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Retail Finance round-up - 10 March 2016

Retail Finance round-up - 10 March 2016
  • United Kingdom
  • Financial services - Retail finance


After months of preparation, the Senior Managers regime came into force on Monday this week.  The FCA, PRA and Payment Services Regulator have all published documents applying the core principles from the regime to their internal organisations.  This reflects a recommendation made by the House of Commons Treasury Select Committee in 2015.  In the Chairman’s foreword, John Griffith-Jones describes the FCA’s publication as a “reaffirmation of the FCA’s commitment to individual accountability.”  He notes “by holding ourselves to the highest standards we reinforce our expectation that those who work in financial services do the same.” 

The CMA has also published a number of documents regarding its retail banking market investigation, including confirmation that the investigation will be extended and will now conclude on 12 August 2016.

Vulnerability continues to be a theme this week, with the launch of the Money and Mental Health Policy Institute, a new research and intervention project on vulnerability launched by the FLA and the UK Cards Association and the StepChange Debt charity publishing a new report on problem debt.

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FCA and BoE complete 2015 review of MoU on markets and market infrastructure

On 4 March 2016, the FCA published a press release announcing that it and the Bank of England (BoE) have completed a review of their 2015 operation of the memorandum of understanding (MoU).  The MoU, entered into in 2014, sets out how the two institutions should co-operate with one another in relation to the supervision of markets and market infrastructure.

As part of this review, a survey of industry respondents identified no material instances of duplication and respondents acknowledged the efforts made by both authorities on co-operation.  According to the press release, Sir Jon Cunliffe, BoE Deputy Governor for Financial Stability, and Tracey McDermott, FCA acting Chief Executive, concluded that the MoU's arrangements for co-operation remain effective, and emphasised that staff should work together to take forward the suggestions from industry.

CMA publishes summaries of response hearings to its retail banking market investigation

The Competition and Market Authority (CMA) is investigating the supply of personal current accounts and banking services to SMEs.  As part of this ongoing investigation, the CMA has published summaries of response hearings, held throughout December, following the release of the Provisional Findings Report.

The Provisional Findings Report confirmed that the CMA believed that banks must address long-term problems, and make it easier for customers to take charge of their accounts (and therefore be better able to switch to another provider).  The CMA found that banks do not have to work to compete for customers, and low levels of customer switching does not add competitive pressure.  To resolve these issues, the CMA’s proposed remedies include:

  • Requiring banks to prompt customers to review the service they receive at certain “trigger points”.
  • Upgrading Midata (software that stores a customer’s transaction history) to make it easier for consumers and businesses to compare bank products using price comparison websites.
  • Requiring creation of a new price comparison website specifically for SME banking services.
  • Requiring banks to help raise public awareness of, and confidence in, switching bank accounts.

During the response hearings, concerns with the proposed remedies were raised, including:

  • Insufficient evidence in the CMA’s conclusion of a lack of competitive pressure in the sector, and other analytics used in the Provisional Findings Report.
  • Consumer scepticism concerning banks providing recommendations for alternative banks at “trigger points” and consumers’ security concerns if these recommendations originate from a third party other than a trusted advisor, such as an accountant or independent financial advisor.
  • How these remedies could be scaled, as they may place a disproportionate strain on challenger banks.

Most banks were supportive of the CMA’s plan to upgrade Midata with a view to making ti easier for SMEs to compare the banking services they receive. It was suggested that other indicators should be built into any comparison model e.g. additional services, such as customer-chosen non-price measures.  Additionally, the point was made that other public bodies, such as HMRC and Companies House, could do more to encourage SMEs to consider their banking arrangements.

CMA to extend the retail banking market investigation and supplemental notice of possible remedies published

The Competition & Markets Authority (CMA) has been conducting an investigation into the supply of retail banking services to personal current account customers and to small and medium sized enterprises in the UK since November 2014.  This investigation was initially scheduled to conclude on 5 May 2016.  However, it has been decided that it will be extended, as permitted under s137(2A) and 172 of the Enterprise Act 2002, and is now scheduled to expire on 12 August 2016.

This extension was deemed necessary due to the unforeseen scope and complexity of the investigation, the extent of the possible remedies package that is being considered, and the various parties’ responses to the CMA's provisional findings.  The inquiry group leading the investigation considered the extension a sufficient amount of time to take full and proper account of comments received in response to provisional findings and to develop a suitable package of remedies that is reasonable and comprehensive.

Following on from this, the CMA has published a supplemental notice of possible remedies in its market investigation.  It is consulting on additional remedy proposals following concerns that its notice of possible remedies, published in October 2015, did not sufficiently address the identified adverse effects on competition and/or any resulting detrimental effects for personal current account (PCA) overdraft users.

