Regulation round-up March 2018

Regulation round-up is our monthly email to all regulated firms, updating you on the latest news that affects your sector.

March 2018 Quick Links


Introduction: Jonathan Davidson, Director of Supervision - Retail and Authorisations

Consumer credit regulation

We took over responsibility for regulating consumer credit 4 years ago, in April 2014. We are responsible for over 30,000 consumer credit firms, a market that continues to grow and to innovate. We – and firms across the sector – have delivered major improvements in that time.

We introduced robust authorisation and supervision to drive up standards across the industry, and particularly in areas where consumers were being very poorly treated – damaging the reputation of the whole sector. 

Where we see harm to consumers, we act to address the issues. Our approach is to do this without restricting consumers’ access or freedom to choose products that work well for them. Last month, we brought in new rules on credit cards that will save billions of pounds for millions of customers. This morning we published an update on progress of our work on motor finance. Our update sets out how the market is operating today. We have been clear on which areas are not a concern and which areas require further attention.

This afternoon (15 March 2018), I’m looking forward to speaking to credit firms at the Credit Summit conference. I’m keen to discuss how firms can think strategically about serving customers better, and make themselves and their industry more sustainable in the process.  My speech will be available for you to read on our website, fca.org.uk.


Hot topics

Transforming culture in financial services

We have published a discussion paper on transforming culture in financial services. The paper gathers opinions from thought leaders, including financial services leaders, academics and change practitioners. It is intended to stimulate further debate on what else needs to be done to drive culture change.

Culture in financial services is widely accepted as a key root cause of the major conduct failings that occurred within the industry in recent history. Given its impact, firms’ culture is a priority for the FCA. Firms should foster cultures which support the spirit of regulation in stopping harm to consumers and markets.

We recognise that each firm’s culture is different and we don’t prescribe what it should be. However, we have introduced minimum standards of behaviour through our Conduct Rules and regulatory interventions. The introduction of a Senior Managers and Certification Regime (SM&CR) is an example of this work. It aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. The SM&CR is already in place in the banking sector but we’re extending it to cover insurers and solo-regulated firms.  

We are not requesting formal feedback on this paper. However, we want those with an interest in financial services to think about the issues in the paper and take part in the debate about what constitutes a healthy culture and how to promote it.

EU Withdrawal

On 9 March, we launched a short online survey to EEA firms and fund managers passporting into the UK. The survey will identify firms for which a temporary permission may be relevant and help to inform communications with them.

Last December, the UK Government announced that if necessary it will legislate to provide the UK’s regulators with powers to grant EEA firms and funds passporting into the UK a temporary permission. EEA firms and funds which receive a temporary permission would be able to enter into new contracts and fulfil existing contracts with UK customers for a period of time after exit day, while seeking full authorisation in the UK.   

We set out initial details of how we intend to use the scheme on 20 December. The survey will contribute to the overall design of the scheme. It will also allow us to communicate directly with interested firms about the scheme and authorisation process.

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Banks and Building Societies

Changes to the SONIA benchmark on 23 April 2018

The date and time of the publication of the SONIA benchmark is changing on Monday 23 April 2018. This was confirmed by the Bank of England in a News Release of 16 October 2017.

Friday 20 April 2018 will be the final day for which SONIA will be calculated and published by the WMBA using the current methodology. For the rate relating to Monday 23 April, SONIA will be calculated by the Bank using the reformed methodology and published at 9am on Tuesday 24 April; no data will be published on Monday 23 April.

More information about the SONIA reforms is available in the SONIA Key features and policies document on the Bank’s website. 

Web page update: Mortgage Lending Statistics (MLAR): Q4 2017 data

We have, alongside the Bank of England, published the latest Mortgage Lenders and Administrators Statistics covering the period up to the end of Q4 2017. We produce the joint Statistics on Mortgage Lending to maintain a complete picture of the regulated mortgage sector.

Retail banking: product governance review 

Our supervision of small and medium retail banks has found some good practice in product governance.  This can help banks improve the way they assess and incorporate customer needs at every stage, from product design to post-sale service and product removal.

We looked at how firms managed their products over time and what frameworks they have in place to identify and mitigate conduct risks.  We found that to achieve good customer outcomes, it is important firms consider that customer needs change over time.  So firms must ensure they consider the potential risks to customers, and ways to mitigate these, throughout a product’s lifecycle.

We give a more detailed update for firms on our website.

