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Retail Finance round-up - 8 September 2016

Retail Finance round-up - 8 September 2016

  • United Kingdom
  • Financial institutions - Retail finance

08-09-2016

The House of Lords EU Sub Committee on Financial Affairs has launched an inquiry into Brexit and the UK financial services. The Sub-Committee began its inquiry with two evidence sessions focusing on the consequences of the referendum result for financial services and potential future arrangements. The Sub-Committee has confirmed the type of questions to be put to the witnesses, which include the critical priorities for the UK financial services sector in both the withdrawal negotiations and in negotiating a future relationship for the UK with the EU.

Also of interest this week is the publication of the policy development update. Forthcoming publications for the Autumn include the policy statement to the consultation on Smarter Consumer Communications: Removing certain ineffective requirements in the Handbook and the consultation paper on updating and clarifying consumer credit reporting provisions.

Regulatory updates

Government updates, legislation and case law

Industry news

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FCA publishes key findings from its thematic review into financially vulnerable customers

The FCA has published key findings from its thematic review into vulnerable customers.  This review followed the report Mortgage lenders’ arrears management and forbearance (TR14/3, February 2014). The aim of the thematic review was to enable the FCA to understand what strategies mortgage lenders have in place to mitigate the impact of any interest rate rise on financially vulnerable customers.  Such customers are taken to include both those who are less able to cope with an increase in their monthly payments, as well as those in arrears already.

In setting out its findings, the FCA focused on the following areas:

  • Identifying financially vulnerable customers.
  • Mitigation strategies.
  • Lenders’ communications with vulnerable customers.
  • Monitoring the impact.

The FCA encourages firms to plan for a rate rise and assess the impact on customers now, rather than reacting to a rate change without having proper strategies in place, which could in turn have an adverse effect on customers.  Whilst recognising that customers have a role to play by assessing their own financial position and taking steps to address any forthcoming difficulties accordingly, the FCA stated that firms should also plan ahead, for example considering additional resource to deal with customers making contact when interest rate increases do occur.

The review began in early 2016, at a time when an interest rate rise was anticipated. Since then, interest rates have been cut and the FCA recognised that preparing for interest rate rises may not seem like a high priority. Nevertheless, it decided to share the results of its review to assist firms and customers to prepare for when interest rates do rise. In other areas of its work, the FCA noted it is assessing the impact of rates remaining low.

FCA publishes Quarterly Consultation No.14

The FCA has published its Quarterly Consultation No.14 (CP16/21), setting out proposed minor changes to the FCA Handbook. Of particular interest are the following:  

  • Minor change to the APR assumptions for consumer credit - The FCA is proposing to amend the assumption in CONC App 1.2.5R (d) to reflect the assumption in Part II (i) of Annex I of the Consumer Credit Directive as amended. The assumption relates to open-ended agreements and deals with instances of different borrowing rates and charges offered for a limited period or amount. The FCA confirmed it did not believe that this minor change would affect any products currently offered in the UK.
  • Minor changes to MCOB relating to equity release - These changes are intended to facilitate better availability of lifetime mortgages where the consumer can choose to switch to interest roll-up. The proposals also include updating rules relating to the determination of the length of term in illustrations and changes to the reporting of Product Sales Data requirements in SUP.
  • Consequential changes to Short Form A - These changes relate to the forms used when making an application to perform senior management functions under the Senior Managers regime, specifically to ensure consistency in respect of the criminal records check question which already appears in the Long Form A.  

The consultation on proposed changes to the APR assumptions for consumer credit and consequential changes to Short Form A will close on 3 October 2016. The consultation for the proposed minor changes to MCOB will close on 2 November 2016.

FCA publishes its policy development update

The FCA has published its policy development update covering key publications issued since the last update as well as forthcoming publications and their expected publication dates.

Of key interest are the following:

  • Regulatory fees and levies: policy proposals for 2017/18 – This is likely to be of relevance to, among others, fee-payers impacted by PSD, benchmark administrators and applicants for FCA authorisation. The proposal is expected to be published in November 2016.
  • Smarter Consumer Communications: Removing certain ineffective requirements in the Handbook – PS to CP15/32 – This is likely to impact the wider financial services industry. The policy statement is expected to be published in the Autumn of 2016.
  • Implementation of the Benchmarks Regulation – Consultation paper – This is likely to be of relevance to banks, other firms in general as well as benchmark administrators and benchmark contributors. The expected publication date for this consultation is February 2017.
  • Proposed implementation of the Enforcement Review and the Green Report – PS to CP16/10 – This is likely to be of relevance to all firms and individuals involved in providing financial services. The policy statement is expected to be published in Q4 2016.
  • Updating and clarifying consumer credit reporting provisions – Consultation paper – This is likely to impact all consumer credit firms. The consultation is expected to be launched in October 2016.

FCA completes launch of its new website

The FCA has completed the second and final phase of the launch of its new website. The FCA launched the first phase in June this year and has now completed the task by migrating the remaining sections, News and Publications, across to the new website.

