Global menu

Our global pages

Close
Retail Finance round-up - 31 March 2016

Retail Finance round-up - 31 March 2016

  • United Kingdom
  • Financial institutions - Retail finance

31-03-2016

In the 2016 budget report, the government announced that it intends to replace the Money Advice Service (MAS). HM Treasury has this week published a consultation paper setting out the plans in more detail. Legislative changes are likely to take 6-12 months and the government would like to allow a reasonable transition period.  Therefore, the earliest date the new model may take effect is April 2018.  In the meantime, MAS and the other affected organisations will continue to provide guidance to consumers for at least the next two financial years.

With vulnerability still a key issue for the sector, the European Commission has published the results of its study into consumer vulnerability. The study focuses on financial services, energy and online telecommunications and looks at vulnerability in the widest sense. The study found that consumer vulnerability is well-integrated into the UK policy framework, including via the Consumer Rights Act 2015 and dedicated FCA resources.

Also of interest this week is the release of Issue 132 of the Ombudsman News. The Q&A section of the report covers the “next business day” rule, which will let firms resolve informal customer complaints by the end of the third business day from 30 June 2016 and discusses the quantity of information that must be sent to FOS when a customer raises a complaint. 

Regulatory updates

Legislation and case law

Industry news

You may have missed…

Forthcoming training and events

CMA issues further short form guidance on unfair contract terms for business

Under the new Consumer Rights Act 2015, which came into force in October 2015, businesses who deal with consumers need to ensure that any contractual terms are fair.  The Competition and Markets Authority (CMA) has prepared a series of ‘at-a-glance’ guides which can be used to assist businesses in understanding what terms are likely to be considered fair and unfair.  These guides are aimed primarily at small businesses and operate to try and help them avoid common pitfalls when drafting contractual terms. The guides give basic advice, for instance, that all contractual terms should be “plain and intelligible” and “up-front and open”. There are also summaries on terms which are more likely to be considered contentious and be categorised as unfair, such as cancellation charges.

The guides stress the importance of contracts generally, highlighting to businesses that they are to be viewed as a tool to build up a relationship with a consumer and indicating that if the terms contained within them are not fair, then the terms will not form part of the contract with the consumer.  The guides also discredit common myths about contracts like the often cited “It’s written and signed so it’s legal” and “You can hide things in the contractual small print”.  It is important to note that these guides do not operate to replace the Consumer Rights Act, but merely highlight the CMA’s view of how it may operate.

FCA publishes policy statement on Financial Services Compensation Scheme Management Expenses Levy Limit 2016/17

The FCA has published a policy statement on the Financial Services Compensation Scheme (FSCS) Management Expenses Levy Limit (MELL) for 2016/17.  In the policy statement, the FCA reports on the main issues arising from its consultation paper (CP16/3) and also publishes the final rules.

The FCA’s final rules on the MELL for 2016/17 will be effective from 1 April 2016.  The MELL will be set at £72.7m, which includes FSCS management expenses of £67.4m and a contingency of £5.3m.  The contingency will allow the FSCS to levy additional funds for management expenses to meet costs that were not expected when the annual levy was raised.

The policy statement is relevant to all authorised firms.

FCA publishes new mortgage webpages

The FCA has published the following new webpages relating to regulated mortgages in the light of the UK transposition of the Mortgage Credit Directive on 21 March 2016:

PRA issues consultation paper on underwriting standards for buy-to-let mortgage contracts

The PRA has issued a consultation paper on underwriting standards for buy-to-let mortgage contracts.  In the consultation paper the PRA proposes:

  • A set of expectations for firms that underwrite UK buy-to-let mortgage contracts where the land is intended to be occupied as a dwelling on the basis of a rental agreement, in pounds sterling, regardless of whether the borrower is an individual or limited company.  This proposal aims to prevent a marked loosening in buy-to-let underwriting standards and also aims to curtail inappropriate lending and the potential for excessive credit losses.
  • Clarification in relation to the application of the small and medium enterprises (SME) supporting factor on buy-to-let mortgages.  This proposal is aimed at enhancing the transparency and consistency of the PRA’s regulatory approach.

The proposals are relevant to PRA-regulated firms that undertake buy-to-let lending that is not already subject to FCA regulation.  The clarification regarding the SME supporting factor is relevant for firms bound by the Capital Requirements Regulation.

The consultation closes on Wednesday 29 June 2016.

PRA consults on 2016/17 fees and levies

On 24 March 2016, the PRA issued a consultation paper on regulated fees and levies for 2016/17 (CP10/16), setting out the following: 

  • The fee rates to meet the PRA's 2016/17 annual funding requirement (AFR)

The proposed AFR is £257.3 million (a slight decrease of 0.2% from 2015/16). Although broadly similar to last year, changes in the balance of activities within the PRA and to the funding of such activities has led to differing impacts on specific fee blocks.  However, the overall costs to be recovered from every fee block, once the Solvency II special project fee is removed and the proposed ring-fencing implementation fee is taken into account, is less than the overall costs charged in 2015/16.