Payment Accounts Regulations

The Payment Accounts Regulations require the FCA to gather certain data (on basic bank accounts and switching) from payment service providers (PSPs) that offer payment accounts. This covers the period between 18 September 2016 and 28 February 2018 and must be reported to us by 30 April 2018.

We will shortly contact PSPs that, based on their permissions, could offer payment accounts, with a form for them to provide the information to us.

PSPs must determine themselves whether they provide payment accounts. Our website has guidance on the definition of a payment account.

If your firm offers payment accounts and we have not contacted you, or you have any other queries, please email [email protected].

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Mortgage Advisers and Lenders

Dear CEO: Second charge lenders

We recently undertook a review of how second charge lenders have adapted to the responsible lending requirements contained in Chapter 11 of the Mortgage Conduct of Business (MCOB) sourcebook. Our findings led us to issue a Dear CEO letter to firms we believe are active in this market, based on the information provided to us in regulatory returns. This letter sets out what we found and action firms should take.

Any firm that hasn’t received this letter and considers themselves to either be active in the second charge lending market or plan to be should review the letter and take appropriate action. We are aware that a number of lenders have second charge loan books but are not actively lending. They may also find this letter of interest.

FCA Live & Local regional programme continues

We are continuing our series of interactive Q&A roundtable discussions with FCA and industry experts.

Upcoming sessions include:

  • 22 March in Glasgow with UK Finance
  • 10 May in Newcastle with the Association of Mortgage Intermediaries
  • a newly added session in Belfast on 6 June

Dates, locations and registration details are on the Live & Local webpage.

To be notified of future Live & Local regional events, sign up to email alerts using our Live & Local updates web form.

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General Insurance Intermediaries and Insurers

Update on Alpha Insurance and CBL Insurance Europe

Alpha Insurance A/S ('Alpha') is an insurance firm authorised and regulated by the Danish Financial Supervisory Authority. CBL Insurance Europe dac (CBLIE) is an insurance firm authorised and regulated by the Central Bank of Ireland. They both operate in the UK on a freedom of services basis.

The Danish FSA informed the FCA on 4 March 2018 that Alpha has been placed into solvent liquidation. It has been instructed to cease writing new business with immediate effect. Alpha continues to otherwise operate normally and existing policies continue to remain in force. Any existing Alpha Insurance policyholders who have concerns about their policy should contact the firm directly, or their broker (if the policy was bought through a broker).  

The Central Bank of Ireland informed the FCA that it has made an application on 2 March 2018 to the High Court to have a provisional administrator appointed to CBLIE, to protect its policyholders. Existing policies continue to remain in force. The Central Bank of Ireland is recommending that policyholders contact the firm directly, or their broker (if the policy was bought through a broker) to arrange alternative cover as soon as possible.

Brokers who have clients insured with these firms should review whether their cover is still appropriate in the circumstances.

FCA Live & Local regional programme continues

We have added a presentation for retail insurers and intermediaries on 14 May at our London office. Topics include governance, cyber resilience, fair treatment of customers and regulatory changes.                       

In the next few months, we are continuing our well-received series of interactive workshops on how firms can identify and prevent harm with sessions in Bournemouth, Gloucestershire and Norwich. Our next interactive Q&A roundtable discussion is taking place in Glasgow on 3 May where we will be joined by the Association of Professional Compliance Consultants (APCC) on the panel.

Dates, locations and registration details for upcoming events are on the Live & Local webpage.

To be notified of future Live & Local regional events, sign up to email alerts using our Live & Local updates web form.

EU withdrawal survey

In December 2017, the UK Government announced that if necessary it will legislate to provide a temporary permission scheme for EEA firms and funds passporting into the UK. EEA firms and funds which receive a temporary permission would be able to enter into new business and fulfil existing contracts with UK customers for a period of time after exit day, while seeking full authorisation in the UK.

Firms that would be solo-regulated in the UK by the FCA would need to notify us before the UK exits the European Union of their desire to benefit from the regime. We are asking firms to complete a short survey to the overall design of the scheme as well as enabling us to communicate directly with interested firms about the scheme and authorisation process.

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Life insurance & Pension Providers

Webinar: effective competition in non-workplace pensions

We are hosting a webinar on non-workplace pensions on 22 March at 14.30-15.30. It replaces the event originally planned for 2 March.

