macroeconomic impact of volatility in the supply and demand for credit.

Lord Turner said that policymakers need to indentify the fundamental drivers of past, as well as the latest, financial crises and should be open to policy options that have been excluded by the free market consensus of the last two decades:

• Developed countries should consider macro-prudential tools to control credit expansion – particularly in an upswing. This could be done by countercyclical variations in banks’ capital or liquidity requirements, which may need to be applied at a sectorally specific level (for instance to constrain commercial real estate lending).

• Policy instruments such as taxes which place constraints on short-term speculative inflows may be particularly relevant for some emerging economies.

• A variety of levers focused on ‘putting sand in the wheels’ of short-term speculative trading should be considered. Increasing capital against bank trading activities is the key priority but transaction taxes should not be excluded, despite the practical difficulties of implementing them.

Lord Turner concluded:

“The sensible conclusion on the overall benefits of increased financial activity, liquidity and innovation is that it is valuable in some markets, but not in all markets and not limitlessly. The problem for regulators and central bankers is that this conclusion does not provide us with nice easy answers on which to base policy. It is much easier to proceed in life on the basis of a clearly defined and simple credo which provides the answer to all specific issues. But it is more likely produce good results if we live in the real world of complex trade-offs and of relationships which are true up to a point.”


Source: Financial Services Authority

FSA Website

CML – URGES TREASURY NOT TO REGULATE BUY-TO-LET

The Council of Mortgage Lenders has responded formally to the Treasury's consultation on whether to extend the scope of mortgage regulation.

The CML agrees with the proposals to extend regulation to cover second-charge mortgages, and to ensure that borrowers are sufficiently protected when mortgage books are sold on, but disagrees for several reasons with the proposal to extend "conduct of business" regulation to buy-to-let lending.

On second-charge lending, the CML's longstanding position has been that all secured lending should be regulated in the same way under the FSA. This would create a coherent and comprehensive framework, more aligned with EU regulation, although there is a need to ensure that the impact on low-cost home-ownership is properly considered before proceeding.

The CML also agrees that consumers could potentially suffer when mortgage books are "sold on", and that regulatory scope should be extended to address this. However, regulation should only cover acquirers when they take day-to-day decisions on the interest rate, other charges, service levels, and arrears management.

Where the power over these decisions has been delegated to a servicer or administrator, which is itself regulated for these activities, then there should not be "double" regulation. The CML cautions that it is also crucial to avoid unintentional problems for securitisation and covered bond transactions.

However, the CML disagrees with the proposal to extend regulation to buy-to-let loans. It would not result in increased consumer protection, would almost certainly capture an inappropriate range of commercial transactions, and fails to address the issue of advice on whether to invest in property at all, which is much more likely to be a cause of consumer detriment than the mortgage itself.

It is also the wrong way to address concerns about systemic risks, which are more appropriately addressed through prudential rather than conduct of business regulation.

The CML's response says:

"Fundamentally, the CML still believes that buy-to-let loans are essentially commercial transactions with an investment dimension, and should not be subject to retail mortgage regulation."

"Inappropriate regulation could further damage buy-to-let lending, which has shrunk substantially in the last two years, at a time when the government is separately promoting investment opportunities in the private rental sector. Extending the FSA's scope as proposed would undermine the government's wider housing policy."


Source: Council of Mortgage Lenders

CML Website

CML – GROSS MORTGAGE LENDING DECLINED IN JANUARY 2010

Gross mortgage lending declined to an estimated £9.1 billion in January, a 32% fall from £13.4 billion in December and a 21% fall from £11.5 billion in January 2009, according to the Council of Mortgage Lenders.

A decline is typically experienced between December and January. However, this is the lowest monthly total since February 2000 (£7.9 billion) and the lowest January total since 2000 (£7.4 billion).

The larger than average drop between December and January this year confirms our view that house purchase activity was boosted in December by a number of borrowers trying to complete their purchase before the end of the year to take advantage of the stamp duty holiday.

In their market commentary, CML economist Paul Samter commented:

“We remain in a period of uncertainty for the housing market and economy at large. The market certainly improved over the second half of last year and started 2010 in better shape than most would have predicted twelve months ago. More recent developments have been influenced by the end of the stamp duty holiday, and are likely to foreshadow a larger than usual seasonal drop off in activity in the early part of this year."

