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Retail Finance round-up - 14 January 2016

Retail Finance round-up - 14 January 2016
  • United Kingdom
  • Financial services - Retail finance


Happy New Year and welcome to our first retail finance briefing of 2016 which is designed to keep you up to date with the latest legal, regulatory and industry developments affecting the retail finance sector.

I hope that you found our round-up of key developments in 2015 and look ahead to 2016, which was published yesterday, useful.

The New Year has already brought some interesting developments from the FCA, with the announcement that Tracey McDermott has withdrawn from the recruitment process to appoint the permanent Chief Executive of the FCA and the news that the FCA has decided not to complete its review into the banking culture.

The FCA has also announced that it no longer intends to publish a Feedback Statement for the Discussion Paper on the fairness of changes to mortgage contracts (DP14/2).

Regulatory updates

Legislation and case law

Industry news

You may have missed…

FCA update on banking culture report

The FCA has published a note on its decision not to complete its thematic review into the banking culture.  In particular, the note explains the reasons behind this decision and what it intends to do going forward in respect of the culture in the banking industry.

In the FCA’s 2015/2016 Business Plan, the FCA stated that it would conduct a thematic review on “whether culture change programmes in retail and wholesale banks were driving the right behaviour, in particular focusing on remuneration, appraisal and promotion decisions of middle management, as well as how concerns are reported and acted on”.  The note confirms that the FCA will conclude its work after the first phase and will therefore not complete the thematic review or publish a report for a number of reasons, including:  

  • The Banking Standards Board has begun a piece of work focusing on similar issues.  The FCA does not wish to duplicate that work.
  • It has become clear that each firm has, and needs to have, its own approach. Firms need to build a strong culture from the top down, leading by example and setting the right incentives that will work in their firm, and their culture.
  • A thematic review would not be the best way to achieve the desired outcome of continuing to support and drive continued cultural change across the sector. The best way forward is to continue to engage individually with firms to encourage their delivery of cultural change as well as supporting other initiatives outside the FCA.

The FCA states that it will support and drive cultural change going forward, by:

  • Focusing on engagement with individual firms through supervision.
  • Using its position as the conduct regulator to promote constructive discussions with various stakeholders including industry and consumer groups.
  • Offering support to the increasing number of initiatives outside the FCA on banking culture.
  • Demanding high standards of conduct, backed by supervision and enforcement action if necessary, such that an appropriate culture remains a top priority for banks’ management teams.

FCA publishes its guide for consumer credit firms

The FCA has recently re-published its guide for consumer credit firms. The guide is intended for consumer credit firms that are new to being regulated by the FCA. It sets out the rules and guidance that firms will need to comply with, what activities need authorisation, ongoing supervision and the enforcement powers which may be used.

Applications to the FCA can be for limited permission activities (these include, for example, consumer hire, credit broking in relation to the Green deal or not-for-profit debt counselling ) or full permission activities (these include, for example, debt counselling and debt adjusting or consumer credit lending). The guide goes into these in some detail and sets out their approach to supervision, enforcement and includes a table setting out controlled functions within consumer credit.

FCA publishes regulation round-up for December 2015

The FCA has published its regulation round-up for December 2015.  Points of interest include:

  • New measures concerning cash savings accounts mean that from December 2016, firms will have to: 1) provide clearer information on interest rates; 2) send reminders to consumers about changes in interest rates or the end of an introductory rate; and 3) provide the customer with a  summary box setting out the key information to help consumers compare savings accounts.
  • In January, to prepare for the Mortgage Credit Directive (MCD), home finance firms need to complete a form on Connect.  The form asks all firms if they will undertake second charge mortgage business.  Also under the MCD, a firm can now apply to add a passport on Connect.  The passport will not be effective until 21 March 2016.  It will not appear on the Financial Services register and it will not be possible to change or cancel a passport until this date.

FCA Discussion Paper on the fairness of changes to mortgage contracts

The FCA has confirmed that it no longer intends to publish a Feedback Statement for the Discussion Paper on the fairness of changes to mortgage contracts (DP14/2).