The CMA is, therefore, consulting on measures to help customers manage and raise awareness of their overdraft usage and charges. These include:

  • Prompts and alerts to inform customers of imminent and actual overdraft usage and charges.
  • Measures to encourage PCA customers to make an informed choice on their overdraft options.
  • Suspension periods for unarranged overdrafts.
  • A monthly maximum charge for using an unarranged overdraft.

The CMA has invited comments on the additional remedy proposals by 21 March 2016.

The CMA has also published a working paper setting out its further thinking on its proposed remedy for a price comparison website for SMEs, and the results of qualitative and quantitative remedies research conducted by third parties.  The CMA has also invited comments on these by 21 March 2016.

PRA and FCA publish statement of policy and guidance on approach to ring-fencing transfer schemes

Ring-fencing transfer schemes (RFTSs) were introduced by the Banking Reform Act 2013 and will enable firms to use the legal procedures under Part 7 of FSMA to give effect to any transfers of business needed by banking groups to achieve ring-fencing purposes.  Under Part 7, the PRA is required to determine whether to approve the skilled person appointed to make the scheme report and then whether to approve the scheme report itself, in each case following consultation with the FCA.  The PRA must also decide whether to give consent to the application for the RFTS.

The PRA has issued a policy statement (PS10/16) on RFTSs, together with the final version of its statement of policy on its approach to RFTSs.  The FCA has also published finalised guidance (FG16/1) on its approach to RFTSs.

In September 2015, the PRA and FCA published a consultation paper (CP33/15) and a guidance consultation (GC15/5) respectively on draft versions of the PRA’s statement of policy and the FCA’s guidance.

In PS10/6 and FG16/1, the PRA and FCA set out details of the responses they received to the consultations and those changes they have made to the statement of policy and the guidance to clarify their position.  The regulators comment that responses received to the consultations have not necessitated major changes to their original proposed approaches.  The changes that have been made are mainly to clarify the regulators’ position.

The PRA has also published a webpage on the process for applying for approval as a skilled person in relation to RFTSs.

FCA publishes policy development update – Issue 31

The FCA has published Issue 31 of its policy development update.

This update lists the range of:

  • Publications issued (together with the date when the consultation ends or when comments are sought by) such as the Payment Accounts Regulations 2015, consequential changes to the Senior Managers Regime and the proposal to issue guidance on the FCA’s view of enforcing security under the Consumer Credit Act 1974.
  • Forthcoming publications with expected due dates.  Items of interest include a consultation paper on regulatory fees and levies for 2016/17 expected in March/April 2016, a policy statement on future regulatory treatment of CCA regulated first charge mortgages expected in March 2016, a policy statement on smarter customer communications, and proposals in response to the CMA’s recommendations on high-cost short-term credit expected in Q2 2016.

PRA consults on implementing risk-based levies for FSCS deposits class

On 4 March 2016, the PRA issued a consultation paper CP7/16 on implementing risk-based levies for the Financial Services Compensation Scheme (FSCS) deposits class.

Currently, the FSCS is required to calculate firm levies solely on the basis of covered deposits.  However, the Deposit Guarantee Scheme Directive 2014/49/EU (DGSD) set out that contributions to a deposit guarantee scheme (DGS), such as the FSCS should be adjusted for the degree of risk incurred by each DGS member.

The European Banking Authority (EBA) has already published its guidelines on calculating contributions but the UK delayed implementing these requirements until 31 May 2016.

In its consultation paper, the PRA has now set out proposals to implement the requirements in the DGSD in which it intends to:

  • Amend requirements for the FSCS to adjust compensation cost levies for the degree of risk incurred by a DGS member (which will apply to levies from July 2017 onwards).
  • Publish a new statement of policy specifying how the PRA intends to calculate the degree of risk incurred by a DGS member.

The deadline for responses is 3 June 2016.

FCA and PRA update their websites to reflect Senior Managers regime coming into force 

The FCA and the PRA have updated their websites to provide information on the new Senior Managers regime (SMR) for the banking sector that came into force on 7 March 2016.

The PRA has published a new webpage on senior manager approvals.  The webpage provides an overview of the key changes to the old Approved Persons regime, and how to apply.  The PRA has also updated its webpage on submitting, amending and withdrawing applications under the SMR.

The PRA has also published a document containing a list of the PRA-designated senior management functions (SMF) under the SMR.

Both the FCA and the PRA have also updated their improving individual accountability webpages for the SMR.  The pages confirm that the Financial Services Register now reflects SMR grandfathering data, received as at 12p.m. on 4 March 2016.  They will process submissions received after this time and before 11:59p.m. on 6 March 2016 shortly.

