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Retail Finance round-up - 7 July 2016

Retail Finance round-up - 7 July 2016
  • United Kingdom
  • Financial services - Retail finance


We are introducing a new section into the retail finance briefing to pull together updates relating to Brexit. This week the section includes summaries of the speeches of Harriett Baldwin MP, Mark Carney, Governor of the Bank of England and John Griffith-Jones, FCA Chairman. We also deal with the Treasury Committee’s announcement that it will launch an inquiry into UK’s future economic relationship with the EU and the publication of the Financial Policy Committee’s Financial Stability Report on risks following the referendum.

Also of interest this week is Andrew Bailey taking office as the FCA Chief Executive Officer from 1 July.

Our spotlight for this week features golden rules for those holding responsibility for Compliance, Risk and Financial Crime.

I hope you find the briefing useful and if you have any feedback or comments, please do drop me a line.

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Andrew Bailey takes office as the FCA Chief Executive Officer

Andrew Bailey is the new FCA Chief Executive Officer with effect from 1 July 2016.

His appointment was first announced by HM Treasury in January 2016. Mr Bailey replaces Tracey McDermott who has been acting FCA Chief Executive Officer since September 2015.

Mr Bailey will be responsible for implementing the strategy agreed by the Board, the leadership of the FCA and managing it within the authorities delegated to him by the Board.

The FCA have confirmed that all FCA staff other than the Chair’s immediate staff, the Director of Internal Audit and the Company Secretary ultimately report to the Chief Executive Officer.

If you would like to discuss this development, please contact Jo Owens.

FCA publishes updated complaints data form 

Following the complaints handling changes which came into force on 30 June 2016, the FCA has published the latest version of the complaints data return form.

Introduced as part of the changes implemented by PS15/19, the new version of the form is intended to provide greater transparency for consumers and higher quality of data for FCA supervisory purposes. Firms will need to ensure that processes for recording complaints have been updated to reflect the new reporting form.

If you would like to discuss this development, please contact Chris Busby.

FCA publishes Quarterly Consultation No. 13

On 4 July 2016, the FCA published its Quarterly Consultation No.13 (CP16/17), setting out minor proposed amendments to the FCA Handbook. The FCA also highlighted that it will monitor closely its policies in coming months to assess whether any changes are required as a result of any intervening changes in the UK regulatory framework following the UK’s vote to leave the EU.

Key proposed amendments in the consultation paper include:

  • Minor changes to rules and guidance for firms conducting mortgages and home finance activity. For instance, there are amendments to the Glossary, Compensation sourcebook (COMP), Supervision manual (SUP) and Fees manual (FEES) to clarify that consumer buy-to-let (CBTL) activities are outside the scope of the Financial Services Compensation Scheme (FSCS). There are also amendments to the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) and Consumer Credit Sourcebook (CONC) clarifying the application of FCA rules to lenders selling their own mortgages.
  • Changes to the regulatory reporting requirements are set out in the SUP manual. This includes a proposal to make it clear that consumer credit firms can use the FCA’s online system Connect (as well as email, post or hand delivery) to report their standing data.

If you would like to discuss this development, please contact Geraint Thomas.

PRA Annual Report 2016

The PRA has published its Annual Report.  The annual report reviews all aspects of the Bank of England’s structure and aims, including its ‘One Bank’ initiative to maximise its impact by making full use of its internal knowledge, resources and skills. 

The report also highlights some important changes that have been implemented in 2015/2016, including the Bank of England’s stress testing to enhance the resilience of the financial system and the implementation of the Senior Managers Regime.

The report also contains reports on specific issues including:

  • Report from each of the policy committees.
  • Financial review report for 2015/16, including structural reforms that are designed to restore banks to their pre economic-crisis level.
  • The Chief Executive’s report, setting out the PRA’s goals, targets and activities.
  • PRA strategic report which outlines the PRA’s responsibilities and its forward looking supervisory and proportionate approach, its co-ordination with overseas regulators to try and ensure consistency and an emphasis on undisruptive solutions and stronger ties to the FCA. This report also considers next financial year’s business plan. 
  • Directors’ report, including a review of salaries and remuneration packages.

If you would like to discuss this development, please contact Geraint Thomas.

FCA publishes Policy Development Update – Issue 35

The FCA has published Issue 35 of its Policy Development Update (the Update). The Update lists recent FCA publications, including CP16/16, in which the FCA set out the minor handbook changes related to mortgage borrowers with a payment shortfall.

Forthcoming publications include:

  • Feedback Statement to Chapter 2 of the CP16/8, relating to the application of MCD rules for passporting firms. This is expected to be published this month (July 2016).
  • Consultation Paper on the implementation of the Benchmarks Regulation, expected to be published by the FCA in February 2017.
  • Policy Statement to CP15/32 on smarter consumer communications, with the publication date yet to be confirmed.

If you would like to discuss this development, please contact Geraint Thomas.

