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Retail Finance round-up - 4 August 2016

Retail Finance round-up - 4 August 2016

  • United Kingdom
  • Financial institutions - Retail finance

04-08-2016

A key development this week is the FCA’s further consultation on PPI.  In its consultation, the FCA proposes a package of rules and guidance which include imposing a deadline for making new PPI complaints and launching a consumer communications campaign to raise awareness of the PPI issue and the deadline.  The FCA also intends to make rules and guidance on handling of PPI complaints in light of the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd.  This consultation will close on 11 October 2016.

Another key development this week is the FCA’s press release on on the responsibilities of investment advisers and authorised firms when accepting business from unauthorised introducers/lead generators and/or other authorised firms.  The press release explains some of the FCA’s specific areas of concerns, the warning signs authorised firms should look out for and lists the steps that authorised firms should take as a result of the press release.  Also of interest is the FCA’s policy statement on Financial Crime Reporting.  The policy statement sets out the final rules and timelines for the preparation of a financial crime return (REP-CRIM). 

In other news, the Competition and Markets Authority has announced it will publish its final report in its retail banking market investigation on 9 August 2016 and the Money Advice Service has announced that the first Standard Financial Statement will go live on 1 March 2017.  The Standard Financial Statement will replace the current spending guidelines currently in use, such as the Common Financial Statement.

Regulatory updates

Government updates, legislation and case law

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FCA update on PPI

Following the FCA’s November 2015 consultation paper ‘Rules and guidance on payment protection insurance’ (CP15/39), which set out the FCA’s proposed rules and guidance on payment protection insurance (PPI) mis-selling complaints, the FCA has now published CP16/20 containing the FCA’s feedback statement on CP15/39 and a further consultation on changes to the proposed rules and guidance following the feedback received on CP15/39.

The FCA’s proposed package of rules and guidance includes imposing a deadline for making new PPI complaints and launching a consumer communications campaign to raise awareness of the PPI issue and the deadline. The FCA also intends to make rules and guidance on handling of PPI complaints in light of the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd (Plevin).

The newly proposed amendments, set out in CP16/20, relate in particular to three key aspects of the rules and guidance: 

  • to include profit share in the FCA’s approach to the assessment of fairness and redress
  • to allow previous rebates to a consumer when they cancelled their PPI policy to be partly reflected in (and so reduce) any redress due
  • to clarify how firms should assess fairness and redress where commission or profit share rates vary during the life of the PPI policy.

The consultation will close on 11 October 2016.

FCA speech on innovation in RegTech  

On 20 July 2016, Christopher Woolard, the Director of Strategy and Competition at the FCA, delivered a speech at the London FinTech Week 2016 focusing on innovation in RegTech.

Key points raised by Mr Woolard include:

  • the FCA’s work on innovation being integral to its duty to promote competition in the interests of consumers
  • the launch of Project Innovate in October 2014 having provided support to nearly 300 firms who presented innovative ideas that were in the interests of consumers
  • the FCA’s particular interest in working with those involved in developing technologies to improve regulatory reporting and data sharing - so called 'RegTech'.

Mr Woolard also highlighted another area of priority to the FCA – anti-money laundering (AML). He  encouraged the industry to establish innovation methods of addressing concerns regarding AML, and confirmed that the FCA is currently at the early stage of scoping some work to see what technological solutions might be exploited for this purpose.

Lastly, Mr Woolard discussed the global scale of FinTech and RegTech. He stated that the FCA is working to build closer international cooperation to ensure that UK firms can grow to a global scale and that the FCA remains committed to promoting competition and fostering world-class innovation.

FCA publishes policy statement on Financial Crime Reporting 

On 9 July 2016, the FCA published its Policy Statement (PS 16/19) on Financial Crime Reporting, setting out the feedback received by the FCA on its proposal, which was originally consulted on in December 2015. The document sets out the final rules and timelines for the preparation of a financial crime return (REP-CRIM).

The rules will apply to all firms with full permissions carrying out consumer credit activities (unless revenue is lower than £5 million). Limited permission consumer credit firms are not subject to these reporting requirements. Regulated lenders will be within the scope of the return if they have a revenue of £5 million or above. The FCA has decided to exclude general insurers and general insurance intermediaries at this stage.

The FCA expects firms to start reporting from the end of 2016 and within 60 days of their reporting year end. Firms may submit on a group or single regulated entity basis where all companies share a common financial year end.

FCA issues press release on investment advisers’ and authorised firms’ responsibilities when accepting business from unauthorised introducers or lead generators

The FCA has published a press release on the responsibilities of investment advisers and authorised firms when accepting business from unauthorised introducers/lead generators and/or other authorised firms (introducer).  The press release explains that an authorised firm which accepts business from an introducer must meet its regulatory requirements.  If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible for this and be subject to regulatory action.

The FCA is concerned at the increase it has seen in cases in which the introducer has an appropriate influence on how the authorised firm carries out its business, in particular where the introducer influences the final investment choice.  The FCA also has concerns where the authorised firm delegates regulated activities, for example by outsourcing their advice process to unauthorised entities or to other authorised firms that do not have the relevant permissions, or are not their appointed representatives.

Many authorised firms the FCA has visited do not have adequate input or control over the advice they are ultimately responsible for giving to customers.  The FCA explains that this has been particularly evident in relation to advice on switching and transfer/conversion of pension benefits.