  • Proposed rules for introducing a ring-fencing implementation fee

When the new ring-fencing regime takes effect, the Finance Services (Banking Reform) Act 2013 requires the PRA to undertake a significant amount of work through to 2019. The PRA has consequently proposed to recover costs associated with this work through a ring-fencing implementation fee, applying to firms currently ring-fencing their core activities in line with the Act, with budgeted costs amounting to £7.9 million.

  • How the PRA intends to distribute a refund from the 2015/16 AFR

It has been estimated by the PRA that there will be a refund to fee payers of the AFR in 2015/16 amounting to £4.5 million.

  • How the PRA intends to distribute the retained penalties for 2015/16

Estimated retained penalties of £1.3 million will be paid to all eligible PRA-authorised firms, with the PRA proposing to allocate retained penalties across fee blocks using population data from 2015/16.

  • A consequential amendment to the fees rules as a result of recent policy changes for credit unions

The PRA has now outlined proposals for a new single rate authorisation fee for credit unions in Chapter 6.

Comments are requested on the consultation by 24 May 2016.  Feedback and final rules will be published in a policy statement in June 2016.

FCA issues policy statement on client money rule changes for crowdfunding platform operators, the IFISA and new P2P advice regulated activity

On 21 March 2016, the FCA published a policy statement on changes to the FCA Handbook relating to the segregation of client money on loan-based crowdfunding platforms, the introduction of the Innovative Finance ISA (IFISA) and the new regulated activity of advising on peer-to-peer (P2P) agreements.

The FCA emphasises that the rule changes, which allow firms holding money relating to both P2P and business to business agreements to elect to hold all lenders' monies relating to this business under chapter 7 of the Clients Assets sourcebook (CASS 7), are optional.  The FCA has decided to provide a transitional provision so that, if making the election means that a firm will become a CASS medium or CASS large firm solely as a result of its monies relating to non-P2P agreements, it will have until the following annual stratification exercise in January 2017 before it will be required to submit a client money and assets return.

The FCA also confirms that it will introduce high-level guidance on existing financial promotion and disclosure rules to clarify the types of information firms should provide as regards IFISAs. In addition, it confirms that it is not at this time applying the appropriateness test to P2P agreements when sold on a non-advised basis. However, it may revisit this in the future. It also believes that, with the sector still in an early stage of development, it is not appropriate at this time to oblige firms to have to consider P2P agreements when holding themselves out as independent. However, again, it will keep this under review.

The FCA states that it will separately continue to monitor the UK crowdfunding sector through its supervisory work. This will allow it to identify any market failures and whether further changes are required.

PRA publishes policy statement and final rules amending rules on loan to income ratios in mortgage lending

The PRA published a policy statement (PS11/16)  on 24 March 2016, amending its rules on loan to income (LTI) ratios in mortgage lending. 

Following the implementation of the Mortgage Credit Directive (2014/17/EU) (MCD), second and subsequent charge mortgage contracts fall under the definition of a regulated mortgage contract.  The Housing Part of the PRA Rulebook places an LTI flow limit on regulated mortgage contracts, meaning the LTI flow limit would have automatically applied to second and subsequent charge mortgage contracts, which were previously exempt from the LTI flow limit.

In a consultation paper in February 2016 (CP 6/16) the PRA proposed amending the Housing Part of the Rulebook to ensure that these second and subsequent charge mortgages continue to be excluded from the LTI flow limit, with a further consultation to take place once loan level data is available in 2017.  The responses to the consultation paper were positive and the PRA Rulebook: CRR Firms, Non CRR Firms: Housing Instrument 2016 came into force on 25 March 2016 implementing the amendments to the Rulebook.

FCA publishes policy statement on disclosures to consumers by non-ring-fenced bodies

The FCA published a policy statement on disclosures to consumers by non-ring-fenced bodies (PS16/9) on 24 March 2016. 

Following consultation (CP15/23), the FCA has published the near final form rules in Appendix 1 to PS16/9 in the Banking: Conduct of Business Sourcebook (Disclosure by Non Ring-Fenced Bodies) (Amendment) Instrument 2016.  The rules create a new section 4.3 in the Banking: Conduct of Business Sourcebook, which sets out the information to be provided by a non-ring-fenced bank to individual account holders.  The FCA was required to make these rules under the Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014 (SI 2014/1960).  The final rules are likely to be brought into force later in 2016. 

The FCA has noted that disclosure does not have to be sent until that bank expects to receive a declaration of eligibility from a customer, and the rules will not affect the banks until the period immediately preceding its own structural separation.