FCA and PRA publish policies on regulated fees and levies for 2016/17

The FCA published its policy statement on regulated fees and levies for 2016/17 (PS16/16) together with the feedback received on its consultation paper (CP16/9), confirming:  

  • There will be no change to the minimum fees for limited permission and full permission firms.
  • There will be no change to the variable fee for limited permission firms.
  • The 2014 full permission variable fee of £0.78 will increase by £0.52 to £1.3 (68%). This will affect 7% of firms.
  • Overall, only 2% of consumer credit firms will be paying fees which are higher than those that have applied since 2014.
  • The current levies for the FOS and the Money Advice Service remain unchanged.

The PRA published its policy statement on regulated fees and levies for 2016/17 (PS18/16), confirming it will proceed with most of its proposals set out in its consultation paper (CP10/16). Proposals include:

  • An annual funding requirement (AFR) of £257.3 million, to be recovered from firms as set out in Chapter 2 of the PRA’s consultation paper.
  • A ring-fencing implementation fee, to be recovered from firms that are ring fencing their core activities in line with the Financial Services (Banking Reform) Act 2013 (the ‘Banking Reform Act’). The PRA’s budgeted costs associated with the implementation of ring fencing in 2016/17 are £7.9 million.

The PRA confirmed that there will be a refund to fee payers of unspent AFR in 2015/16 of £4.8 million. It also confirmed that the FCA provides a facility on its website to enable firms to calculate their periodic fees for the forthcoming year using the PRA rates in Appendix 1 of the policy statement.

If you would like to discuss this development, please contact Jo Owens.

Benchmark Regulation published in Official Journal of the EU

The Regulation on the indices used to benchmark financial instruments and financial contracts or in measuring the performance of investment funds (Benchmark Regulation) has been published in the Official Journal of the EU (OJ).

The Benchmark Regulation was adopted by the European Parliament on 28 April 2016 and by the Council of the EU on 17 May 2016. The Benchmark Regulation will apply across the EU to create a consistent approach for financial benchmarking.

The Benchmark Regulation came into force on 30 June 2016, the day following its publication in the OJ and will become applicable from 1 January 2018, with the exception of certain provisions (set out in Article 59) which became applicable as of 30 June 2016 and one provision (Article 56) which became applicable as of 3 July 2016.

If you would like to discuss this development, please contact Andrew Henderson.

HM Treasury publishes its Annual Report and Accounts 2015/16

HM Treasury has recently published its Annual Report and Accounts 2015/16, setting out the work of HM Treasury over the 2015/16 financial year, from April 2015 to March 2016.

The report includes information on the following:

  • An overview of the work and structure of the HM Treasury, its ministers and associated bodies, and a summary of key milestones.
  • The Performance Report, which includes a summary of progress made in 2015/16 (the Performance Overview), followed by an analysis of the department’s achievements over the year against each of the three policy objectives, the corporate objective and the department’s performance on economic, social and environmental sustainability (the Performance Analysis).
  • The Accountability Report including a Corporate Governance report where the Treasury’s Directors report on the operating structure of the department and important transparency matters such as conflicts of interest and whistleblowing, followed by a copy of the audit certificate and report made to Parliament by the Head of the National Audit Office (the Report of the Comptroller and Auditor General to the House of Commons) setting out his opinion on the financial statements.
  • The Financial Statements showing the Treasury Group’s income and expenditure for the financial year, the financial position, and additional information to enable readers to understand the results.
  • The Trust Statement providing a record of fine income collected by Treasury on behalf of government during the financial year. This relates to fines imposed by the Financial Conduct Authority and Prudential Regulation Authority.

If you would like to discuss this development, please contact Jo Owens.

Outcome of BCAP consultation on high-cost short-term credit advertising

The Broadcast Committee of Advertising Practice (BCAP) has confirmed that following its public consultation on the introduction of scheduling restrictions for television advertising of high-cost short-term credit (HCSTC), and an extensive and carefully-considered review process leading up to it, such scheduling restrictions on the HCSTC advertising will not be implemented.

BCAP has, however, confirmed that a further review of the content of HCSTC adverts is required to ensure that BCAP rules remain fit for purpose in light of the current market and regulatory framework.

Whilst acknowledging that the advertising of HCSTC has attracted increased concern by parties such as the Government, media and consumer protection bodies, BCAP confirmed it closely monitors these concerns to ensure that it provides proportionate levels of protection for consumers, particularly the vulnerable, while allowing advertisers to reach a legitimate adult audience.

If you would like to discuss this development, please contact Jo Owens

Parliament to launch inquiry into UK's future economic relationship with the EU

The Treasury Committee announced on 30 June 2016 that it will launch an inquiry into the UK’s future economic relationship with the EU.  The Committee will be taking further evidence on the relationships that the UK might now seek with the EU, the trade-offs between market access and control that are likely to be involved, and the practical consequences for people and businesses.

The evidence is to be given by a number of witnesses and the inquiry will be chaired by Rt Hon. Andrew Tyrie, who commented that Article 50 should not be triggered until the UK’s negotiating position is established.  The inquiry will seek to identify both the opportunities which may arise from invoking Article 50 and discuss the challenges of balancing market access and controlling migration.

This inquiry is expected to be launched before the summer recess on 21 July 2016.

If you would like to discuss this development, please contact Andrew Henderson.

