FSA – LATEST STEPS ON CORPORATE GOVERNANCE

The Financial Services Authority has issued a Consultation Paper on effective governance standards within firms. As part of its supervisory enhancement programme, the FSA places greater emphasis on the role of senior management at firms.

Since adopting this approach in 2008, the FSA has carried out 332 significant influence functions (SIF) interviews, with 25 candidates withdrawing from the process.

The FSA has issued a number of publications in this area, including a ‘Dear CEO’ letter in October 2009, which clarified its approach to approving and supervising persons performing SIFs. This CP explains this more intensive process in greater detail, but also makes clear that the intention is not to deter strong candidates from pursuing senior roles in firms.

Graeme Ashley-Fenn, FSA’s director of permissions, decisions and reporting, said:

"Our more intrusive approach continues to place a great deal of emphasis on governance and therefore the senior management at firms. This starts with a firm’s own due diligence. Our experience shows that once a firm gets its corporate governance right; with a strong and effective board, everything else flows from that."

Walker Review

The proposals implement the FSA-specific recommendations in Sir David Walker’s review of corporate governance published in November last year. Where appropriate, listed banks and insurers are now strongly encouraged to establish board risk committees and appoint top executives as chief risk officers.

Sally Dewar, managing director of the FSA’s risk business unit, said:

"We have been very clear about our more intensive supervisory approach of firms and individuals, and our renewed focus on the quality of governance. We were fully supportive of Sir David's recommendations and this CP sets out how we intend to deliver them through our ongoing supervisory work and authorisation processes."

Enhancing the SIF regime

Underpinning this intrusive approach the paper consults on extending the scope of the SIF regime and introduces a new, more detailed framework of controlled functions. These will make clearer the exact role an individual is performing within a firm and increases the FSA’s ability to vet and track individuals as they move role.

The FSA is also extending the regime to capture more individuals from parent companies who exert significant influence upon a UK regulated firm.

The consultation period closes on 28 April 2010. The FSA hopes to have final rules in place during the third quarter of 2010.

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Source: Financial Services Authority

FSA Website

FSA – BORROWERS IN ARREARS AND TCF

The Financial Services Authority has set out a package of measures that will help to ensure that mortgage holders in arrears are treated fairly and which reinforces the FSA’s tough stance in its battle against mortgage fraud.

The proposals strengthen existing rules on arrears handling - one of the urgent issues flagged in the Mortgage Market Review discussion paper last October.

This reflects other ongoing work carried out by the FSA, which uncovered high levels of consumer detriment particularly in the specialist lending sector.

The key arrears proposals are to:

• Make plain that firms must not add early repayment charges on arrears charges and interest levied on those charges;

• Clarify that firms must not apply a monthly arrears charge where the firm and the customer have agreed an arrangement to repay the arrears;

• Compel firms to consider all options for borrowers. Repossessions should always be the last resort;

• Confirm that payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and

• Oblige firms to record all arrears handling telephone calls and to keep all records for three years.

New proposals will also mean all mortgage advisers and those who arrange non-advised sales will be individually accountable to the FSA, and need to demonstrate they are 'fit and proper' for their role.

Extending the approved person regime will also have significant benefits for consumers. The FSA made it clear through its review of the mortgage market that it wanted a strong, viable and clean marketplace and its requirement for mortgage advisers to prove they are fit and proper will help to remove dishonest individuals from the industry and to keep them out.

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Source: Financial Services Authority

FSA Website

FSA – ASSET MANAGEMENT REGULATORY TRENDS

Dan Waters, Director, Conduct Risk, and Asset Management Sector Leader, FSA made a speech on asset management regulatory trends and priorities in the post-crisis environment at the McKinsey Asset Management conference on 25 January 2010.

He covered:

• Risks and challenges for consumers and firms in the post-crisis environment

• The investment value chain and product governance, design and oversight

• The European regulatory agenda for funds

• The market impact


Source: Financial Services Authority

FSA Website

FSA – SALE AND RENT BACK CUSTOMERS

The Financial Services Authority has published new rules and guidance which put in place a strong framework of consumer protection for vulnerable consumers in the sale and rent back (SRB) market.