Rent-to-own provider Buy as You View to pay £939,000 to around 59,000 customers

Dunraven Finance Ltd, trading under the name Buy as You View (BAYV), has entered into an agreement with the FCA to provide redress of £939,000 to more than 59,000 customers for historic unfair treatment.  BAYV is a rent-to-own provider selling household goods, such as electronics and furniture on hire purchase to customers.

BAYV has agreed to pay redress to customers as a result of:

  • Fees applied to accounts for unpaid direct debits.
  • An administration fee historically charged of between £30 and £45 for a ‘Fresh Start Refinance.’
  • Detriment suffered as a result of being sold additional goods by BAYV using modifying credit agreements, instead of using a new separate agreement for each item.  Under a modifying agreement the customer would have paid more overall than under separate agreements, but they may not have been aware of this when the goods were sold. 

Further to this, BAYV has changed the way it uses payment meters.  A default notice will now be issued at least 14 days prior to restricting access to the customer’s TV.

The FCA has also identified concerns about BAYV’s creditworthiness assessments, specifically whether BAYV has been lending to customers affordably.  The appointed Skilled Person will monitor BAYV’s reassessments of its lending decisions from 1 April 2014 to the 22 October 2015.  Any customers identified as having been lent sums in excess of BAYV’s own lending criteria will receive redress at a later date. 

HM Treasury publishes consultation paper on its public financial guidance review

In the 2016 budget report, the government announced that it intends to replace the Money Advice Service (MAS) over the next couple of years.  Since then, HM Treasury has published a consultation paper which sets out how it plans to do this.

In addition to MAS, free-to-client financial guidance is currently provided by the Pensions Advisory Service (TPAS) and Pension Wise.  The new delivery model will: 

  • Replace MAS with a new slimmed down money guidance body.  This will be charged with equipping consumers to make more effective financial decisions by:
    • Identifying gaps in the financial guidance market.
    • Commissioning targeted debt advice, money guidance and financial capability projects or services to fill any gaps identified.
    • Providing funding to third parties to deliver these projects or services.
  • Merge the functions of TPAS and Pension Wise to create a new pensions guidance body.  This will be charged with making sure consumers get all their pensions questions answered in one place.  As well as incorporating the functions currently provided by TPAS and Pension Wise, it will also incorporate some pensions guidance provided by MAS.

A partnership agreement will sit between the pensions guidance body and the money guidance body to ensure that consumers who need broader financial guidance on both pensions and money issues can be directed to the right place.

The new pensions guidance and the new money guidance body will be funded by levies on the financial services and pensions sectors.  By removing duplication and reducing overheads, the new delivery model will allow more funding to be channelled to the front line, while also reducing the burden on levy payers.

The government wants to make sure that the new delivery model improves consumer experience, so welcomes views on how to set up and evaluate the services provided so that they are of most value to the consumer. Consultation questions are included in Section 2 of the document. The consultation closes on 8 June 2016 and the government will publish a final response in Autumn 2016.

Legislative changes are likely to take 6-12 months and the government would like to allow a reasonable transition period.  Therefore, the earliest date the new model may take effect is April 2018.  In the meantime, MAS and the other affected organisations will continue to provide guidance to consumers for at least the next two financial years.

European Commission publishes responses to its Green Paper on retail financial services

The European Commission has published the list of responses it has received to its December 2015 Green Paper on retail financial services.  The European Commission launched the consultation as it considers that retail financial services markets are not yet as integrated in the EU as they could be.

There were 482 respondents to the paper.  At present the list does not include links to the individual responses listed but the European Commission advises that a summary of the responses will be published at a later date.

When the European Commission published the paper in December 2015, it advised that it envisages publishing an action plan on retail financial services, potentially including legislation and non-legislative initiatives such as guidelines, around Summer 2016.

European Commission publishes study on consumer vulnerability

The European Commission has published a study on consumer vulnerability together with a factsheet.  The study focuses on financial services, energy and online telecommunications and looks at vulnerability in the widest sense. 

The study provides a new definition of consumer vulnerability, a methodology for measuring it and fresh insights into the actual patterns of consumer vulnerability in the three key markets.  Among these markets, the incidence of vulnerability is markedly higher in the energy and finance sectors than in the online sector.

One of the key results of the study is a new, evidence-based definition of consumer vulnerability that distinguishes five dimensions of consumer vulnerability.  A vulnerable consumer could be defined as:

“A consumer, who, as a result of socio-demographic characteristics, behavioral characteristics, personal situation, or market environment:                                                                                 

  • Is at higher risk of experiencing negative outcomes in the market.
  • Has limited ability to maximise his/her well-being.
  • Has difficulty in obtaining or assimilating information.
  • Is less able to buy, choose or access suitable products.
  • Is more susceptible to certain marketing practices.”

