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Retail Finance round-up - 16 June 2016

Retail Finance round-up - 16 June 2016

  • United Kingdom
  • Financial institutions - Retail finance


The FCA has this week published a consultation on changes to the MCOB sourcebook, regarding payment shortfalls. The proposed changes are intended to ensure that payments are allocated in a way that minimises the time taken to pay off the arrears.

The FCA has also launched its new website this week with one of the benefits of the new site being ease of access from both desktop and mobile devices.

The rise of mobile banking continues to be a key issue for the sector. The latest in our series of Digital financial services events took place today covering payments and regulatory matters. The slides from the event are now available on our website.

Also of interest this week is the vote by BBA members in favour of a trade association merger. Plans for the new trade association will now be taken forward by the Interim Main Board of the new trade association.

Our Spotlight article this week covers the CMA’s provisional decision on remedies, published in May. Julia Woodward-Carlton and Greg Hayes consider how customers will be affected by the CMA’s proposals.

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Reforming retail banking

How will customers be affected by the Competition and Markets Authority’s (CMA) proposals to reform retail banking? In this article, first published on Lexis, Julia Woodward-Carlton, Partner, and Gregory Hayes, Associate, in the Competition, EU and Regulatory department at Eversheds, consider the proposals outlined in the provisional decision on remedies published last month.

Read the full article: Reforming retail banking.

If you would like to discuss any issues raised by this development, please contact Julia Woodward-Carlton.

FCA launches new website

The FCA has launched the first phase of its new website, together with an introductory video.

The FCA states that the new website:

  • Focuses on its users, giving everyone an improved journey
  • Presents information in a clearer and more structured way
  • Makes it easier to find, understand and complete regulatory tasks
  • Works equally well on a desktop PC or tablet/mobile

A new section on markets has also been introduced, following feedback from the sector, which sets out the FCA’s latest markets policy and also features latest news and useful resources.

The News and Publications sections of the old FCA website have not yet been migrated to the new website. The FCA intends for this to take place in August 2016.

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

FCA publishes Data Bulletin Issue 6

The FCA published Issue 6 of its Data Bulletin on 9 June 2016.

The Bulletin summarises key data on financial promotions, attestations, skilled persons and consumer credit authorisation, as published by the FCA in recent months.

Some key points to note are:

  • 1,977 financial promotions were reviewed by the FCA and 69 cases resulted in one or more promotions being amended or withdrawn.
  • A total of 22 fixed and flexible attestations were requested by the FCA during Q3 and Q4 2015/16, of which 3 fixed and 2 flexible were requested from firms within the retail banking sector. During the same period, the FCA commissioned 4 skilled persons reports within the banking sector (including building societies) and 3 within the consumer credit sector.
  • As at 31 March 2016, there were 33,853 consumer credit firms, of which 30,309 had been authorised and a further 3,544 had an interim permission. 36,582 firms had applied for authorisation equating to 66% of eligible firms.

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

FCA consults on changes to the MCOB sourcebook regarding payment shortfalls

Chapter 12 of the Mortgages and Home Finance Conduct of Business (MCOB) sourcebook in the FCA Handbook is designed to ensure that mortgage providers do not impose unfair or excessive charges on borrowers. More specifically MCOB 12.4.1BR sets out how firms are expected to allocate payments received on accounts with a payment shortfall. This is to ensure that payments are allocated in a way that minimises the time taken to pay off the arrears.

Following a recent review by the FCA of a number of firms’ allocation of payments processes, the FCA has published a consultation paper, in an attempt to address the identified divergent practices among firms.

In its consultation paper, the FCA two changes to MCOB:

  • Amending wording of MCOB 12.4.1BR. If this proposal goes ahead, this rule will read as follows: “When a customer has a payment shortfall in respect of a regulated mortgage contract, a firm must ensure that no part of any payment received in respect of that contract is allocated towards paying interest or charges incurred because of a payment shortfall before the balance of the payment shortfall has been cleared.”
  • An amendment to the Glossary clarifying the definition of a ‘payment shortfall’ to make it clear that interest (on missed payments), fees and charges and ancillary items do not form part of a payment shortfall. Also, if a payment shortfall has been capitalised in accordance with the rules, it no longer counts as a payment shortfall.