FCA, PRA and PSR publish documents applying Senior Managers regime core principles to their internal organisation

The new Senior Managers regime (SMR) came into force on 7 March 2016.  The FCA, PRA and the Payment Systems Regulator (PSR) all published documents showing how they are applying the core principles underlying the SMR within their own internal organisations.

Although the regulators are not formally subject to the SMR, the publication of these documents reflects a recommendation made by the House of Commons Treasury Select Committee in 2015.

The documents are:

FCA reports technical difficulties in relation to its consultation on enforcing security under the Consumer Credit Act 1974

The FCA has updated its webpage in relation to its guidance consultation (GC16/2) on enforcing security under the Consumer Credit Act 1974 (CCA).

The updated page explains that it is aware of technical difficulties with the previous email address to submit feedback on its consultation.  The FCA has now resolved these problems, however, explains that if you submitted feedback between 19 February 2016 to 29 February 2016, or received a bounce-back email, then you must resend it to:

Treasury Committee calls for veto over appointment of FCA chief executive

The House of Commons Treasury Committee recently published its eighth report of session 2015/16 on the scrutiny of appointments. 

This report discusses the scrutiny of a number of key appointments, such as the appointment of the Governor of the Bank of England (BoE), the Chairman of the Court of the Bank of England and the Chairman of the FCA.  

The report also discusses the appointment of the Chief Executive of the FCA.  It explains that the 2010-2015 Treasury Committee argued that legislation should provide that the FCA Chief Executive be subject to pre-appointment scrutiny by the committee.  However, the government’s response was that the appointment should be made according to the pre-commencement hearing process appropriate for market-sensitive appointments, rather than a pre-appointment hearing. 

The report states that the current Treasury Committee agrees with the 2010-15 Treasury Committee’s position.  It believes independence of the FCA from interference is essential, and that independence can and should be entrenched by a statutory veto on appointments and dismissals to the post of Chief Executive of the FCA.  The committee have also tabled an amendment to the Bank of England and Financial Services Bill 2015-16, which would give them such a veto.

Money and Mental Health Policy Institute launching in Spring 2016

A new think tank, the Money and Mental Health Policy Institute, is launching in Spring 2016.  The Institute will conduct research and develop policy proposals to improve the lives of those with mental health conditions and financial problems.  The Institute aims to work with banks and regulators to implement change.

The Institute reports that a quarter of people with a mental health condition have problem debts too.  In addition, half of those in financial difficulties have a mental health condition.  The Institute’s founder, Martin Lewis states, “Debt isn’t just a financial problem, it causes relationships to break up, people to lose their homes and families to break down.  Debt is a common problem for people living with mental health problems, and it can make those problems worse.”

New research and intervention project on vulnerability launched by the FLA and the UK Cards Association

The Finance & Leasing Association (FLA) and the UK Cards Association have announced the launch of a new research project to help their members identify and support customers in vulnerable circumstances.

The project, to be undertaken by the University of Bristol’s Personal Finance Research Centre, will focus on identifying the challenges that front-line and collections staff encounter in their day-to-day dealings with such customers, and developing commercially realistic interventions to address these issues.

The project will be led by an expert in the field of mental health and debt, and will run for most of 2016.  The report, expected to be published early next year, will (amongst other things):

  • Provide insights on the practices and challenges faced by staff when working with customers in vulnerable situations.
  • Develop practical and commercially realistic solutions that staff can incorporate into their daily work, and which will support customers who find themselves in a vulnerable situation.
  • Provide a benchmark where the overall sector and individual firms currently ‘sit’ in relation to their work on vulnerability.

ICO issues record fine for company behind nuisance calls in relation to PPI

The Information Commissioner’s Office (ICO) has fined Prodial Ltd, a lead generation firm, £350,000 for making over 46 million automated nuisance calls.  It is the regulator’s largest ever fine.

Over 1,000 people complained to the ICO about the automated calls which played recorded messages relating to PPI claims.  Complainants said they were called repeatedly and often there was no opt-out option. 

Prodial Ltd was operating out of residential property and also hiding its identity, which made it harder for people to report the calls.  The ICO investigation also found that Prodial breached the law by failing to obtain individual specific consent to contact people in this way.

Finally, evidence from the ICO’s investigation showed that the information from these calls was used to sell people’s personal details on to claims management companies.

StepChange Debt Charity publishes new report on problem debt

According to a new report from StepChange Debt Charity, over four million people in Britain are using credit as a financial safety net to meet everyday living costs, emergency costs and to cover one-off purchases, with credit cards and overdrafts being the most common types of debt.  