In March 2015, the FCA removed material from its website as it considered that it no longer reflected the FCA’s view on unfair contract terms.  The material was removed whilst it considered how it should be updated in light of the Consumer Rights Act 2015 (CRA), the Competition and Markets Authority guidance on the unfair contract terms provisions in the CRA and case law.  The FCA has now confirmed it has no current intention to publish further guidance on unfair contract terms. In light of this, it no longer intends to publish feedback on the fairness of changes to mortgage contracts.

FCA publishes Policy Development Update – Issue 29

The FCA has recently published Issue 29 of the Policy Development Update for January 2016. As well as providing information on previous publications issued since the last edition, recent developments and other publications, the FCA has published an updated timetable for forthcoming publications.

This includes the following:

  • Consultation Paper: FCA Handbook changes to reflect the introduction of the Innovative Finance ISA and peer-to-peer agreements.
  • Consultation Paper 15/34: Regulatory fees and levies: policy proposals for 2016/17.
  • Consultation Paper 15/31: Strengthening accountability in banking: regulatory references.
  • Consultation Paper 14/13: Strengthening accountability in banking: a new regulatory framework for individuals.
  • Consultation Paper 15/32: Smarter Consumer Communications: Removing certain ineffective requirements in our Handbook.
  • Consultation Paper 15/18: Fair, reasonable and non-discriminatory access to regulated benchmarks.
  • Consultation Paper 15/23: Ring-fencing: Disclosures to consumer by non-ring-fenced bodies.
  • Consultation Paper 15/40: Financial Services Compensation Scheme: changes to the Compensation sourcebook.
  • Consultation Paper 15/33: Consumer credit: proposals in response to the CMA’s recommendations on high-cost short term credit.

Bank of England (PRA) publishes new webpages on strengthening accountability

The Senior Mangers Regime and Certification Regime will come into force on 7 March 2016.  The Bank of England has published a new webpage that details the forms and accompanying guidance notes for the new regime.  Links to the new forms are also contained in the new rules published as Appendix 1 of PS16/15.  Firms should refer to the rules, supervisory statement and statement of policy to determine which forms they need to submit.

The Bank of England has also published a new webpage on policy development in the Strengthening Accountability project.  The Bank of England reminds firms that they may need to take action to ensure that individuals are allocated the correct responsibilities and have the necessary approvals where needed.

FCA requests fee tariff data

In January of each year, the FCA requests information from all FCA-regulated firms, including:

  • Annual income from regulated activities.
  • Other data as a measure of the size of the business.
  • An explanation of any significant increase or decrease from the previous year.

The amalgamated information is known as tariff data. This data is subsequently used by the FCA to work out annual fees for the following financial year.

The FCA would prefer to receive this information from firms by the end of January, and no later than the end of February. If firms fail to meet this deadline, they will receive a penalty fine of £250 and be charged on estimated tariff rates. Firms signed up for online invoicing will receive a form, to be returned to

The FCA has published guidance on the FCA fee blocks, the tariff base and the administrative points to consider.

FCA publishes Consultation Paper CP16/1 on consequential changes to the Senior Managers Regime

As a result of recent changes announced by HM Treasury to the Senior Managers and Certification Regime, the FCA has published a consultation paper setting out a number of proposed technical rule changes.

These changes reflect the removal of the requirement on firms, as set out under section 64B(5) of the Financial Services and Markets Act 2000, to report known and suspected breaches of its Rules of Conduct to the FCA.

As part of these changes it is amending the associated forms to remove references to notifications of known and suspected rule breaches.  The forms will only require firms to inform the FCA of disciplinary action taken against staff as a result of breaches of one or more Rules of Conduct.  The pre-existing obligation to report material breaches of its rules under SUP15.3 of its Handbook will however remain.  Firms will still therefore be required to notify the FCA of the most serious issues concerning their staff.

Comments should be submitted to the FCA by 5 February 2016.  The FCA will then consider feedback and publish its rules in a Policy Statement in March 2016.

FCA publishes list of disclosures made under the Freedom of Information Act from July-September 2015

The FCA has published a list of disclosures made under the Freedom of Information Act 2000 from July-September 2015.  Items of interest include:

  • Information on the number of individuals who currently have and had permission to advise on regulated mortgage contracts.
  • Fines issued by the FCA to banks and other financial institutions over the past 7 years relating to a failure in systems and controls of IT systems.
  • The number of applications for full FCA authorisation from peer-to-peer lenders.
  • The number of businesses that have requested support from Project Innovate.

