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Retail Finance round-up - 17 December 2015

Retail Finance round-up - 17 December 2015
  • United Kingdom
  • Financial services - Retail finance


It has been announced this week that the ‘go live’ date of the Online Dispute Resolution platform will be postponed from 9 January to 15 February 2016. This means businesses will not be required to signpost a link to the ODR platform on their website until it is launched on this new date of 15 February.

Also of interest this week is the issue by the European Commission of a Green Paper inviting views on how to improve choice, transparency and competition in retail financial services to the benefit of European consumers.

Regulatory updates

Legislation and case law

Industry news

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PRA publishes policy statement PS28/15

The Prudential Regulation Authority (PRA) has published a Policy Statement containing final rules and feedback to responses following CP28/15 “The PRA Rulebook: Part 4” and Chapter 1 of CP41/15 “Occasional Consultation Paper”.

The policy statement is relevant to all PRA-regulated firms and is part of a series of publications that will redraft the Handbook inherited from the Financial Services Authority to create the PRA rulebook.

The Policy statement has six appendices as follows:

  • Appendix 1: PRA Rulebook: Financial conglomerates instrument 2015
  • Appendix 2: PRA Rulebook: CRR firms: Group risk systems instrument 2015
  • Appendix 3: PRA Rulebook: Regulatory reporting (Amendment No.1) instrument 2015
  • Appendix 4: Handbook (Rulebook Consequentials) instrument 2015
  • Appendix 5: PRA Rulebook: Interpretation (Amendment) instrument 2015
  • Appendix 6: PRA Rulebook: Solvency II firms, Non Solvency II forms, Non-Authorised Persons: Lloyd’s instrument (No. 2) 2015

The majority of rules will come into force on 1 January 2016, except for the part of the Handbook (Rulebook Consequentials) instrument 2015 which will come into force on 7 March 2016.

Update on SRA’s model for consumer credit regulation

The Solicitors Regulation Authority (SRA) has reported that the Legal Services Board (LSB) has approved its new approach for consumer credit regulation.

Under the new approach, the majority of firms will no longer be subject to regulation from both the FCA and the SRA.  Instead, the SRA will be allowed to regulate firms who carry out consumer credit activities if their work is an integral part of the legal services being provided.

Some firms will still need to be regulated by the FCA, so the SRA reminds firms to assess whether or not they need to apply for dual regulation before the changes come into effect on 1 April 2016.

FCA publishes guidance on its approach to advancing its objectives

The FCA has published guidance on its approach to advancing its objectives.  The guidance sets out what firms and consumers can expect from the FCA and how it intends to deliver its statutory responsibilities.  This includes how it considers the scale and diversity of the different sectors, firms and products it regulates and the wide range of consumers who use them.

The FCA’s overarching strategic objective is to ensure that the relevant markets work well.  The guidance published by the FCA is based around its three operational objectives that support its strategic objective.  These are:

  • securing an appropriate degree of protection for consumers
  • protecting and enhancing the integrity of the UK financial system
  • promoting effective competition in the interests of consumers

The FCA published an earlier version of the guidance in July 2013, the revised version takes into account the feedback it received on the earlier version and other developments that have occurred since.

Changes to complaint handling reporting requirements

The FCA has made a number of changes to complaint handling reporting requirements in its Handbook Notice 28.

The main changes are as follows:

  • Recognising the significant systems changes required to meet the new reporting requirements, the FCA has decided to delay the commencement of the complaints reporting and publication rules to reporting periods which start on or after 30 June 2016.
  • For complaints reporting periods which start on or before 29 June 2016, firms will report and publish information using the current rules and forms and will not need to report complaints which they consider to be resolved by close of the business day following receipt (as is currently the case).
  • Firms will need to comply with the new rules from 30 June 2016 to complaints resolved by the third business day following receipt, including sending eligible complaints a summary resolution communication. 

European Commission issue a Green Paper on Retail Financial Services

The European Commission (EC) has issued a Green Paper inviting views on how to improve choice, transparency and competition in retail financial services to the benefit of European consumers.  It has decided to launch the consultation because it considers that the retail financial services markets are not yet well integrated in the EU. Therefore the consultation is also seeking views on the facilitation of cross-border financial products.

The paper highlights issues with the current state of the retail financial services markets - these being fragmented markets and insufficient competition and the changing landscape of the sector due to digitalisation.