The FCA believes the proposed amendments will provide more clarity and help ensure an appropriate level of consumer protection.

The consultation will close on 10 August 2016.

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

FCA publishes minutes from the meeting of the FCA Board on 20 and 21 April 2016

On 8 June 2016, the FCA published the minutes for its board meeting that took place on 20 and 21 April 2016.

Items of interest include:

  • Cyber Resilience - the Board concluded that the appropriate senior management ownership of security risk within the organisation should sit with the Chief Operating Officer in line with the Senior Managers Regime, with the Board retaining close oversight.
  •  Report from the Chief Executive - a report from Ms McDermott on three further items affecting the FCA in the Bank of England Bill. These include:
    • The formalisation of the role of the Treasury Committee in the appointment of the Chief Executive.
    • An obligation to give guidance in respect of how banks should treat Politically Exposed Persons (PEPs).
    • A proposal on the adjudication of disputes by the FCA between banks and individuals where those disputes arose from the treatment of individuals such as PEPs.
  • FCA regulatory remit in operational resilience for payments - a paper highlighting the FCA’s primary concerns with:
    • the impact on consumer and market integrity.
    • payment systems and providers which were and were not currently recognised or within the regulatory remit and the way the regulators supervised those that came within their respective perimeters.
    • FCA’s role in the event of an incident.
  • Communications Strategy - the Board agreed the strategic communications objectives for 2016/17.

The instruments introducing changes to the Handbook, as set out in the FCA’s Handbook Notice 33, published by the FCA last month, were introduced following approval by the Board during this board meeting.

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

Chief Executive of the FCA calls on regulators to heed the lessons from the mishandling of the Hillsborough process

In one of her final speeches as Chief Executive of the FCA, Tracey McDermott, has called for regulators to heed the lessons from the mishandling of the Hillsborough process.

Highlighting that the process of investigation can be just as important as the result, Ms McDermott went on to identify three key lessons which can be taken away from the Hillsborough inquiry:

  • Justice: Ms McDermott stated that a culture of ‘them and us’ can be created from the strength and persistency of public anger towards those the public feel ‘got away with it’. Ms McDermott stresses that this can, in turn, have a degrading effect on public perception of investigation bodies, leading to a lack of confidence which, in the financial services sector, is paramount in order to keep the system working effectively and authentically.
  • Transparency and speed: Ms McDermott stated that people need to know the facts in a timely manner in order to prevent rumours and mistrust building up. Collaboration between agencies in order to aid this process is key.
  • Fairness: Ms McDermott highlighted that the role of the FCA is not to simply satisfy public opinion, but rather, the FCA must ‘divorce itself from the emotion, speculation and hyperbole’ in order to have a process which is objective, fair and rational to enable it to recommend appropriate conclusive actions. Ms McDermott believes that a failure to do so will fuel anger by those working in the industry, leading to the same kind of ‘them and us’ culture identified above, through a lack of perceived justice by industry workers.

Ms McDermott concluded her speech by stating that, listening to the views of those affected but then making objective and independent decisions based on facts, not emotion, regardless of any external pressures, will help rebuild the trust placed on the regulators.

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

FCA publishes its response to The Heath Report Two

The FCA has published its response to the Heath Report Two (THR2) and has provided comments on the numbers and methodology it used to determine the impact of the Retail Distribution Review (RDR) of the market for retail investments.

The FCA’s response sets out its views on the conclusions of THR2. In summary, the conclusions of THR2 were as follows:

  • Since RDR was announced 13,500 advisers have left the industry.
  • Historically, 23m consumers have accessed advice via Independent Financial Advisors (IFA) and banks. Since RDR was announced 16.5m consumers no longer have that access.
  • If trail commission is banned in 2016 then the IFA sector will lose between 7,260 advisers and 15,510 advisers with an associated consumer capacity of 1.4m to 3m consumers.
  • RDR will cost the consumer £340m pa (with no associated consumer benefit).