The FSA adopted a two-stage approach to regulating the sale and rent back market. To tackle the most immediate sale and rent back issues for consumers as quickly as possible, it implemented an interim regime from 1 July 2009.

This publication contains details of the full regime, which will provide consumers with greater protection from 30 June 2010.

In particular, the FSA has:

• Banned exploitative advertising and high-pressure sales techniques and prohibited the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature;

• Introduced a 14 day cooling-off period to give consumers more time to make decisions on sale and rent back;

• Banned cold calling and prohibited firms from dropping promotional leaflets through letter boxes;

• Confirmed rules to ensure consumers have a security of tenure for a minimum of five years;

• Introduced an affordability and appropriateness check across all sales to check that the sale and rent back deal is right for the consumer; and

• Put in place measures to ensure all risks are clearly signposted to the customer, via FSA literature and during the sales process.

Ed Harley, FSA head of mortgage policy, said:

"For some people in financial difficulty, staying in their home remains very important. Selling their home and renting it back in this way can be right for them. But we are aware of some firms exploiting vulnerable consumers at a difficult time. So, it is right that we introduce these further protections, and we will take swift action where they are not met."

The FSA has also published proposals for the data it will expect firms to supply for use in the supervision of sale and rent back firms.

All firms active in the sale and rent back market must be authorised otherwise they face potential fines or imprisonment. The FSA is proactively monitoring the SRB market for unauthorised activity, and will take action if necessary.


Source: Financial Services Authority

FSA Website

FSA – PUBLISHING COMPLIANTS HANDLING DATA

The Financial Services Authority has confirmed that it will require firms to publish information on how they handle complaints, to help people see how firms are performing in this important area and to drive up complaints handling standards across the industry.

Firms that receive 500 or more complaints in a six month period will have to publish the following information twice a year:

• How many complaints they have opened and closed;

• The percentage closed within eight weeks; and

• The percentage of complaints upheld.

Firms will need to present this information by five product areas: banking, home finance, general insurance and pure protection, life and pensions, and investments.

The FSA will then use this information to publish a consolidated list of complaints data covering all affected firms twice a year.

Sheila Nicoll, the FSA’s director of conduct policy, said:

"We are committed to greater transparency where this will help consumers. For the first time, people will be able to see how many complaints particular firms receive and how they handle them.

We believe that this will help improve how firms treat their customers and provide incentives for firms to deal more effectively with complaints when they are received. Our more intensive approach to supervision places a greater focus on assessing how firms deal with their customers – and how firms handle complaints is a key part of this.”

All affected firms will have published their first figures by 31 August 2010. The FSA will then publish its first set of consolidated data in September 2010.

If you and your team don’t have the time or skills to deal with complaints, we can help. We deal with the Financial Ombudsman Service (FOS), third party complaint handling companies and directly with customers for a number of high profile clients.

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Source: Financial Services Authority

FSA Website

ABI – KEEPING INSURERS IN BRITAIN

A more competitive and business friendly environment is needed to ensure the UK does not lose more insurance firms based here, the ABI has warned. It comes as new figures showed insurers paid only 8.4% less corporation tax in 2008/09 than the previous tax year, against a 39% fall for the financial services sector as a whole in the same period.

Despite this fall, insurance firms still pay the fourth highest corporation tax of any sector. In total, the insurance industry contributes a total of £8.2 billion to the Exchequer.

The ABI also revealed that the insurance sector has an average wage of £42,000, compared to the national average wage of £25,000. This is good for the Exchequer as, on average, insurers pay £18,667 in employment taxes per employee.

The study, by PricewaterhouseCoopers LLP (PwC) for the ABI, found insurers paid £3.2 billion in combined business taxes in 2008 and collected a further £5 billion for the Government, making a total tax contribution of £8.2 billion.

As well as its importance in tax revenues, the insurance industry employs over 313,000 people in the UK overall, with ABI members employing 175,000 people who generate employment taxes of £2.6 billion.

The figures were published as the ABI warned afresh of the competitiveness problems facing the UK. The new 50% higher rate of income tax, the reduction of pensions tax relief and the perception that higher rate payers will continue to be targeted to mend the public finances have all led to a fall in the attractiveness of the UK for senior people.