In the paper, the EC highlights a number of potential solutions to resolve these issues.  In summary the EC is keen to:

  • explore the extent to which consumers can be encouraged to switch whether it be via price-comparison websites, the greater use of financial intermediaries, or lower exit fees
  • increase product profitability
  • encourage product comparability through improved disclosure
  • improve redress mechanisms
  • increase the transparency and comparability of ancillary insurance

In addition, the paper focuses on how the EU can help firms make better use of digitalisation e.g. through electronic signatures.  The EC also revisits the question of access to cross-border financial data to access creditworthiness and considers the lack of knowledge of national personal insolvency regimes to be an obstacle to cross-border activity.

The consultation runs until 18 March 2016.  A Retail Financial Services Action Plan may follow in 2017 depending upon the feedback received.

Online dispute resolution platform postponed and amendment regulations published

The UK implemented the requirements of the Online Dispute Resolution (ODR) Regulation as part of the ADR Regulations, the main requirement being that from 9 January 2016 all businesses that sell goods or services online to consumers would have to carry a link to the EU Commission’s ODR Platform.

The Department for Business, Innovation & Skills (BIS) has since published a statement explaining that the ‘go live’ date of the ODR platform has now been delayed to 15 February 2016.  This means businesses will not be required to signpost a link to the ODR platform on their website until it is launched on this new date of 15 February.

BIS says that although the date of 9 January remains in the Regulations, it fully understands businesses will not be able to meet this date as the ODR platform will not be launched.  There will be no enforcement action taken before 15 February 2016.

Coupled with the above, the Alternative Dispute Resolution for Consumer Disputes (Amendment) (No 2) Regulations 2015 have been published. Among other things, the regulations seek to correct minor errors to the previous version of the ADR Regulations published in June 2015.

Bank of England and FCA release mortgage lenders and administrators statistics for Q3 2015

The Bank of England (BOE) and the FCA have published a statistical release on the mortgage lender and administrators statistics for Q3 2015. Some of the key statistics show that:

  • The overall value of the residential loan amounts outstanding has increased by 0.8% from the last quarter and 2.1% over the past 12 months
  • The amounts outstanding on regulated loans has remained constant at £1,013.7 billion for the past two years.

StepChange releases new report on problem debt

According to a new report released by StepChange Debt Charity, living on the edge of problem debt (which is categorised as where people display three or more objective signs of financial difficulty) is now normal for millions of people across the UK.

The number of families with children in severe debt problems has risen by 16% since 2013, and now stands at 750,000. These individuals are more susceptible to ‘income shocks’ – changes in circumstances that lead to sudden falls in income, exacerbated by insecure work such as zero-hours contracts (67% of people on a zero-hours contract suffered an income shock in the last year).

The problems of insecure work are compounded by a lack of financial resilience, with fewer people owning ‘safety net’ savings.  Nearly 75% of people who fell into problem debt relied on credit cards, overdrafts or borrowed from family and friends.

Mike O’Connor (Chief Executive of StepChange Debt Charity) stated that he believed that the UK’s welfare system should respond to people’s changing needs, and help people cope with short ups and downs, so that a temporary change in circumstances and resultant income shocks does not become a serious and entrenched financial problem.

Which? report on borrowers’ knowledge of mortgage rates

According to a survey conducted by Which? Mortgage Advisors, who questioned 5,034 mortgage holders, a third of all borrowers do not know what interest rate they are paying on their mortgage.

The results of the survey highlighted that just 32% of borrowers knew their mortgage rate. However, of those who were aware of their rate, 89% felt informed about the impact of a potential rate rise. For those individuals who did not know their mortgage rate, only 58% felt informed about this impact, despite speculation that a base rate increase is looking more likely.

As interest rates have been at a historic low, more consumers have chosen fixed rate mortgages. David Blake of Which? Mortgage Advisers, reiterated the importance of seeking independent mortgage advice if consumers are concerned about the future impact of any base rate rise that may occur.

Government planning new tax on payday lenders

The government is seeking to introduce a new levy on payday loan companies to fund support for people who fall foul of illegal loan sharks, defined as people who lend money without authorisation from the Financial Conduct Authority.  

George Osborne told MPs that, “we take very seriously illegal loan sharks and excessive interest charges on payday lending.”  It is thought that the funds gathered from the levy would go towards the funding of the illegal money laundering and loan shark teams.

BSA releases latest statistics on housing market

The BSA has released its latest statistics on the housing market.  The statistics show that all the major barriers to property purchase have fallen, including:

  • Raising a deposit is at its lowest for six years.
  • Access to mortgage finance is down to 38%.
  • Affordability of mortgage repayments fell from 35% to 33%.
  • Lack of job security is now at 26%.

The BSA's Head of Mortgage Policy, Paul Broadhead, believes that the “awareness of Government schemes, such as Help to Buy plus the availability of higher loan-to-value mortgages helps to bring choice and competition to the [housing] market”.