ODR platform published

The European Commission has published the link to its Online Dispute Resolution (ODR) platform.  From 15 February 2016, all businesses that sell or provide goods or services online to consumers must provide a link on their website to the Commission’s ODR platform.

FCA Statement regarding Tracey McDermott

The FCA has confirmed that Acting Chief Executive Tracey McDermott decided in early December to withdraw from the recruitment process to appoint the permanent Chief Executive of the FCA.

The Treasury-led recruitment process is ongoing and Ms McDermott will continue as Acting Chief Executive until a permanent replacement is in post. 

HM Treasury consults on Financial Policy Committee powers of direction in buy-to-let market

On 17 December 2015, HM Treasury published an open consultation paper on the Financial Policy Committee (FPC) powers of direction in the buy-to-let market.

The FPC has already been granted the power of direction in relation to loan-to-value and debt-to-income limits in respect of owner-occupied mortgages. This consultation paper seeks to gather views and comments on how the buy-to-let mortgage market may carry risks to financial stability and the specific tools in relation to which the FPC has recommended it be granted powers of direction.

The FPC was set up to protect and enhance the resilience of the UK financial system by identifying, monitoring and removing systemic risks. The FPC is empowered to make recommendations to HM Treasury and use its statutory power to direct the PRA and/or the FCA to ensure the implementation of specified measures.

The deadline for responses is 11 March 2016.

Fee-free bank accounts launched 1 January 2016

Following last year’s landmark agreement between the government and the banking industry to establish new basic bank accounts, millions of bank customers across Britain now stand to benefit by hundreds of pounds as nine major banks launch fee-free basic bank accounts from 1 January 2016. 

As well as providing access to a bank account for those who are ineligible for a standard current account or who cannot use their existing account due to financial difficulty, the changes will:

  • Remove the risk that basic bank account customers will be forced into an overdraft as a result of cumulating fees and charges.
  • Allow basic bank account customers to be offered services on the same terms as other personal current accounts that banks provide, such as standard over-the-counter services and access to the entire ATM network.

Existing basic bank account customers should ask their bank whether they could still be charged if a direct debit or standing order fails, and whether they are eligible for a new basic bank account.

Updated guidance published for BCOBS

The British Bankers’ Association (BBA), Building Societies Association (BSA) and Payments UK recently published updated guidance for the FCA’s Banking Conduct of Business Sourcebook (BCOBS).  The main sections that have been updated relate to basic bank accounts, the Access to Banking Protocol and account switching.

The guidance is voluntary, however the FCA has confirmed that it will take the guidance into account when exercising regulatory functions. The guidance sets out minimum standards which firms can adopt to comply with BCOBS as well as the FCA’s Principles of Businesses.

It is likely that the BBA, BSA and Payments UK will make further substantive changes to the guidance before the end of 2016.

New FSCS deposit limit

From 1 January 2016, deposits made by private individuals and small businesses to any authorised firms are protected by the Financial Services Compensation Scheme to a limit of £75,000 (previously £85,000).

Depositors may still receive a share of their savings above this limit following any distribution of assets as part of the insolvency process for a failed bank. This would be determined by the insolvency practitioner and any recovery would vary according to the circumstances of the specific failure.

Temporary high balances will continue to be protected for private individuals.  Temporary high balances are the result of specified major life events that lead to a large amount of money being held in a person’s account for up to six months (e.g. sale proceeds, redundancy payments and state benefits).  Provided that sufficient evidence is provided by the individual, temporary high balances will be protected up to £1million per life event, with unlimited cover for personal injury claims.