Financial Policy Committee publishes Financial Stability Report on risks following referendum

The Financial Policy Committee (FPC) of the Bank of England has recently published its Financial Stability Report, setting out the risks identified following the EU referendum. The FPC is of the view that transparency about risks is essential to strengthen resilience and for plans to be put in place to manage those risks should they crystallise.

Some of the channels, as identified by the FPC, through which the EU referendum could increase risks to the UK financial stability include:

  • The high level of UK household indebtedness, the vulnerability to higher unemployment and borrowing costs of the capacity of some households to service debts, and the potential for buy-to-let investors to behave procyclically, amplifying movements in the housing market.
  • Subdued growth in the global economy, including the euro area, which could be exacerbated by a prolonged period of heightened uncertainty.
  • Fragilities in financial market functioning, which could be tested during a period of elevated market activity and volatility.

The report notes that there will be a period of uncertainty and adjustment following the result of the EU referendum.  The UK needs time to establish new relationships with the EU and the rest of the world, with some market and economic volatility to be expected as this process unfolds.

If you would like to discuss this development, please contact Andrew Henderson.

Speeches by the Economic Secretary to the Treasury and the Governor of the Bank of England following the EU referendum

On 29 June 2016 and 30 June 2016 respectively, the Economic Secretary to the Treasury, Harriett Baldwin, and the Governor of the Bank of England, Mark Carney, delivered speeches addressing the UK’s decision to leave the European Union.

Key points highlighted in Ms Baldwin’s speech include:

  • The electorate has taken a ‘clear democratic decision’ and the financial markets can weather these challenges.
  • Since the financial crisis in 2008, the Government and the banking industry have worked towards a safer and stronger banking sector, followed by some fundamental reforms. As a result of these actions, the institutions have sufficient capital and liquidity to deal with the market volatility.
  • The Government was prepared for this outcome. These preparations include discussions with the Finance Minister and Central Bank Governors of the G7 to provide a co-ordinated response.
  • Confidence must not be shaken. Ms Baldwin listed the strengths of the UK market.
  • Ms Baldwin concluded with the message that the British economy is strong, highly competitive and ‘open for business’.

In the speech delivered by the Governor of the Bank of England, Mark Carney recommended the objectives for policymakers to be as follows:  

  • To conduct a sober, objective assessment of the outlook and the risks associated with it.
  • To develop and communicate a plan to reduce those risks and seize new opportunities. In the Bank’s view this includes a comprehensive strategy for engaging with the EU and the rest of the world.
  • To minimise any possible confusion about the commitment to core macroeconomic policy frameworks themselves.

Some of the additional key points addressed in the speech include:

  • A reminder of the Bank’s initial commitments, including the provision of £250 billion of additional funds, if required.  
  • The material slowing in growth identified by the Monetary Policy Committee (MPC) as a risk associated with the referendum, now looking to be the Bank’s central forecast.
  • The deteriorated economic outlook likely to require monetary policy easing over the summer. The MPC will make an initial assessment on 14 July 2016, with a full assessment and a new forecast following in the August’s Inflation Report.

In concluding, Mr Carney confirmed that in working closely with the Chancellor and HM Treasury, the contingency plans put in place for the initial market shocks are working well. Mr Carney highlighted, however, that part of these plans is ruthless truth telling, with one uncomfortable truth being the fact that there are limits to what the Bank can do.

If you would like to discuss this development, please contact Jo Owens.

FCA Chairman delivers speech on global regulation in the post-crisis era

The Chairman of the FCA, John Griffith-Jones, delivered a speech at the TheCityUK Annual Conference reflecting on the regulation of the UK and global industry post-crisis. 

He dealt with three questions:

  • How does the industry set about thinking through in short order what its strategy is in the post crisis, post Brexit era?
  • What can we regulators learn from the past about successful regulatory policy, and its inter connectedness with other global authorities and initiatives?
  • How important will ‘conduct’ be in the future?

He emphasised the importance of the sector linking in with the government and the regulators on their strategic priorities noting: “The position is uncertain and it will not be settled for some time. But it is important for firms to resist the temptation to cite chicken and egg - 'we cannot design a strategy without knowing the rules'. It is important for the UK that, at the appropriate moment, you are able to inform the Government where your major opportunities and risks lie, along with other industries, as it forms its plans for the negotiation of our exit. The FCA will, of course, be working closely with the other authorities in this process.”

He also made clear that for now, nothing changes and the FCA will continue to do its ‘day job’. For future regulation, it is clear that the direction of travel is for international convergence and the UK will seek to act, where possible, in concert with the rest of the world, including the EU. That will mean working with the European authorities, and global bodies such as the FSB and IOSCO. Mr Griffith-Jones emphasised that bilateral relationships with fellow regulators in many countries will continue to be of great importance. Nonetheless, Mr Griffith-Jones acknowledged that the UK can, and is willing, to go it alone where appropriate, giving the Senior Manager Regime as an example.  

Conduct will continue to be very important. The referendum result has not changed that. The challenge is for firms and their leaders to instil a culture that supports an ambition to remain the premier capital market in the world, something which, in his view, must involve putting customers first.

If you would like to discuss this development, please contact Jo Owens.