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Retail Finance round-up - 23 June 2016

Retail Finance round-up - 23 June 2016

  • United Kingdom
  • Financial institutions - Retail finance


This briefing is coming to you on a momentous day as voters go to the polls to vote on the EU Referendum.

The FCA has this week announced the establishment of the Financial Advice Working Group. This follows the Financial Advice Market Review published in March 2016. The FCA has also published terms of reference for the Working Group. Those terms of reference make clear that the Working Group will not be responsible for taking forward the implementation of the FAMR. That is for the FCA and HM Treasury. However, it will act as a source of ongoing expertise to the FCA and HM Treasury during implementation of the FAMR recommendations.

The provision of advice also featured in Christopher Woolard’s speech on innovation this week. Mr Woolard highlighted the work of the Advice Unit, which will support firms developing automated advice models which seek to deliver lower cost advice to consumers. The FCA will focus on models which look to fill the gaps in the current market identified by the Financial Advice Market Review.

Also of interest this week is the FCA’s Regulation round-up for June which provides a reminder of the complaints handling changes effective from 30 June.

Regulatory updates

Industry news

You may have missed…

FCA speech on innovation and improving outcomes

The Director of Strategy and Competition at the FCA, Christopher Woolard, delivered a speech on innovation and improving outcomes at the Global Digital Banking Conference, on 16 June 2016.

Key points from the speech include:

  • The FCA’s interest in innovation is primarily linked to its duty to promote competition in the interests of consumers.  According to the FCA, one of the best ways it can do this is to foster disruptive innovation.
  • Project Innovate offers individual support to new and established businesses to enable them to introduce innovative financial products and services to the market.  Since its launch in October 2014, over 500 requests for support have been received and direct support has been offered to over 250 firms who presented genuinely innovative ideas likely to have customer benefit. From the initial applicants, 40 have been authorised (or are close to being authorised) and are launching new products that may not have otherwise come to market.
  • The Advice Unit’s specific remit is to support firms developing automated (or ‘robo’) advice models which seek to deliver lower cost advice to consumers. The FCA will focus on models which look to fill the gaps in the current market identified by the Financial Advice Market Review (investments, pensions and protection).  Once the FCA has taken a few firms through the Unit, it will also look to share the lessons learned with the whole industry.
  • The FCA has found that potentially millions of UK consumers cannot use services that would help meet their needs and play a wider role in financial markets and the economy.  In response, the FCA is looking at technology as both a challenge to manage and a force for greater inclusion.

The speech also highlights that as proof of its commitment to innovation and improving outcomes, the FCA has already identified innovation as one of the FCA’s seven Business Plan priorities, in line with its duty to promote competition in the interests of consumers.

If you would like to discuss any issues raised by this development, please contact Matthew Gough.

FCA publishes its Regulation round-up for June 2016

The FCA has published its Regulation round-up for June 2016. The hot topic for this month is access to financial services in the UK. The FCA explains that the launch of its Occasional Paper on Access to Financial Services marks the start of a new conversation about access. Following the success of the work on vulnerable customers, the FCA intends to work collaboratively with firms to design and drive better outcomes for consumers who do not have adequate access to financial services.

Other highlights from the round-up are:

  • Complaints handling - The FCA’s announcement that it undertook a market-based thematic review of general insurance complaint handling, ahead of the new complaints handling rules effective from 30 June 2016 (following the FCA’s policy statement PS15/19). The FCA found that generally complaints are handled well, once they are identified. It also highlighted two areas for improvement; the identification of all complaints, in particular expressions of dissatisfaction, and the level of detail in firms’ root cause analysis.
  • Reminder of new complaints return – Firms will have to submit a new complaints return for reporting periods starting from 30 June 2016, for submission in early February 2017. The FCA reminds firms that all complaints must be reported, not just those closed after the next business day following receipt.
  • Payment shortfalls - The consultation paper CP16/16 on the treatment of mortgage borrowers with a payment shortfall, seeking views on proposed minor amendments to the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB).
  • High cost short term credit - The policy statement PS16/15 sets out the feedback received to the FCA’s consultation paper on the proposed response and confirms the final rules and guidance for price comparison websites comparing high-cost short-term credit. The policy statement also provides an update on the FCA’s work on credit broking.
  • FCA website - The new FCA website has been launched. The first phase of the new website was launched on 10 June 2016, with the second phase expected in August 2016.
  • Product oversight and governance - European Banking Authority’s guidelines on products oversight and governance, which will take effect on 3 January 2017, setting out a framework for robust and responsible product design and distribution to avoid future cases of consumer detriment. 
  • Debt consolidation mortgage advice - firms offering debt consolidation mortgage advice could be carrying on credit-related activities in accordance with Chapter 2 of the Perimeter Guidance Manual (PERG). The FCA confirms that, as an example, a broker may recommend that a debtor should consolidate only certain unsecured debts due under credit agreements into a regulated mortgage contract and the exclusion in Article 39J of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 might not be available, as in line with Q5.1 (What is advice?) in PERG 17.5. The FCA emphasises that even implicitly steering the customer to a particular course of action will constitute advice for the purposes of the regulated activity of debt counselling.