"However, the Bank of England is likely to keep rates low which should continue to mitigate mortgage payment problems and help cushion borrowers from the worst of the recession.”


Source: Council of Mortgage Lenders

CML Website

LLOYD’S – PUBLISHES STRATEGY FOR 2010 – 2012

Lloyd’s, the world’s leading specialist insurance market, has released its 2010 – 2012 Strategy after a detailed review of the market’s position which involved over 50 managing agents, brokers and market associations.

Maintaining and developing the attractiveness of the Lloyd’s market is central to the strategy, which includes working to ensure that London remains a competitive financial services centre, continuing work to improve the current operating environment and ensuring that the evolving regulatory landscape does not damage Lloyd’s position.

Lloyd’s CEO, Richard Ward, said the strategy reinforced the strong position the market is in:

“This is about evolution, not revolution. We have stood up well in the face of the worst recession since the great depression, and we don’t see a huge necessity to change direction. The Lloyd’s subscription model backed by a layer of mutual security is serving us and our customers well, as is our location in the heart of the London insurance market."

"While we are in good shape, we cannot afford to be complacent. In 2010 we will be absolutely focused on underwriting and risk management and in preparing for the introduction of Solvency II” Dr Ward said.

Other priorities for 2010 include:

• Increasing the adoption and use of The Exchange;

• Transforming the way the Lloyd’s market handles claims;

• Improving access to business through working with brokers and coverholders.

“Lloyd’s is a broker market; they are central to the market’s ongoing success. We also need to work to improve and streamline how coverholders access the market,” Dr Ward said.


Source: Lloyd's of London

Lloyd's Website

FOS – PUBLISHES OMBUDSMAN NEWS ISSUE 83

Topics covered include:

• Complaints involving consumers who are in financial difficulties;

• Insurance complaints concerning domestic plumbing and heating emergencies;

• Paul Kendall, head of the FOS customer-contact division, on handling up to a million calls a year to the ombudsman’s consumer helpline; and

• Chief ombudsman (interim), David Thomas, on dealing with increased numbers of complaints.


Source: Financial Ombudsman Service

FOS Website

FOS – WARNING ON FRAUDULENT CALLS BEING MADE TO CONSUMERS

The FOS has warned that phone calls are being made by a firm claiming to be the Banking Ombudsman or Insurance Ombudsman and asking consumers to pay an upfront fee and reveal their bank account details or passwords.

The FOS advise that these calls are not genuine. The Financial Ombudsman Service is a free service for consumers and there is no need for consumers to make any payment to us. The ombudsman service does not "cold call" consumers and ask for their banking details.

The FOS advise:

“If you get a phone call that seems a bit suspicious from someone who claims to be from the ombudsman service – or who says the ombudsman service has passed on your contact details – you can check it out by calling us on 0300 123 9 123.”

The FOS advises that to help protect oneself generally from fraudulent telephone calls or emails – people should:

• Never provide personal details – such as address, date of birth etc unless absolutely certain the request is genuine;

• Never provide any banking or credit card details unless absolutely certain the request is genuine; and

• Never give anyone personal security information, such as internet/telephone banking password or logon details. No genuine banking firm ever asks you to provide this information.


Source: Financial Services Ombudsman

FOS Website

FSSC – CALL FOR VOLUNTEERS

The Financial Services Skills Council (FSSC) has called on financial services, accountancy and finance employers to further shape the future of vocational qualifications.

The Sector Skills Council urged employers to visit a new website launched recently to raise awareness of a large scale overhaul of sector-based qualifications. The site is part of a joint project with Business Link and the Department for Business, Innovation and Skills, designed to ensure that businesses are at the heart of the changes.

Liz Field, CEO of the FSSC said:

“Employers have to be at the heart of qualifications development so they get the skills and knowledge they need for their businesses. Utilising the employer recognition route to validate their in-house training provides recognition of achievement for both employers and employees.”

Skills & Further Education Minister Kevin Brennan said:

“Employers are now looking to put themselves in the best position to take up the opportunities of growth – skills will be crucial to taking on that challenge. That is why we are simplifying and modernising the system of vocational qualifications and I believe these changes will be invaluable to businesses and learners alike."

"For anyone who wants to get the skills they need into their business or take up training opportunities themselves, the websites launched today give them a great opportunity to find out more.”


Source: Financial Services Skills Council

FSSC Website