Retail Finance round-up - 26 August 2016

• United Kingdom

• Financial services - Retail finance

26-08-2016

The Financial Conduct Authority (FCA) has published its Regulation round-up for August 2016 this week. There have been a number of important developments this month, despite the summer holidays, including publication of the PPI complaint handling feedback statement and further consultation paper, the Credit Card Market Study and the Occasional Paper on financial distress.

The FCA has also updated its Project Innovate webpages including the addition of information on its engagement with authorities around the globe, such as the Monetary Authority of Singapore and the Australian Securities and Investment Commission. Co-operation agreements agreed with the overseas regulators include a referral mechanism for innovative business seeking to enter the other’s market.

Regulatory updates

• FCA publishes its Regulation round-up for August 2016
• FCA updates Project Innovate webpages
• CMA publishes revised guidance on enforcement of consumer protection measures

Industry news

• FOS publishes issue 135 of its Ombudsman News
• Lending Standards Board publishes its review of third party outsourcing

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Training and events

• Hot topics for funds and asset managers - 27 September 2016, London
• FCA regulation of the consumer credit sector – two years on - 4 October 2016, Leeds & 12 October 2016, London
• Digital Financial Services seminar series: Data protection and cyber-crime - 5 October 2016, London
• Digital Financial Services conference - 1 November 2016, London

FCA publishes its Regulation round-up for August 2016

The FCA has published its Regulation round-up for August 2016. A hot topic for this month is the FCA’s thematic review on principals and their appointed representatives (ARs) in the general insurance (GI) sector. Whilst this review focused on the GI sector, the FCA confirmed that the findings apply to all principals and encouraged firms with ARs to review the report and ensure they are meeting the FCA’s requirements including, for example, contractual agreements, monitoring and suitability.

Another hot topic from this month is the FCA’s alert to authorised firms regarding their responsibilities when accepting business from an unauthorised introducer. The FCA confirmed that an authorised firm which accepts business from an introducer must meet its regulatory requirements.

Other highlights from the round-up include:

PPI complaint handling

The FCA issued its feedback statement and further consultation about payment protection insurance (PPI) complaints. The feedback statement confirmed that, overall, the package of proposals laid out by the FCA in CP15/39 should be taken forward. However, the FCA is also consulting further on some changes to the proposed rules and guidance on handling PPI complaints in light of the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd.

Credit card market study

The FCA published the findings of its credit card market study and set out a package of measures, including a series of industry-led proposals, to help consumers take better control of their spending. The report follows the interim report the FCA published last year. This report found that while competition worked fairly well for most consumers, the FCA had concerns about the scale of potentially problematic debt.

FCA’s reminder of the Senior Managers and Certification Regime (SM&CR)

The FCA has reminded firms that the reporting window for the FCA notification of Conduct Rule breaches, or Form H, opens on 1 September 2016 and will close on 31 October 2016. It covers the timeframe from 7 March 2016 to 31 August 2016. The FCA has confirmed that it is mandatory for firms to submit Form H, including nil returns.

Occasional Paper No. 20: Can we predict which consumer credit users will suffer financial distress

The research was based on independent data from the Office of National Statistics and was compiled with the aim of taking a wider view on what is meant by ‘financial distress’, how it relates to an individual’s wellbeing and how easily this can be predicted. The FCA confirmed it will use the findings to inform its policy work on areas such as consumer credit.

FCA updates Project Innovate webpages

The FCA has updated its website in relation to the Advice Unit webpage and the Innovation Hub webpage, both of which are part of Project Innovate.

The Advice Unit focuses on developing automated advice models which would service the advice gaps in the market identified by the Financial Advice Market Review (FAMR). The FCA has updated the “How to Apply” section, which now states that although the initial application period closed on 1 July 2016, firms can still have an initial discussion with the FCA about their models.

The Innovation Hub webpage sets out the support which the FCA Innovation Hub can provide to firms, including a dedicated team and contact for innovator firms, helping them understand the regulatory framework, assisting businesses in preparing and making an application for authorisation and providing a dedicated contact once an innovator business is authorised. 