The FCA notes it will continue to monitor the impact of the RDR and developments in the sector. The FCA has been working alongside HM Treasury to identify ways of increasing access to advice through the Financial Advice Market Review (FAMR). The FCA remains of the view that the RDR is delivering positive impacts such as improving adviser professionalism and reducing product bias. FAMR, however, recognised the challenge that those without significant assets or income may have in obtaining appropriate advice or support with financial decisions.

The recommendations from FAMR were published on 14 March 2016. The report sets out a series of recommendations intended to tackle the barriers to consumers accessing advice.

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

Commencement dates announced for provisions of the Bank of England and Financial Services Act 2016

The Government has published the latest commencement regulations, the Bank of England and Financial Services Act 2016 (Commencement No 3) Regulations 2016 (the Regulations), bringing into force, on 6 July 2016, the following relevant provisions (amongst others) of the Bank of England and Financial Services Act 2016:

  • Sections 1 to 8 and certain parts of Schedules 2 and 3, relating to the reforms to the governance of the Bank of England (BoE).
  • Sections 18 to 20, relating to the reforms to the FCA, including reforms to the appointment of the FCA Chief Executive.
  • Sections 22 to 25 relating to the senior managers and certification regime (SMCR).
  • Section 26, relating to the criminal sanctions for managerial misconduct.
  • Sections 27 and 28, relating to the enforceability of agreements relating to credit.
  • Section 29, relating to illegal money lending.

The Regulations do not set a commencement date for section 21 of the Act, which is to extend the SMCR to all authorised persons. Whilst this section is expected to come into force in 2018, a specific date is yet to be confirmed.

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

Council of the European Union publishes revised text of Benchmarks Regulation

On 10 June 2016, the Council of the European Union (the Council) published a revised version of the Benchmark Regulation (Regulation of the European Parliament and the Council on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending the Consumer Credit Directive 2008 (CCD), the Mortgage Credit Directive 2014 (MCD) and the Market Abuse Regulation 2014 (MAR)).

The Benchmarks Regulation will come into force the day after it is published in the Official Journal of the European Union (OJ), which is expected to be sometime in June 2016. It will apply 18 months from that date, with the exception of certain provisions that will apply from the day after the OJ publication and Article 56, which amends MAR, which will apply from 3 July 2016.

The Council is yet to indicate what revisions have been made to the original text, dated 5 May 2016.

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

FLA publishes its latest figures

The Finance & Leasing Association (FLA) has published its latest figures for the consumer finance, motor finance and asset finance industries.

The statistics show:

  • Growth of 8% in consumer finance new business in April, compared with the same month last year. Within consumer finance, credit card and personal loan new business grew by 5% compared with April 2015, while the retail store and online credit increased by 6% over the same period. By contrast, second charge mortgage market reported a fall in new business by 19% by value and 28% by volume.
  • Growth of 17% by value and 12% by volume in point-of-sale (POS) consumer new car finance market in April, compared with the same month last year. The percentage of private new car sales financed by FLA members through the POS reached 83.6% in the twelve months to April, up from 82.7% in the twelve months to March. The POS consumer used car finance market also reported further new business growth in April of 9% by value and 8% by volume.
  • Growth of 2% in asset finance new business (primarily leasing and hire purchase) in April, compared with the same month last year. In the first four months of 2016, new business was 6% higher compared with the same period in 2015. The business equipment finance sector reported new business up by 5% in April compared with the same month in 2015, while commercial vehicle finance grew by 3% over the same period.

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

CML publishes new data on how the stock of interest-only mortgages is evolving

On 31 May 2016, the CML published new data on how the stock of existing interest-only mortgages is evolving.

The CML estimates that as at the end of 2015, there were 1.7 million pure interest-only mortgages still outstanding and a further 500,000 on a part interest only and part repayment basis. This amounts to a fall of almost a third in the interest only stock since 2012.