For many people these products can smooth consumption and spread the cost of larger purchases.  However, StepChange’s research has identified how a lack of safeguards and certain product features (such as complex and costly default fees, irresponsible lending, access to multiple products and minimum repayment structures) can result in entrenched financial difficulty.

According to StepChange, there are significant gaps in the availability of affordable and sustainable credit.  For example, around 25% of people using credit as a safety net are in the most financially excluded groups, including those on the lowest incomes and in casual work, on state pensions or unemployed.  This group may not meet the stricter lending criteria of mainstream lenders and some community lenders.

StepChange is calling on banks, government and the wider third sector to work together to provide a range of potential solutions.  Some suggestions include measures to encourage consumers to save money, improved awareness and use of technology and providing microloans to financially excluded people.

FOS publishes technical note on equity release schemes

The Financial Ombudsman Service (FOS) has published a technical note on equity release schemes.

Equity release involves consumers (aged over 55) borrowing money against the value of their home, either via a lifetime mortgage or a home reversion plan, as a capital sum or a regular income, or both. The sums borrowed are subsequently repaid using the value of the property sale, after the borrower(s) dies or goes into care.

FOS receive complaints from consumers (often concerned family members) who feel their relative was vulnerable, and was essentially “talked into” equity release. Compounding this is the complication that, if someone wants to end an equity release agreement early, it is likely they will be required to pay an “early repayment charge”.  Other comments frequently received by FOS surround disputes over whether someone needs to go into care, or, where a couple have released equity together, whether it is fair that the charge should apply if only one of the them dies or needs care.

FOS have confirmed that, in general, its investigations highlight that the majority of consumers do receive suitable advice about equity release.  Questions that are likely to be asked in any investigation include questions about their personal and financial circumstances, and an assessment of whether the equity release provider followed the rules and guidelines that applied at the time.  However, in the occasions where it discovers it was not a suitable option for the consumer to have considered, the equity release provider is asked to put the borrower – or, more likely, their estate – in the position they would have been in if they had received suitable advice.  In resetting the borrower’s position in this manner, FOS will take into account any fees or charges someone has paid, and how the borrower used the money borrowed.  It may be the case that the equity release provider is asked to pay compensation for any upset or inconvenience caused.

Financial Services Consumer Panel publishes position paper on banking culture

The Financial Services Consumer Panel (FSCP) has published a position paper on banking culture.  The position paper draws on a research report that the FSCP has also published.  The aim of the research was to provide an understanding of what a positive banking culture looks like from a personal and micro-enterprise customer standpoint and to identify some practical measures to improve it.

Annex A of the position paper sets out 24 indicators that can be used to measure a bank’s culture from the perspective of personal and micro-enterprise customers, and to enable changes to be tracked over time. 

The FSCP recommends that:

  • Banks, the BSB and the CB:PSB should adopt indicators based on those identified in the Panel’s report, and use these to track changes in bank culture.
  • The FCA should focus on the practical and transparent ways in which culture can be used to drive the right behaviours, for example, by monitoring these indicators to ensure that the consumer interest is taken into account.
  • The Government should bring forward an amendment to the Financial Services and Markets Act 2000 (FSMA) to require the FCA to make rules specifying what constitutes a reasonable duty of care that financial services providers should owe towards their customers.
  • Research is commissioned into the financial impact of bank charges and processes on micro-enterprises.

The FSCP also urge the FCA to look at work carried out in other countries on bank culture.  For example, the regulator in the Netherlands says it can now see banks and insurers paying more attention to changing conduct and culture following the adoption of certain measures, including a duty of care, since 2008.

Citizens Advice publishes new report highlighting problems consumers have cancelling subscriptions on credit or debit cards

A recent study, published by Citizens Advice, shows that two million people across Great Britain have experienced problems cancelling recurring payments which are often used for buying products online.

The study also reveals that people are often signed up to these type of recurring payments (also known as Continuous Payment Authorities) without their knowledge.

According to the UK Cards Association customers can cancel recurring payments with their seller or with their credit or debit card issuer.  However, the report finds that many customers have difficulties getting these payments cancelled.

Of the 500 respondents to the Citizens Advice survey who had a problem with recurring payments:

  • Just 12% of those who asked their card issuer for a refund got all their money back.
  • 36% had difficulties getting their bank or card issuer to cancel the recurring payments.
  • 25% contacted their seller but the seller refused to stop charging them.
  • 24% were unable to contact the seller.
  • 53% said they did not know they should be able to cancel recurring payments with the seller or credit or debit card issuer.

Citizens Advice is calling on credit and debit card issuers to notify customers when a recurring payment is taken.  This would give customers the option to cancel or dispute the payments.