The FCA has also updated its Project Innovate webpages including the addition of information on its engagement with authorities around the globe, such as the Monetary Authority of Singapore and the Australian Securities and Investment Commission. Co-operation agreements agreed with the overseas regulators include a referral mechanism for innovative business seeking to enter the other’s market. Once referred by the home regulator, and ahead of applying for authorisation to operate in the new market, the business will have access to a dedicated team or contact person who will help them to understand the regulatory framework in the market they wish to join and how it applies to them. 

CMA publishes revised guidance on enforcement of consumer protection measures

The Competition and Markets Authority (CMA) has published its revised guidance, 'Consumer protection enforcement guidance: CMA58'.

The revised guidance sets out how the CMA uses its consumer protection powers to address market-wide consumer problems, how the CMA enforces consumer protection laws, and how the CMA uses its investigatory enforcement powers.

This publication of the revised guidance follows a consultation on an earlier draft which was published in May 2016. The revised guidance replaces ‘Consumer protection – guidance on the CMA’s approach to use of its consumer powers (CMA7)’. It also replaces ‘Enforcement of consumer protection legislation guidance (OFT512)’ which was adopted by the CMA on a temporary basis.  

FOS publishes issue 135 of its Ombudsman News

The Financial Ombudsman Service (FOS) has published its latest edition of Ombudsman News.  With £775 million lost to financial fraud last year, this month’s edition focuses on financial fraud case studies and expert perspectives on scams and how to stop them.  The key items of interest are:

Losses from financial fraud

Losses from financial fraud for both businesses and their customers have increased significantly over recent years.  FOS notes it continues to see complaints involving a range of scams, some of which are detailed in this month’s edition.  In particular, FOS has seen a significant increase in cases where people have been tricked into making payments. 

Reported scam methods

The top five reported scam methods are:

• upfront payment fees (29%)
• fake services or invoices (26%)
• goods not being received (9%)
• vishing (7%)
• subscription traps (7%)

Advice to customers for preventing fraud

FOS has provided some simple advice to customers with the aim of preventing fraud.  Examples include, advising customers that a bank will never ask them to transfer money to a ‘safe’ account and that a bank doesn’t need a PIN or password to stop a suspicious payment.

The FCA's priorities for preventing financial crime

Mark Steward, director of enforcement and market oversight at the FCA explains how one of the FCA’s priorities is to prevent financial crime, including protecting consumers from unauthorised investment activity and financial fraud. Mark explains how the FCA uses both enforcement action and communications activity to help tackle financial fraud.

Q&A

Also in the month’s edition is a Q&A section.  This section provides some information for banks when accepting a customer’s power of attorney.

Lending Standards Board publishes its review of third party outsourcing

The Lending Standards Board (LSB) has published the results of its review of third party outsourcing. The review, published on 17 August 2016, examined the adequacy of the Lending Code (the Code) subscribers’ systems and controls to ensure that the Code is complied with where any processes are outsourced.

The review found that all seven participating firms had well-structured and robust management frameworks in place for third party suppliers. The review focussed on arrangements in the UK, although many of the reviewed firms have offshore arrangements. The offshore arrangements were deemed to be higher risk than domestic outsourcing and so the use of third party suppliers will continue to be an area of interest for the LSB.

Since completion of this exercise the LSB has concluded its review into the Code, which has now been superseded by the Standards of Lending Practice (SLP).

The LSB confirmed that whilst third party oversight and due diligence were specifically covered by the Code in section 9 on financial difficulty, the requirements in other sections of the Code were clear in that the subscriber was responsible for Code compliance where it outsourced any processes where there was a Code impact.

The findings of the review will remain relevant under the new SLP and any recommendations will be actioned following its implementation. The SLP is explicit in the requirement for registered firms to ensure that where any part of the credit process/lifecycle is outsourced they should undertake effective and robust due diligence and exercise effective ongoing oversight.