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Retail Finance round-up - 3 March 2016

Retail Finance round-up - 3 March 2016

  • United Kingdom
  • Financial institutions - Retail finance

03-03-2016

There are now just four days to go until implementation of the Senior Managers Regime on 7 March 2016. This week the PRA and FCA each published a policy statement confirming consequential changes to notification rules and forms under the regime.

Also of interest this week is the publication of the National Audit Office’s (NAO) report on financial services mis-selling: regulation and redress. In its report, the NAO has stated that the complexity of products, continuing commercial incentives to achieve sales and the difficulties in changing cultures within firms means the risk of mis-selling remains.

Finally, the government has published a Call for Evidence relating to terms and conditions and consumer protection fining powers.  In this Call for Evidence the government is seeking to gain a better understanding of how terms and conditions can be made more accessible to consumers, so they actually read them.  The publication also sets out proposals for introducing new powers to fine firms where they breach consumer protection and unfair terms rules.

Regulatory updates

Legislation and case law

Industry news

Forthcoming events and training

FCA publishes Handbook Notice No.30

The FCA has published its Handbook Notice No.30 setting out changes made to the FCA Handbook under instruments made by the FCA Board on 5 and 25 February 2016.

Some of the key relevant instruments are:

  • Benchmarks (Amendment No.2) Instrument 2016 (FCA 2016/8).  This instrument makes final rules to create a fair, reasonable and non-discriminatory (FRAND) framework for regulated frameworks, which is effective and robust.  The instrument comes into force on 1 April 2016.  The FCA published a policy statement on FRAND access to regulated benchmarks on 8 February 2016.
  • Handbook Administration Instrument (No.40) 2016 (FCA 2016/9).  The FCA board has made minor administrative changes to various modules of the FCA Handbook to correct or clarify existing provisions.  They were not consulted on because they are regarded as either falling within the scope of previous consultations, or as being so minor they do not warrant consultation.  None of the changes represent any changes to FCA policy.  The majority of the instrument came into force on 1 March 2016, subject to some exceptions.
  • Individual Accountability (Conduct Rules) (Breaches Reporting) Instrument 2016 (FCA 2016/10).  The instrument makes consequential changes to FCA rules and guidance to ensure that it reflects the latest statutory position when the senior managers and certification regime comes into force for relevant persons on 7 March 2016.  The instrument came into force on 1 March 2016.  The FCA consulted on this instrument in CP16/1.
  • Handbook Separation (Fees) Instrument 2016 (FCA 2016/12).  The instrument makes rules to create a free-standing FCA fees manual with no unnecessary references to the PRA or rules shared between the FCA and the PRA.  The instrument came into force on 1 March 2016.  The FCA consulted on this instrument in CP15/34.
  • UKLA Fees (and Related Fees) Instrument 2016 (FCA 2016/13).  The instrument makes rules to: 1) clarify the FEES manual by restructuring UKLA fees; 2) meet the FCA’s treaty obligations by introducing a fee discount for mortgage intermediaries ‘passporting’ into the UK from other EEA states; and 3) improve management of FCA cash flow at the start of the financial year by bringing forward the date when large fee-payers make their first ‘on-account’ payment.  Part of this instrument came into force on 1 March 2016 and the remainder on 1 April 2016.  The FCA consulted on this instrument in CP15/34.

FCA updates Mortgage Credit Directive webpage for second charge mortgage regulation

The FCA has updated its webpage on the Mortgage Credit Directive (MCD). The update covers the following points:

  • Firms looking to apply for authorisation in respect of second charges still have time to apply for regulated mortgage permissions.
  • Interim authorised firms must apply for a new interim permission before 21 March 2016 in order to continue doing regulated mortgage business.

From 21 March 2016 (when the MCD comes into force), the regulation of second charge mortgages will move from the FCA’s consumer credit regime to its mortgage regime.  In the interim, the FCA cannot authorise firms but will issue “minded to authorise” letters in some instances.

FCA updates Mortgage Credit Directive FAQs

The FCA has updated its FAQs relating to the UK implementation of the Mortgage Credit Directive (2014/17/EU) (MCD).