Research by the ABI last year showed that 80% of insurance executives felt there would be a drop in the number of insurance firms based in the UK if the Government failed to improve competitiveness.

Solvency II, which will change the way insurers are regulated across the EU, will make it easier for insurance companies to re-locate within Europe and the global clampdown on tax havens means insurers from non-EU jurisdictions may be looking for new homes.

Earlier this month (13 January 2010), XL Capital, an insurance and reinsurance group based in the Cayman Islands announced it was moving its legal domicile from Bermuda, and chose Ireland rather than the UK as its new home.


Source: Association of British Insurers

ABI Website

ABI – WELCOMES GOVERNMENT STATEMENT ON AGE AND INSURANCE

The ABI welcome the policy statement by the Government Equalities Office that a competitive market for motor and travel insurance exists for consumers of all ages.

Maggie Craig, Acting Director General of the ABI, said:

“The insurance industry is committed to providing competitive insurance for people of all ages. The Government’s own research shows that motor and travel insurance is available to all age groups.

However, we recognise that some older people may experience difficulty finding the motor and travel insurance policies that are available to them. So we are developing a signposting solution that will direct older people to those insurers who can meet their insurance needs. We are keen to work with Government and age charities to ensure that this delivers real benefits to consumers.”


Source: Association of British Insurers

ABI Website

CML – REACTION TO FSA ON ARREARS AND APPROVED PERSONS

The Council of Mortgage Lenders broadly agrees with the proposals on arrears handling put forward by the Financial Services Authority, but will need to review the practical implications to ensure there are no unintended consequences.

However, at first sight the CML is concerned that the FSA's proposals on how to extend the approved persons regime may be disproportionate for lenders - the costs will far exceed potential benefits. Within lenders there is typically a high level of consumer recourse to the institution over time, involving a range of functions, not just the original salesman or adviser.

The CML will now consider the proposals in more detail, and looks forward to working with lenders and the FSA to provide a constructive response to the proposals before the end of April deadline. The CML will also shortly be submitting an over-arching response to the mortgage market review discussion paper.

CML director general Michael Coogan observed:

"We will need time to consider the FSA's proposals properly. But at first glance, the extension of the approved persons regime to both lenders and intermediaries appears heavy-handed, at least as far as lenders are concerned, and may be a sledgehammer to crack a nut. The number of sales advisers identified by the FSA also appears lower than we would expect, suggesting that the FSA may be underestimating the cost of implementing this proposal both for the regulator and firms.

"The arrears handling proposals are in line with industry expectations, and we broadly agree with them. Even so, it is important to remember that increasing the compliance burden on the industry also increases costs - the FSA's cost/benefit analysis appears to suggest only a modest increase in costs, but experience shows us that actual regulatory compliance costs always tend to be much higher in practice."


Source: Council of Mortgage Lenders

CML Website

CML – RESPONDS TO FSA MORTGAGE REVIEW

In two new separate but parallel policy papers, the Council of Mortgage Lenders has expressed support in principle for some of the regulatory reform proposed by the FSA under its mortgage market review.

At the same time, the CML believes that such reform needs to be accompanied by a clearer government strategy in relation to mortgage funding. Conduct of business reform may be effectively irrelevant for the foreseeable future if the mortgage market shrinks due to unaddressed structural vulnerabilities in the mortgage funding markets.

The CML’s two new major documents consist of a formal response to the FSA’s Mortgage Market Review discussion paper, and a detailed report on the outlook for mortgage funding markets in the UK over the 2010-2015 period.

The CML sees a crucial link between the two issues:

• The loss of investor confidence in wholesale debt markets left a £300 billion funding gap that has only been filled on a temporary basis by government funds under the special liquidity and credit guarantee schemes. These schemes expire between 2011 and 2014, leaving uncertainty about how far, and through what sources, lenders will be able to refinance this funding.

• Retail deposits will not be large enough to fill the gap. But the government has not yet recognised the need for a strategy to put mortgage funding markets back on a sustainable footing. Unless it does so, the likelihood is that the mortgage market will shrink. This would make significant conduct of business reform by the FSA largely irrelevant for the foreseeable future.