The decline in loans outstanding is driven by the amount of loans set to mature in that year. However, only a third of the decrease last year came from scheduled maturities. The majority of redemptions continue to be of loans years before the maturity date. In all, 29% of the total came from loans that were not due to mature until at least 2028. Where borrowers took out a new mortgage on redemption, CML research suggests that this was on a repayment basis, instead of an interest-only loan.

Overall, the profile of the remaining interest-only stock became lower risk each year, in terms of borrowers’ debt relative to property value. This is partly down to the effects of house price inflation. Improvement in the loan-to-value profile continues to see over and above inflation levels.

In 2012, there were nearly 900,000 interest-only borrowers with a loan-to-value ratio of over 75%, in comparison, today there are just over 300,000. CML expects this shrinking trend to continue.

The research suggests that a small proportion of interest-only borrowers do not repay in full by the maturity date, however, two thirds of these do repay shortly thereafter.

The CML concluded by highlighting the importance of borrowers, with interest-only mortgages, to engage with lenders at each point of contact, to ensure that any risks are identified and managed at the right stage.

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

German Finance Regulator comments on the impact of digitalisation for banks and regulators

Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, has given a speech in which he discusses the risks and rewards of a digital revolution within the financial services industry. Expressing his belief that such a revolution will lead to a social upheaval and is ‘something to be reckoned with’, he urged senior management at banks to address digitalisation as a priority going forward.

From a regulatory perspective, Dr Dombret said regulators had an interest in the sustainability of any technological advances, giving blockchain technology as an example. However, he also mentioned the threats to cyber-security and data protection which using technology can bring. He stated that regulators will be expecting firms to demonstrate how they plan to tackle and manage such risks going forward, as these remain priorities for the Single Supervisory Mechanism in 2016.

Whilst Dr Dombret was keen for firms to embrace technology, he was cautious to add that a ‘critical eye’ should remain so that checks are made of digitalised processes. Going forward, Mr Dombret stated that he wanted a regulatory regime that treats technology neutrally and intervenes at the very moment instruments and institutions produce disproportionate risks.

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

BBA members vote in favour of trade association merger

On 10 June 2016, members of the British Banking Association (the BBA) voted to consolidate with the Council of Mortgage Lenders (the CML), Payments UK and the UK Cards Association to form a new trade association. The BBA has 200 member banks headquartered in over 50 countries spanning 180 jurisdictions.

This vote in favour of consolidation follows the Financial Services Trade Associations Review, which aims to improve and bolster the representation of the UK financial services industry. The Financial Trade Associations Review was introduced by a steering committee of a number of banks and building societies in response to low levels of consumer trust in the banking sector and the introduction of new and diverse entrants to the industry.

Plans for the new trade association will now be taken forward by the Interim Main Board of the new trade association.

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

StepChange and Citizens Advice Bureau discuss debt and poor treatment of those in debt

On 8 June 2016, StepChange published results of a recent survey, revealing how people with debt problems suffer interest, charges and aggressive enforcement and demands. 68% of people surveyed said that default charges made their problems harder to deal with, whilst 62% said that charges and interest had been applied by creditors who knew they were in financial difficulty.

65% of StepChange clients who were surveyed had experienced some level of bad debt collection, whilst 17% had experienced a threatening or intimidating visit from a doorstep collector. StepChange is now calling for a ‘breathing space’ scheme to be introduced, where people seeking advice for debt problems are given a period of six months to a year in which interest and charges are frozen, and enforcement action halted, in order that they can get debt advice and try and recover their finances.

StepChange have previously published an article about the practice of creditors increasing credit card limits without agreement from the debtor, on some occasions where the debtor is already experiencing financial difficulties. StepChange called on the FCA to ban the practice of unauthorised credit limit increases, instead allowing borrowers to choose to opt-in to credit card increases.

The Citizens Advice Bureau has released figures revealing people are paying off consumer debt before other priority debts. Citizens Advice has found that 3.6 million people would pay their credit card repayments before paying their rent or mortgage, with 6.5 million people who would pay their credit card before paying their council tax.

Citizens Advice took the opportunity to urge consumers to repay their household bills before outstanding consumer credit debts to prevent themselves falling into greater financial difficulty.

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

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