The FCA has explained some specific areas of concern in its press release and has also provided guidance on the warning signs an authorised firm should look out for if it is accepting customer introductions from introducers.  For example, does the introducer influence the final investment choice or directly benefit from the resulting investment?

The FCA has listed the steps that authorised firms should take as a result of the press release.  In summary authorised firms should:

  • carry out robust due diligence on the introducers they transact with
  • have in place a robust vetting procedure to ensure the introductions have been sourced legitimately
  • regularly review and ensure their systems and controls are adequate to demonstrate they have full and complete ownership of the advice they are providing
  • only recommend products they understand fully
  • provide independent advice to customers introduced
  • don’t allow another entity – regulated or not – to use their Firm Reference Number on their behalf unless they are satisfied they are doing so appropriately
  • only delegate the performance of regulated activities to other authorised firms that have the required permissions or who are their appointed representatives, with appropriate monitoring.

FCA publishes its Handbook Notice 35

The FCA has published its Handbook Notice 35.  The notice sets out changes made to the FCA Handbook under instruments made by the FCA Board on 29 June 2016 and 28 July 2016.

Some of the key instruments are:

  • Handbook Administration (No.42) Instrument 2016.  This instrument makes minor administrative changes to various modules of the Handbook to correct or clarify existing provisions.  The FCA has not consulted on these changes.  The instrument comes into force on 1 August 2016.
  • Mortgage Credit Directive (Amendment No.3) Instrument 2016.  This instrument makes changes to signpost how rules implementing the Mortgage Credit Directive 2014 apply to passporting firms.  The FCA consulted on these changes in its March 2016 quarterly consultation.  Feedback to this consultation is published in chapter 3 of the Handbook Notice.  The instrument comes into force on 1 August 2016.
  • Supervision Manual (Financial Crime Report) Instrument 2016.  This instrument makes changes to chapter 16 of the Supervision manual (SUP 15) to enable the FCA to obtain regular, accurate and consistent data to identify financial crime risk.  The FCA published the final text of this instrument in a policy statement also published on 29 July 2016.  The instrument comes into force on 31 December 2016.

PRA publishes its Regulatory Digest for July 2016

The PRA has published its Regulatory Digest for July 2016. The Regulatory Digest summarises the key regulatory news and publications for July 2016, including (among others):

  • the implementation of ring-fencing: prudential requirements, intragroup arrangements and use of financial market infrastructures (PS20/16)
  • the July 2016 Financial Stability Report.

CMA confirms when it will publish its final report in its retail banking market investigation

The Competition and Markets Authority (CMA) has confirmed that it will publish a summary of its final report, a press release and an overview of its findings following its retail banking market investigation at 7:00 am on 9 August 2016.  Final decisions on the Northern Ireland Order and the review of the SME undertakings will also be published at 7:00 am.  The final report will be published during the course of the day on 9 August 2016.

HM Treasury publishes guidance on Women in Finance Charter

Following the HM Treasury’s launch of the Women in Finance Charter (the Charter), the HM Treasury has published high level guidance in an attempt to encourage more firms to commit to it.

The HM Treasury has confirmed that the Charter commitments are aimed at all financial services firms, as defined by the FCA, with significant operations in the UK. It is primarily aimed at financial services firms with over 250 employees but it welcomes firms of any size to sign up.

The guidance sets out the steps that a firm ought to take once signed up to the Charter. The recommended steps are:

  • senior executives will be accountable for gender diversity
  • senior executives pay linked to delivery against gender diversity targets
  • internal targets for gender diversity
  • reporting gender diversity targets
  • Women in Finance Charter annual review.

FOS publishes new issue of Ombudsman News

On 26 July 2016, the Financial Ombudsman Service (FOS) published its Issue 134 of the Ombudsman News.

The publication includes a number of case studies of complaints referred to the FOS, including complaints relating to bank accounts, as well as a breakdown of the FOS’ statistics for the first financial year quarter, which in summary show that:

  • 81,709 new complaints were received by the FOS during April, May and June 2016
  • packaged bank accounts and current accounts continued to be the most complained about products after PPI
  • the overall proportion of complaints upheld in favour of consumers was 48%.

MAS announces Standard Financial Statement launch on 1 March 2017

The Money Advice Service (MAS) has announced that the first Standard Financial Statement (SFS) will go live on 1 March 2017, marking the beginning of a transition period during which creditors and debt advice providers will move to using the new format. 

The SFS provides a single set of income and expenditure categories with spending guidelines which will be used across the sector, in a single format.  A savings category will also be included to help people build financial resilience while repaying their debts. 

Currently there are different formats and spending guidelines in use, including the Common Financial Statement which the SFS will replace.  The SFS will bring greater consistency in the way affordability assessments are recorded and considered when considering repayments.  Debt advisers and creditors will also be able to pass people’s details more smoothly between different agencies, reducing the number of times affordability assessments are completed and making the journey through debt advice more straightforward. 

The development of the SFS has been co-ordinated by the MAS which has brought the debt sector together to form the SFS governance group.  This group represents key organisations including major advice providers, creditors, trade associations and insolvency agencies.  MAS will continue to work with the governance group over the coming months to monitor the roll-out of the tool and to extend the reach of the programme beyond the financial services sector. 

MAS has also published a factsheet and a dedicated website for more information on the SFS.

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