Source: Council of Mortgage Lenders

CML Website

CML – WELCOMES PUBLICATION OF RULES OF SALE AND RENT BACK

The Council of Mortgage Lenders welcomed publication by the Financial Services Authority of new rules and guidance to provide full protection for consumers in the sale-and-rent-back market.

Lenders have for some years campaigned for statutory regulation to improve protection of home-owners who may be considering sale-and-rent-back as a means of dealing with mortgage arrears. Lenders welcomed the FSA's decision to move quickly to introduce interim regulation of sale-and-rent-back last July to tackle the most immediate issues. Now the FSA has published details of the scheme for full statutory regulation from 30 June 2010.

Commenting on the FSA announcement, the CML's director general Michael Coogan said:

"We are pleased to see FSA pressing ahead with its plans to reinforce protection in an area where there has clearly been potential detriment for borrowers in arrears. Rules guaranteeing security of tenure for five years and banning cold-calling by sale-and-rent-back firms are particularly welcome.

Borrowers in arrears should always continue discussing their problems with their lender, who will work to devise a solution depending on their individual circumstances. There are likely to be a number of options for them other than sale-and-rent-back, but it is re-assuring that borrowers who may still wish to consider this option will be better protected."


Source: Council of Mortgage Lenders

CML Website

BIS – PENSIONS REGULATOR DELIVERING OUTSTANDING BETTER REGULATION

The Department for Business, Innovation and Skills (formerly BERR) has announced that the Pensions Regulator has made strong progress putting better regulation principles into practice according to a new report from the Better Regulation Executive.

The report, part of a series of reviews of national regulators, examined how the regulator matched up to the principles of effective regulation set out by Philip Hampton in 2005. The Pensions Regulator works to improve confidence in work-based pensions by protecting members' benefits and encouraging high standards and good practice in running pension schemes.

The report found that the Pensions Regulator had thoroughly embedded better regulation principles in its work at both strategic and operational levels and had integrated a risk-based approach into the culture of the organisation. It also highlighted other areas of its performance, including:

• Its positive response to the rapidly changing economic climate;

• Excellent stakeholder feedback on its consultation process; and

• Establishing a ‘learning culture’ and actively seeking honest feedback.

The report made a number of recommendations to help the regulator improve its service further, notably:

• Extending its services to the trustees of smaller pension schemes to ensure they can be as well equipped as larger schemes;

• Ensuring they maintain their current high standard of operation when coping with significant new responsibilities regulating employers’ duties under the Pensions Act, due for implementation in 2012


Source: The Department for Business, Innovation and Skills

BIS Website

FSSC – RDR CONSULTATION

This consultation forms an important part of the process in the development of Appropriate Exam (ApEx) Standards and, by extension, the qualifications used to examine at the new professional benchmark level for all individuals advising on retail investments.

The FSSC says it is vital that they maintain the level of participation for this next phase of the consultation which closes on 26 February and urge all industry practitioners and interested parties to get involved and provide feedback and suggestions for improvement.

The FSSC are therefore holding a series of briefing and feedback events covering Retail Investment Advice - Packaged Products and Retail Investment Advice - Securities and Derivatives, across the UK.

As an alternative, Firms are being invited to participate in the online survey, which is open until 5 February.

We have a number of propositions to assist firms with their RDR obligations and we feel that in terms of RDR Training and Competence requirements we offer the most comprehensive suite of solutions on the market, ranging from, face to face, online testing solution,consultancy for the forthcoming required qualifications and support and guidance.

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Source: Financial Services Skills Council

FSSC Website

FSCS – NEW CHIEF EXECUTIVE ANNOUNCED

The Financial Services Compensation Scheme (FSCS) has appointed Mark Neale as its new Chief Executive.

Mr. Neale, who takes up the post in May succeeds Loretta Minghella who led the organisation for five years. Mr. Neale will join the Board of the FSCS as his appointment has now been confirmed by the Financial Services Authority.


Source: Financial Services Compensation Scheme

FSCS Website