ASA Ruling on Guardian Recovery Limited

The Advertising Standards Agency (ASA) has ruled in a case involving an aggrieved customer of Guardian Recovery Limited, (GRL) a debt collection agency. Two elements to GRL’s advertising proved problematic: firstly, a fax received stating the existence of “110% money back guarantee”, and secondly, the claim on the Services tab of the GRL’s website which stated that “the services of our legal team can be utilised without incurring the often unnecessary expense of a separate firm of solicitors or a barrister.“

In both instances, ASA found the unqualified advertisements likely to mislead consumers. The 110% money back guarantee did direct consumers to the website for more information, which confirmed that GRL guaranteed to contact the debtor a minimum of 75 times over 128 days and applied only to ‘good debt’, i.e. debt that was not subject to dispute resolution or mediation between debtor and creditors. ASA found that these conditions, amongst others, were likely to affect a potential client’s decision to pursue outstanding debt using GRL. Additionally, “full legal support services” was included in fees, but GRL clarified that from time-to-time, after reviewing a potential legal claim it may recommend clients seek independent legal advice. ASA found that the statement implied that GRL’s legal team, and therefore the legal services included in the charge, were able to perform all services which might be offered by a firm of solicitors or a barrister, and the fact that this might not always be the case had not been made sufficiently clear.

ASA informed GRL that the fax and web page must not appear again in their current form.  GRL were told to ensure the limits of any money back guarantee were made clear and to make clear that there may be circumstances in which external legal representation might be needed.

One in 10 card transactions now contactless

The latest figures from the UK Cards Association show that for the first time, contactless card transactions account for one in 10 card payments.

There were 120.5 million contactless card payments in October in the UK, meaning that 10.3% of all card transactions were made using contactless cards. This has risen from just 3.7% a year ago.

A total of £929.8m was spent using contactless cards in October. The average value of a contactless payment was £7.72, up from £7.35 in September when the limit for a single payment rose to £30.

Richard Koch, Head of Policy at the UK Cards Association, said: "With one in 10 card payments now contactless, it’s clearly the preferred way to pay for millions of consumers. The rise in the contactless limit to £30 earlier this year means there are now even more opportunities to make a fast, easy and secure contactless payment.”

MAS publishes 2016/17 business plan

Further to an independent review in March 2015, on 22 December 2015 the Money Advice Service (MAS) published its draft business plan and three year corporate strategy, opening a period of consultation with the industry and wider stakeholders.

MAS’ corporate strategy includes clear customer segmentation and targeted prioritisation of needs, with a new emphasis on working with many partners – collaborating across the public, private and voluntary sectors – to encourage the public to engage with their money and improve financial stability.

The core aims of MAS include: succeeding through partnerships, earlier and wider access to debt advice for indebted individuals, more people budgeting and saving, improving people’s access to advice and guidance, working with financial services and improving financial education. These aims will be measured against various deliverables outlined in their business plan, with 24 targets set to monitor the financial behaviour of millions of consumers. These deliverables are to be achieved whilst operating more efficiently, to deliver increased outcomes whilst reducing spend by 7%.

MAS believe that its business plan and corporate strategy will streamline services and demonstrate value for money. The consultation will remain open until 15 February 2016.

CML publishes lending figures for November 2015

On 17 December 2015, the Council for Mortgage Lenders (CML) published figures for gross mortgage lending in November 2015. The CML estimated that gross mortgage lending would reach £19.9 billion, supported by economic fundamentals such as low inflation, strong wage growth, an improving labour market and competitive mortgage deals. The figure for November 2015 was 9% lower than the £21.9 billion total of October 2015, but was 23% higher than the gross mortgage lending in November 2014. The CML estimated £214 billion in lending this year, despite the economic risks of changing global circumstances and geopolitical concerns.

BBA publishes November 2015 figures for the high street banks

The British Bankers Association (BBA) published its latest figures for high street banks which show that:

  • Gross mortgage borrowing was 28% higher than last year and the last two months have seen the highest monthly totals for 7 years.
  • Mortgage approvals were up 25% from last year, remortgaging up 31% and house purchase up 20%.
  • Bank lending to companies in manufacturing, wholesale and retail sectors went up with a net capital finance of £23.2 billion in 2015.

Bank of England publishes Money and Credit statistics for November 2015

The Bank of England published a statistical release entitled Money and Credit: November 2015.

Part one deals with broad money and credit and part three deals with lending to businesses. Part two deals with lending to individuals and sets out:

  • Total lending to individuals increased 3.2% from last year to £5.3 billion in November.
  • Gross lending secured on dwellings increased by £3.9 billion to £20.3 billion and repayments amounted to £16.7 billion.
  • Consumer credit increased by £1.5 billion and in particular, credit card lending by £0.4 billion.