The FAQs cover matters including:

  • Requirements relating to disclosure.
  • When firms do not need to provide the European standard information sheet (ESIS).
  • When a firm can describe its services as “unlimited” or “independent.”
  • What the position will be for second charge back book mortgages and retained provisions in the Consumer Credit Act 1974 (CCA).
  • Requirements relating to foreign currency mortgages.

The MCD will be implemented in the UK on 21 March 2016.

PRA policy statement on PRA Rulebook: Fees Part and responses to CP40/15

On 26 February 2016, the PRA issued a policy statement (PS7/16) providing feedback on responses to Consultation Paper 40/15. The policy statement is relevant to all PRA-regulated firms. Included in the policy statement are the supervisory statement and the final rules following CP40/15. 

In CP40/15, the PRA set out proposals to redraft the FEES module of the Handbook to conform to the PRA Rulebook style. The consultation paper was part of a planned series of consultations aimed at replacing PRA Handbook material inherited from the FSA with a standalone Rulebook and reflected the commitment made in the PRA’s supervisory approach documents to create a set of rules specific to the needs of PRA-authorised firms.

The rules came into effect on 1 March 2016.

The structure of the Rulebook has not changed following consultation.  The former Handbook material has been divided into five topic based chapters:

  • Chapter 1: Application and definitions (formerly FEES 1).
  • Chapter 2: Obligation to pay fees (formerly FEES 2).
  • Chapter 3: Periodic fees, with periodic fees schedule (formerly FEES 4).
  • Chapter 4: Regulatory transaction fees (formerly FEES 3, other than annex 9).
  • Chapter 5: Special project fee for restructuring (formerly FEES 3, annex 9).

The FCA will continue to act as the collection agent for PRA fees.  Arrangements for invoicing and collection will not change as a result of PS7/16.

Fee rates shown in the final rules are those in force for the 2015/16 fee year.  Fee rates for 2016/17 will be consulted on in Spring 2016.

CMA working paper on corporation tax surcharge and bank levy

As part of the retail banking market investigation, the Competition and Markets Authority (CMA) has published a working paper on the potential impacts of the bank corporation tax surcharge (CTS) that has been effective from January 2016, and also of changes to the bank levy.  The CMA’s provisional findings noted that a number of building societies and smaller banks had expressed significant concerns with the proposed surcharge.

The CMA concludes that there is no strong evidence at this time that the introduction of the CTS combined with the changes to the bank levy will deter entry or expansion or will result in banks exiting the market.  However, it notes that the full impact of the tax changes may take time to emerge.  The bank levy was targeted at systematically important banks, so smaller banks, including new entrants, were not subject to the levy.  As a result of the introduction of the CTS and the changes to the bank levy, the tax advantage of smaller banks over banks that are subject to the bank levy has been reduced.  However, the six largest retail banks continue to pay higher effective rates of tax than smaller banks.

The CMA has found aspects of the design of the CTS may lead to differential effects across retail banks, which, while not immediately evident now, might impact on competition between banks in the future.  However, while the tax regime continues to favour smaller banks (including new entrants), the overall effect, compared with the pre-2016 position, is that the tax advantages of smaller banks have been reduced as a result of the changes to the bank levy and the introduction of CTS.  Therefore, any effect that these tax advantages had in off-setting the barriers to entry and expansion such banks face are likely to be reduced.

The CMA is seeking comments on the paper by 11 March 2016.

FCA and PRA policy statements confirming consequential changes to notification rules and forms under the Senior Managers Regime

The FCA and PRA have each published a policy statement containing feedback to consultations on proposed technical rule changes relating to the Senior Managers Regime, together with consequential amendments to associated forms.  The policy statements confirm the final policy (in the form of the FCA Handbook and PRA Rulebook instruments) and final versions of the forms.