This definition takes into account that consumer vulnerability is situational, meaning that a consumer can be vulnerable in one situation but not in others, and that some consumers may be more vulnerable than others.

A major finding is that incidence of vulnerability is the highest when consumers face complex advertising or when consumers do not compare deals at all or have problems comparing deals because of market-related factors or personal factors.  The study finds that specific vulnerability drivers relevant to the financial sector are often linked to complexity of financial products.  Such complexities present a challenge to a very wide range of consumers.

The study found that consumer vulnerability is well-integrated into the UK policy framework, including via the Consumer Rights Act 2015 and dedicated FCA resources.  It is not yet clear whether or how the findings on consumer vulnerability in the financial sector will inform policy but the factsheet makes clear that the study is particularly relevant for consumer policy, such as the Unfair Commercial Practices Directive.  This is because it brings new evidence to refine the understanding of the key concepts of “average consumer” and “vulnerable consumer”.

EBA decision on formula to calculate MCD benchmark rate

On 21 March 2016, the European Banking Authority (EBA) published a final report (EBA DC 145), setting out a decision which specifies the formula to be used by creditors when calculating the benchmark rate under Annex II to the Mortgage Credit Directive (2014/17/EU). 

In order to help consumers compare the characteristics of credit products, in some circumstances, creditors are required to use a benchmark rate specified by the EBA for the illustrative examples in the European Standardised Information Sheet for variable rate mortgages.  This applies specifically to the annual percentage rate of charge and the maximum instalment amount. 

The formula includes an underlying rate which will be the European Central Bank rate for eurozone countries and the national central bank rate for non-eurozone countries.  This means that the rate will be specific to each member state and will remain up to date over time.  The EBA rate will only apply where no national rate has been set. 

The EBA formula will apply 20 days after its publication in the Official Journal for the European Union, but creditors can choose to use the formula before this date.  The EBA consulted on the proposed rate in October 2015.

FOS publishes issue 132 of Ombudsman News

On 22 March 2016 the Financial Ombudsman Service (FOS) published issue 132 of Ombudsman News.  Issue 132 considers things that can go wrong with cars and debt management issues in detail. The case studies highlighting the things that can go wrong with cars focus on financing issues and problems with insurance.

In relation to debt management, the Citizens Advice Bureau (CAB) estimates that there are over 4,000 new debt problems each day.  Topics under discussion include:

  • The deeply personal nature of debt, the fact that debtors tend to be reserved with regards to levels of personal debt and may feel embarrassed about contacting professionals.
  • The behaviour of debt managers some of whom fail to comply with FCA rules which results in vulnerable people being treated unfairly. Such behaviour includes directing debtors’ payments to debt managers’ fees rather than toward the debt itself, “debt-reduction strategies” that can be complex for debtors to understand and relaying unrealistic goals to debtors by which debts can be paid off.
  • The fact that large numbers of debt management companies have left the market or have gone out of business altogether.
  • The trend for debtors to pay debt management professionals despite the plethora of free services available. This problem is compounded by claims management companies contacting debtors despite the fact that it is not necessary to pay in order to complain.

The Q&A section of the report covers the “next business day” rule, which will let firms resolve informal customer complaints by the end of the third business day from 30 June 2016 and discusses the quantity of information that must be sent to FOS when a customer raises a complaint.

BBA publishes February 2016 figures for the high street banks

The British Bankers’ Association (BBA) has published its February 2016 figures for the high street banks.  The key points include:

  • Gross mortgage borrowing of £13.2 billion in February was lower than in January but 33% higher than a year ago and the second highest increase since mid-2008.
  • The number of mortgage approvals in February was 26% higher than a year ago, with remortgaging up 31% and house purchase up 20%.
  • Unsecured borrowing by households is growing at around 6% per annum reflecting low interest rates and relatively strong household finances.

BIS publishes further guidance on PSC register

The Department for Business Innovation and Skills (BIS) published further guidance on the register of people with significant control (PSC Register) on 23 March 2016.  From 6 April 2016, every legal entity within scope will be required to create and maintain a PSC register. 

The guidance from BIS is aimed at:

  • Individuals in a position of influence or control in relation to a company, Societates Europaeae (SE) or LLP and could be a person with significant control (PSC)
  • Directors or employees of a legal entity that is in a position of influence or control in relation to a company, SE or LLP and that might need to be entered as a registrable legal entity on its PSC register
  • Persons involved with an individual or legal entity in a position of influence or control, professionally or otherwise, and have information about their engagement with a company, SE or LLP.

The publication includes guidance on the information obligations placed on PSCs, including the type of information they will be required to provide.  Further guidance on the PSC register in relation to the incorporation and filing process and the protection regime for supressing PSC information in exceptional circumstances, will be provided by BIS shortly.  

For more information contact

< Go back

Print Friendly and PDF
Subscribe to e-briefings