If you would like to discuss any issues raised by this development, please contact Jo Owens and Chris Busby.

FCA announces establishment of Financial Advice Working Group following FAMR

The FCA has published a press release to announce that the Financial Advice Working Group has been established in response to the recommendations of the Financial Advice Market Review (FAMR) report that was published in March 2016.

The FCA has also published the terms of reference for the Working Group.  These state the Working Group will be responsible for taking forward the following recommendations assigned to it by the FAMR:

  • Recommendation 12: the Working Group should work with employer groups to develop a guide to the top ten ways to support employees’ financial health, and devise a strategy for rolling this out.  It should align the timing of this with the FCA and Pension Regulator joint factsheet for employers and trustees, which is due to be published in early 2017.
  • Recommendation 17: the Working Group should publish a shortlist of potential new terms to describe ‘guidance’ and ‘advice’ by Q3/Q4 2016.
  • Recommendation 18: the Working Group should lead a task force formed of interested stakeholders to design a set of rules of thumb and nudges with the aim of increasing consumer engagement.  The Working Group should consider the crucial stages at which these nudges and rules of thumb could be delivered and complete initial testing of these by Q1 2017.

The Working Group may commission such research as it considers necessary in order to take forward this work.  It will also engage regularly with the FCA and HM Treasury and consult these organisations regarding the work it carries out.  The Working Group’s recommendations and publications shall not have regulatory status.

Finally, the terms of reference state that the Working Group will not be responsible for taking forward the implementation of the FAMR, for which the FCA and HM Treasury will be responsible. However, it will act as a source of ongoing expertise to the FCA and HM Treasury during implementation of the FAMR recommendations, providing background on current business practices in the financial advice market and on consumer needs. The FCA and HM Treasury will also keep the Working Group updated on implementation progress and invite its response on consultations that arise from FAMR recommendations.

If you would like to discuss any issues raised by this development, please contact Andrew Henderson.

Governor of Bank of England speech on initiatives to promote FinTech

The Bank of England has recently published a speech originally intended to be delivered by Mark Carney, Governor of the Bank of England, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London on 16 June 2016.

The speech focused on FinTech and announced a number of Bank of England initiatives intended to promote its development. In highlighting the way the Bank of England intends to enable the transformation of FinTech, Mr Carney announced initiatives to be undertaken by the Bank of England, which include (among others):

  • The widening of access to central bank money to non-bank Payments Services Providers so they may compete on a level playing field with banks.
  • Partnering with FinTech companies on projects of direct relevance to the Bank of England’s mission.
  • Calibrating the Bank of England’s regulatory approach to FinTech developments.

Mr Carney set out the three potential outcomes of FinTech development to be as follows:

  • Revolution – the unbundling of banking into its core functions.
  • Restoration – incumbent banks become more efficient and profitable, reinforcing existing economies of scale and scope in banking.
  • Reformation – a more diverse, resilient and effective system for consumers, where large banks exist alongside new entrants.

The speech concludes by stating that with time, FinTech could mean a more open, more transparent, and more democratic global financial system.

If you would like to discuss any issues raised by this development, please contact Matthew Gough.

MLAR statistics for Q1 2016 are published

The Mortgage Lenders and Administrators Return (MLAR) statistics are quarterly statistics aggregated from the returns from around 340 regulated mortgage lenders and administrators, providing data on their mortgage lending activities.