The policy statements are:

The final rules and forms reflect HM Treasury’s proposal to remove the requirement for firms to report known and suspected breaches of conduct rules, as set out under section 64B(5) of the Financial Services and Markets Act 2000 (FSMA).  This requirement, together with the presumption of responsibility in sections 66B(5) and (6) of FSMA, will no longer enter into force on 7 March 2016.  The relevant rules will be suspended with effect from 7 March 2016 and the intention is that, subject to Parliamentary approval, section 64B(5) of FSMA may be formally repealed and the presumption of responsibility may be replaced with a statutory duty of responsibility, during the course of 2016 under the Bank of England and Financial Services Bill 2015-16.

In PS16/6, the FCA:

  • Summarises feedback from its January 2016 consultation on proposed consequential changes to the Senior Managers Regime (CP16/1) and confirms the final rules and forms.
  • Finalises some technical amendments to Annex 1 to Chapter 1 of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC).  The amendments address how SYSC applies to foreign branches. 

In PS9/16, the PRA:

  • Provides feedback on responses to its January 2016 consultation on strengthening accountability in banking: amendments to notification rules and forms (CP1/16).
  • Sets out the amended definition of the term “significant risk taker” in the Certification Part of the PRA Rulebook, as proposed in its August 2015 occasional consultation paper (CP29/15).

The final rules and revised forms come into force on 7 March 2016.

PRA updates Senior Managers Regime webpage

The PRA has updated its webpage on the senior managers regime. It advises firms that: 

  • If they have submitted their grandfathering notification and have received an automated response confirming receipt of the submission, but have not heard more from the FCA or the PRA, this means that the information is being processed.  Firms will only be contacted if there are questions regarding their submission.
  • If a firm does not successfully transfer current controlled functions under the approved persons regime to senior manager functions, existing approvals for these persons will lapse.
  • The last working day for submitting forms is Friday 4 March 2016.

The webpage also provides information for firms who are having issues submitting their grandfathering notification.   

Bank of England and Financial Services Bill completes Committee Stage in House of Commons

On 23 February 2016, the Bank of England and Financial Services Bill 2015-2016 completed its Committee Stage in the House of Commons.

One of the main changes made to the version presented at the first reading is the introduction of a new clause – Clause 28 in relation to illegal money lending. This clause introduces a new Part 20B into the Financial Services and Markets Act 2000 (FSMA).  The clause gives the FCA the power to collect a levy from consumer credit firms to fund the Illegal Money Lending Team. 

Harriet Baldwin, the Economic Secretary to the Treasury, argues that the cost to consumer credit firms would be “small”, totalling around £4.7million per annum, and that this move would put the system on a sustainable footing.  It is envisaged that the FCA will consult on how the levy will be collected in its annual fees consultation in the Autumn.

In response to this, Rob Marris, the Shadow Financial Secretary declared that Labour welcomed stability of funding, but believed that the costs ought to come from general taxation, because by imposing a levy on the consumer credit firms “the good guys – people who get money from non-loan sharks  [would be] subsidising the bad guys, the illegal money lending operators.”  He further stated that putting the burden on users of consumer credit firms, was a form of hypothecated taxation.

The report stage of this bill has not yet been scheduled.

Government consults on making terms & conditions more accessible

The Government has published a Call for Evidence relating to terms and conditions and consumer protection fining powers.  In this Call for Evidence the government is seeking to gain a better understanding of how terms and conditions can be made more accessible to consumers, so they actually read them.  The publication also sets out proposals for introducing new powers to fine firms where they breach consumer protection and unfair terms rules.

Some of the suggestions within the Call for Evidence include putting key facts upfront within two pages, requiring price and subject matter terms to be made more prominent, grouping specific terms together and stipulating which of these terms are required by law and which are at the discretion of the provider.

The deadline for responses is 25 April 2016.

National Audit Office publish report on financial services mis-selling: regulation and redress

The National Audit Office (NAO) has recently released a report on financial services mis-selling: regulation and redress in relation to mis-selling by authorised firms in the financial services market.  The report considers the roles of the FCA, the Financial Ombudsman Scheme (FOS) and HM Treasury in the management of mis-selling cases, addressing both the administration of redress schemes and the regulatory responses and penalties imposed on firms.

In conclusion, the NAO has stated that the complexity of products, continuing commercial incentives to achieve sales and the difficulties in changing cultures within firms means the risk of mis-selling remains.  It believes that the FCA’s understanding of the cost-effectiveness of different interventions and redress schemes is currently limited, which subsequently makes it harder for the FCA to respond effectively.