The FCA states that the new website has been designed based on the needs of its users and presents information in a clearer and more structured way. The News and Publications sections have been redesigned to better showcase the FCA’s latest announcements and documents, with an improved filter and search tool for an easier user experience.

The FCA has also introduced three new sections:

The whole FCA website now sits once again at www.fca.org.uk.

FCA updates firms on conduct rule breach reporting under SM&CR

Following the FCA’s Regulatory round-up for August 2016, in which the FCA reminded firms of the reporting window for the FCA notification of Conduct Rule breaches, or Form H, the FCA has now published a notice to this effect, on its Senior Managers and Certification Regime webpage.

The notice confirms the reporting window will be open between 1 September 2016 to 31 October 2016, and reminds firms that Form H is to be used to report any breaches where disciplinary action has been taken or commenced, between 7 March 2016 and 31 August 2016.

House of Lords EU Sub-Committee on Financial Affairs launches an inquiry into Brexit and financial services in the UK

The House of Lords EU Sub-Committee on Financial Affairs (the Sub-Committee) has commenced an inquiry into Brexit and financial services in the UK 

The Sub-Committee began its inquiry with two evidence sessions focusing on the consequences of the referendum result for financial services and potential future arrangements. The Sub-Committee confirmed the following as the types of questions likely to be put to the witnesses:

  • The reaction of financial services firms to the outcome of the EU referendum result.
  • The possibility of relocation of financial services firms from the UK.
  • Critical priorities for the UK financial services sector in both the withdrawal negotiations and in negotiating a future relationship for the UK with the EU.
  • ‘Equivalence’ rights to access the EU Single Market for the UK.
  • Financial regulatory cooperation between the UK and the EU under different models of EU membership.
  • A potential free trade agreement and the UK’s financial sector.
  • Potential transitional arrangements.
  • The importance of the financial passport for firms operating in the UK.
  • Risks for retail customers and investors.
  • Considerations for non-EU firms wishing to gain access to the EU via the EU’s equivalence regime.

FOS publishes latest complaints data

The Financial Ombudsman Service (FOS) has released the latest six-monthly complaints data relating to banks, insurers and other financial businesses.  The figures show that:

  • FOS took on a total of 169,132 new cases in the first half of 2016 – an increase of 3% on the previous period.
  • Of the total cases referred in the first half of 2016, payment protection insurance (PPI) made up 54% of new complaints – with 91,381 new cases (92,667 in the previous period).
  • For complaints other than PPI, the number increased by 8% to 77,751. This includes a doubling in the number of payday lending complaints, compared to the last six months of 2015.
  • The average uphold rate over the six-month period was 48% – ranging from 3% to 92% across the individual businesses.

The FOS confirmed that 221 individual businesses feature in the data in total.

FOS publishes technical notes on interest-only mortgages and valuations and surveys

The Financial Ombudsman Service (FOS) has published technical notes setting out FOS’ approach to complaints relating to interest-only mortgages and valuations and surveys. The notes are aimed at both mortgage borrowers as well as mortgage brokers and/or mortgage lenders.

In relation to complaints on interest-only mortgages, FOS states: 

  • It will consider whether a borrower was advised to take out an interest-only mortgage. If advice was given, FOS will consider whether the mortgage was indeed suitable for the borrower at the time the mortgage was taken out. If, however, FOS finds that no advice was given, FOS may deem it unfair to hold the broker and/or lender responsible.
  • If an interest-only mortgage borrower has informed their lender of their inability to pay off the mortgage, FOS will consider whether the lender responded ‘sympathetically and constructively’.  The fact that the lender may not have advised the borrowers to take out the mortgage becomes irrelevant in such instances.
  • Should FOS find that a borrower was wrongly advised to take out an interest-only mortgage resulting in losses to the borrower, FOS will attempt to put the borrower in the position had a more suitable mortgage been provided. This may result in the lender redressing certain fees and charges.

In relation to complaints on valuations and surveys, FOS states:

  • If it is found that the lender arranged for the wrong type of survey, which did not flag any problems with the property, FOS may ask the lender to arrange a new survey or ensure that the borrower is not out of pocket as a result of problems which the original survey failed to identify.
  • Whilst FOS cannot consider complaints against surveyors, FOS may decide it fair to hold the mortgage lender responsible for fixing problems arising from the survey.
  • FOS deems a difference of 10-20% between the market value of the property and that valued by the surveyor, as reasonable. If, however, FOS decides that it was not reasonable for the lender to have relied on the valuation, FOS may ask the lender to ensure the buyer is not out of pocket.
  • If a lender has treated a borrower unfairly, FOS may also ask the lender to make up for any upset or inconvenience caused.
  • In reaching its decisions on the above, FOS will consider an array of documentation, including mortgage documents and application forms, surveys, solicitors’ records, independent valuations, and builders’ reports and estimates.

In addition to the two technical notes, FOS has also provided case scenarios indicating how the above guidance may work in practice.

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