The Bank of England has recently published the MLAR Q1 2016 figures showing that:

  • The overall value of the residential loan amounts outstanding in Q1 2016 was £1,304.5 billion, an increase of 1.0% compared with Q4 2015 and an increase of 3.4% over the past four quarters.
  • Amounts outstanding on regulated loans were £1,031.9 billion, constituting 79% of the total in Q1 2016.
  • Non-regulated loans increased by £3.6 billion compared with Q4 2015 and by £7.8 billion compared with Q1 2015, to a level of £272.6 billion in Q1 2016.

In relation to new business lending, the statistics show that:

  • Gross advances of £64 billion were recorded in Q1 2016. This was 1.5% higher than in Q4 2015 and 40.4% higher than in Q1 2015.
  • Net advances increased from £6.3 billion in Q1 2015 to £13.6 billion in Q1 2016, an increase of 117.0% over the previous four quarters.
  • The percentage of advances to borrowers with impaired credit history decreased by 2 basis points (bps) to 0.24% in Q1 2016.

The Bank of England has confirmed that the next release date for up to date MLAR statistics will be 13 September 2016.

If you would like to discuss any issues raised by this development, please contact Geraint Thomas.

CML publishes latest statistics on home-owner house purchase lending for April 2016

The Council for Mortgage Lenders (CML) has recently published its latest statistics on home-owner lending, for April 2016.

On an unadjusted basis, the figures show that in April 2016:

  • Home-owners borrowed £8.1bn for house purchase, down 40% month-on-month and 4% year-on-year. They took out 47,300 loans, down 31% on March and 5% on April 2015.
  • First-time buyers borrowed £3.9bn, down 11% on March but up 15% on April last year. This equated to 25,100 loans, down 9% month-on-month but up 7% year-on-year.
  • Home movers borrowed £4.3bn, down 53% on March and 14% compared to a year ago. This represented 22,200 loans, down 46% month-on-month and 15% on April 2015.
  • Remortgage activity totalled £6bn, up 25% on March and 40% compared to a year ago. This came to 34,800 loans, up 23% month-on-month and 30% compared to a year ago.
  • Landlords borrowed £2.5bn, down 65% month-on-month and 7% year-on-year. This came to 16,100 loans in total, down 64% compared to March and down 10% compared to April 2015.

The CML has also confirmed that it now publishes seasonally adjusted monthly and quarterly data, alongside the normal unadjusted data,  making it easier to spot underlying trends.

If you would like to discuss any issues raised by this development, please contact Geraint Thomas.

EBA publishes its Annual Report for 2015

The European Banking Authority (EBA) has published its Annual Report for 2015 detailing the work it has carried out over the past year and setting out the key areas for future focus.

The report, published on 15 June 2016, states that in 2015 the EBA continued to identify, analyse and address risks in the banking sector through key outputs, such as semi-annual risk reports, risk dashboards, and stress test exercises. The report also highlights the EBA’s work in promoting protection of consumers through support of transparency, simplicity and fairness in consumer financial products and monitoring financial innovation.

The report sets out the key areas of focus for 2016 to include (among others):

  • Enhancing the framework for credit risk.
  • Reviewing the impact of proportionality.
  • Promoting compliance, comparability and consistency for supervisory practices in the EU.
  • Creating a revised version of Pillar 3.
  • Protecting consumers and monitoring financial innovation.

In its report, the EBA states that going forward it will be reducing the intensity of its regulatory production and shifting its fo­cus to understand the effects and impact of the new regulatory framework so as to make the reform package work in practice. The EBA intends to adopt a more proportionate approach to rule-making, in which the complexity of the rules matches the complexity of the business models of the banks, in a consistent way across the Single Market.

If you would like to discuss any issues raised by this development, please contact Jo Owens.

EBA publishes its consumer trends report 2016

On 21 June 2016, the European Banking Authority (EBA) published its annual Consumer Trends Report, which provides an overview of the trends observed in 2016, the issues that will or could have an impact on consumers and other market participants and the areas where the EBA may take any action, if needed.

The report covers all the products that fall into the EBA's consumer protection mandate, such as mortgages, personal loans, deposits, payment accounts, payment services and electronic money. It is primarily based on the consumer protection priorities identified by national supervisory authorities in the 28 EU Member States.