The NAO has made some recommendations, which include, the FCA developing a stronger understanding of total costs and benefits of its work, formalising its approach to evaluating redress mechanisms and considering alternative approaches when deciding whether products have been mis-sold.  The NAO has also recommended that the FCA and FOS work together to improve firms’ complaints handling and work with financial services firms to help consumers to access redress without using claims management companies.

FOS publishes technical note on credit broking

The Financial Ombudsman Service (FOS) has recently published a technical note on credit broking on its website.  Credit brokers are companies that help people find loans and may sometimes charge an upfront fee for the service.  FOS explains that it gets complaints from consumers that have been charged fees by one or more credit brokers when they have not actually taken out a loan.

The note sets out FOS’s approach to common complaints.  Items of interest include:

  • FOS often hears from people who have put their details into credit-broking websites.  Some people did not realise they were not applying directly to the lender.  FOS will check that the credit broker clearly informed the consumer whether it was a broker or lender, and whether it gave its legal name so people would know who to contact if they encountered any problems.
  • FOS will check the information provided by the broker with respect to fees.  If the fees were not made clear, FOS will usually tell the broker to refund them – whether or not the broker actually found someone a loan.  If the fees were clear, but someone has not taken a loan, FOS will check the broker gave a refund in line with consumer credit law.
  • Some consumers have informed FOS that several different credit brokers have taken fees from their bank account.  FOS will check whether the broker made it clear that a consumer’s details may be passed on to other companies.  If the broker did not make it clear, FOS might tell them to refund the fees taken by other credit brokers.  If a fee taken by a different credit broker is not actually associated with the original broker, FOS will tell whoever actually took the fee to refund the customer.
  • Many people who usually contact FOS about credit broking have wider financial difficulties and having fees taken unexpectedly can cause further financial problems and charges.  FOS will usually tell the broker to refund any unfair or unauthorised fees and pay compensation for the trouble and upset they have caused.

FOS publishes latest complaints data on individual financial businesses

On 23 February 2016, the Financial Ombudsman Services (FOS) released the latest six-monthly complaints data relating to banks, insurers and other financial businesses. FOS took on a total of 164,347 new cases in the second half of 2015 – a slight decrease of 6% on the previous period.  Payment protection insurance (PPI) made up 56% of new cases referred to FOS, which was on par when compared with the previous period.

The number of complaints about financial products other than PPI decreased by 10%.  This reflected a downward trend in areas such as packaged bank accounts and mortgages.  The average uphold rate (where the Ombudsman found in the consumer’s favour) during this period was 53.

Chief Ombudsman Caroline Wayman said: “the signs are that complaints are now broadly levelling off as we move into a more even keel in the coming year.  Complaints about PPI still continue to make up over half of our workload…we’re still seeing the volume of cases at a much higher level than many people expected.

“There are many factors that can influence the complaints we see, from fluctuations in the stock market to extreme weather conditions – and more people knowing their rights when things go wrong”. 

Bank of England publishes Statistical Release entitled Money and Credit: January 2016.

On 29 February 2016, the Bank of England (BoE) published a statistical release on Money and Credit in January 2016. The publication contains data on broad money and credit, lending to individuals and lending to businesses.

In summary the statistics for lending to individuals are as follows:

  • Total lending to individuals increased by £5.3 billion in January, compared to the average monthly increase of £4.7 billion over the previous six months.
  • Lending on secured dwellings increased by £3.7 billion in January in comparison to £3.2 billion the previous month.
  • The number of loan approvals for house purchases increased by 4,060 to a figure of 74,851 in January 2016, from the previous month.
  • Consumer credit increased by £1.6 billion compared to the average monthly increase of £1.3 billion over the previous six months.

Complaints Commissioner urges FCA to consider requiring firms to indicate when customers will not be covered by FOS and FSCS

On 25 February 2016, the Complaints Commissioner, Andy Townsend, published a final decision urging the FCA to consider if firms should be required to provide a clear indication to consumers of the circumstances in which they will not be covered by the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS).

The complaint arose from the fact that firms authorised by the FCA are not required to inform consumers that the activities they carry out are not all regulated activities which fall under the FCA’s remit.  As such, in the event that something goes wrong with an unregulated product, the consumer has no recourse to compensation through FOS or FSCS, and is left only with the expensive option of going through the courts.

The Commissioner urged the FCA to assess its efficacy of its rules in light of its consumer protection objective, adding that an understanding of what is not covered is arguably of greater importance to consumers given the risks and severe consequences of something going wrong.

HM Treasury/EY report finds Britain to be the world’s leading FinTech centre

According to a report produced for the HM Treasury last week, the UK FinTech sector generated more than £6bn in revenue in 2015 and employed a workforce of some 61,000 (second only to California’s 74,000).  More people work in FinTech in the UK than in New York, Singapore, Hong Kong and Australia combined.

The report ranked Britain first amongst the world’s seven leading FinTech hubs (with California and New York following closely behind) having compared these markets against four key criteria: talent, capital, policy and demand.

Key takeaways from the report included:

  • California dominates FinTech investment with approximately £3.6bn invested in 2015 despite the UK’s robust access to early-stage capital.
  • The UK has a particularly good policy environment for FinTech, with the most supportive regulatory regime.
  • There is strong competition emerging from FinTech hubs that are implementing progressive initiatives and specialising in disruptive technologies.

The report attributes Britain’s number one ranking to a deep talent pool, the strong availability for capital investment in FinTech start-ups and, in a bid to ensure that the UK cements its position as the world’s leading FinTech system, the report makes a number of recommendations which have so far been welcomed by the government.

Recommendations include:

  • Creation of a FinTech “delivery body” to drive implementation of initiatives.
  • Building FinTech “bridges” to support international expansion.
  • Establishing regional Centres of Excellence in the UK to create an active collaboration network.

Annual contactless spending trebles to £7.75 billion

The latest figures from the UK Cards Association show that spending on contactless cards rose more than three-fold in 2015 to reach £7.75 billion.

There were 1.05 billion contactless card purchases in 2015 in the UK (up 228% on the previous year) and 140 million contactless transactions in December – the equivalent to 52 every second.

Graham Peacop, Chief Executive of the UK Cards Association, said: “Whether it’s to stock up in the supermarket, travel to work, or buy your lunch, contactless is a fast, easy and secure way to make payments. With a contactless payment, you no longer have to fumble around for the loose change in your purse or wallet. You can simply pay using a contactless card or with your mobile phone.”

Recent figures from Transport for London (TfL) showed that more than one million journeys are now made on the network every day using contactless.

BBA releases January 2016 figures for the high street banks

The British Bankers Association (BBA) has published its January 2016 figures for the high street banks.  

Key statistics include:

  • Gross mortgage borrowing was up 38% on January 2015, at £13.6bn - the highest since mid-2008.
  • Mortgage approvals were up 33% on January 2015, with remortgaging up 42% and house purchase up 27%.
  • Borrowing by non-financial companies increased in January, after being in decline in December.
  • Credit card use continues to rise, with 200 million purchases made in January totalling £11.4bn.

Commenting on activity at the start of the year, Chief Economist at the BBA, said:

“The start of the year has seen a significant rise in mortgage borrowing. It seems that this has been driven, in part, by borrowers looking to get ahead of the increases in stamp duty for buy-to-let and second home buyers scheduled to come into effect in April."

FLA launches project to assist members dealing with vulnerable customers

The Finance & Leasing Association (FLA) has launched a project to help its members identify and support vulnerable customers. 

The project aims to create an information hub to capture and share good practice across the industry, including topics like Powers of Attorney and data protection.

Fiona Hoyle, Head of Consumer and Mortgage Finance at the FLA, said:

“Sharing best practice will spread the knowledge of successful ways of identifying and serving vulnerable customers, and will support our members as they develop their own programmes. The project will also allow FLA members access to case studies covering a broad range of subjects, including how the Financial Ombudsman Service approaches vulnerability.”

For more information contact

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