This year’s edition covers eight trends on which the EBA may focus its work in 2017:

  • Indebtedness, including lending and related practice, household borrowing and arrears handling, as well as creditworthiness assessment. The data from the report shows that consumers in the EU gradually increased their level of debt. The EBA has confirmed that it, together with national authorities, will monitor potential consumer protection issues arising as a result.
  • Banking fees and costs, including fees and charges on payment accounts and their comparability, as well as selected costs related to loans. The report states that fees and costs related to banking products tend to be one of the main reasons for consumer complaints. The EBA confirmed that further regulatory and supervisory actions to address issues related to fees and charges on payment accounts, and their comparability are expected to follow the implementation of the Payment Accounts Directive.
  • Selling practices, including cross-selling and sales incentives. The report highlights the fact that unsuitable selling practices were one of the key drivers of the mortgage mis-selling in the years prior to the financial crisis in 2008/9. The EBA confirmed that it is currently assessing responses to its Consultation Paper on draft Guidelines on remuneration practices and policies of sales staff, with the aim to publish the Final Report, including the feedback statement and Final Guidelines in Q3 2016.
  • Innovations in payments – this topic continues to raise concerns related to, for example, risks associated with the way consumer data is used, the lack of consumer awareness about new types of providers in the market and the risks and characteristics of new payment solutions, including the risk of fraud. The EBA confirms that it will continue to monitor innovations, such as blockchain technology and its impact on the products and services in the EBA’s scope of action, but has for now prioritised the implementation of the mandates conferred on the EBA in the revised Payment Services Directive (PSD2).
  • Alternative financial services providers – crowdfunding has attracted significant attention. In its May 2016 report, the European Commission deemed crowdfunding as a largely local phenomenon so did not consider there to be a strong case for an EU level framework at this time. Nevertheless, given the potential for future cross border expansion, the Commission will continue to monitor its development.
  • Virtual currencies - Amongst the concerns raised were the fact that virtual currencies remain unregulated, that consumers are unaware of the risks involved in dealing with virtual currencies, and the risk of virtual currencies being used for money laundering and terrorist financing purposes. The European Commission is due to propose measures related to virtual currencies in Q2 2016.
  • Innovative uses of consumer data - the EBA issued a Discussion Paper in April 2016 on this topic and welcomes comments on the Discussion Paper until the end of July 2016, after which it will assess the responses, so as to decide what, if any, additional regulatory and/or supervisory action is required.

The EBA has confirmed that due to budget constraints, the EBA will not publish a Consumer Trends Report in 2017. 

If you would like to discuss any issues raised by this development, please contact Jo Owens.

TheCityUK and IRSG report on the cumulative impact of EU financial services regulation

On 14 June 2016, the International Regulatory Strategy Group (IRSG) published a report entitled  “The cumulative impact of EU financial services regulation: better regulation for jobs and growth report.”  This report provided further detail on the IRSG’s proposals for improved regulation and regulatory forbearance.

The eight recommendations set out in the report are targeted at the European Commission (the Commission), European Parliament, the Council of the EU and European Supervisory Authorities (ESAs).

In summary, the IRSG believes that it is important to assess the impact to date of EU financial services regulation. Whilst the report recognises that financial services are key to delivering economic growth and jobs, it does not advocate widespread deregulation. Instead, the report sets out two key principles for better regulation, namely:

  • The adoption of a Regulatory Code, by which the Commission is to ensure that it will develop its legislative proposals in a way that ensures prosperity, productivity and growth, that it will only develop legislative proposals if they are necessary and there is no alternative to legislation, that it will engage early with relevant stakeholders and that all future legislative proposals will be based on published risk assessments.
  • The adoption of Framework Principles on extraterritorial effect, proportionality/diversity and the legislative timetable. The IRSG believe this would ensure that, going forward, the Commission are explicit as to the global application of each specific legislative proposal, that it is recognised that a one size fits all approach is often inappropriate and that ESAs would have adequate time to conduct thorough public consultations and carry out detailed cost benefit analysis on proposals.

The IRSG states that the purpose of the report is to contribute to better law making and that the IRSG is ready to work with the Commission and other stakeholders to develop these proposals further.

If you would like to discuss any issues raised by this development, please contact Jo Owens.

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