It follows our discussion paper on this topic, launched in February, which aims to understand whether competition is working well in the market for non-workplace pensions and whether there is a need to go further to protect consumers.

The webinar will feature Brian Corr (Head of Department, Retail Competition) and Chris Curry of the Pensions Policy Institute, and will include an opportunity to ask questions of the speakers.

You can sign up for the webinar. If you can’t make the webinar, we welcome written responses to the discussion paper before the 27 April.

Events: pensions strategy seminars in Edinburgh and Manchester

As part of our efforts to make sure the pensions sector works well for consumers and workplace pension savers, The FCA and The Pensions Regulator (TPR) are working together to develop a joint pensions strategy. This will look at how we will work together, and with stakeholders, in the coming years.

We want to offer all interested parties the opportunity to contribute to our thinking as we develop our joint strategy.  So, we will publish an accompanying document, seeking feedback on our description of the pensions landscape, our respective regulatory remits and our key areas of focus. 

We will also hold a series of events for stakeholders this Spring. We still have places available in Edinburgh on 28 March and Manchester on 12 April.

For more information and to register please visit the event website.

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Wealth Managers & Private Banks

Changes to the SONIA benchmark on 23 April 2018

The date and time of the publication of the SONIA benchmark is changing on Monday 23 April 2018. This was confirmed by the Bank of England in a News Release of 16 October 2017.

Friday 20 April 2018 will be the final day for which SONIA will be calculated and published by the WMBA using the current methodology. For the rate relating to Monday 23 April, SONIA will be calculated by the Bank using the reformed methodology and published at 9am on Tuesday 24 April; no data will be published on Monday 23 April.

More information about the SONIA reforms is available in the SONIA Key features and policies document on the Bank’s website.

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Investment Managers & Stockbrokers

Application of the Market Abuse Regulation to Emission Allowance Market Participants

The date and time of the publication of the SONIA benchmark is changing on Monday 23 April 2018. This was confirmed by the Bank of England in a News Release of 16 October 2017.

Friday 20 April 2018 will be the final day for which SONIA will be calculated and published by the WMBA using the current methodology. For the rate relating to Monday 23 April, SONIA will be calculated by the Bank using the reformed methodology and published at 9am on Tuesday 24 April; no data will be published on Monday 23 April.

More information about the SONIA reforms is available in the SONIA Key features and policies document on the Bank’s website.

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Consumer Credit

Dear CEO: Second charge lenders

We recently undertook a review of how second charge lenders have adapted to the responsible lending requirements contained in Chapter 11 of the Mortgage Conduct of Business (MCOB) sourcebook. Our findings led us to issue a Dear CEO letter to firms we believe are active in this market, based on the information provided to us in regulatory returns. This letter sets out what we found and action firms should take.

Any firm that hasn’t received this letter and considers themselves to either be active in the second charge lending market or plan to be should review the letter and take appropriate action. We are aware that a number of lenders have second charge loan books but are not actively lending. They may also find this letter of interest.

Credit Cards – Rules and Guidance

We are introducing new rules for credit card firms to reduce expensive long-term borrowing. These rules are expected to save billions of pounds for millions of customers – we expect customer savings to peak at between £310m and £1.3bn a year in lower interest charges. They will come into effect in 6 months’ time.

The new rules follow our comprehensive 2 year study of the credit card market, in which we analysed 34 million credit card customers’ accounts over 5 years and surveyed nearly 40,000 consumers.

Motor Finance

We have published an update on our review of motor finance. It sets out our findings so far and the areas of concern we will focus on for the remainder of the review. We will complete the review and publish proposals for action on remaining areas of concern in September.

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Credit Unions

Northern Ireland Credit Unions and Industrial and Provident Societies Transfer

From 6 April, the FCA will be the registering authority for Northern Ireland Credit Unions and Industrial and Provident Societies (IPSs). Credit Unions and IPSs are currently registered by the Northern Ireland Department for Economy (DfE), though Credit Unions are already regulated by us (and the PRA).

Fees for credit unions will not change as a result of the transfer. IPSs will be charged according to our existing fee structure. Northern Ireland credit unions and IPSs do not need to take any action immediately. From 6 April you will need to send to us anything you would have previously sent to DfE eg applications to change your rules. Visit the FCA website for more information.

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News and Publications

FCA and Practitioner Panel joint survey reminder

The FCA and Practitioner Panel Survey of regulated firms will close soon. Thank you to those selected who have taken part. If you received a letter inviting you to take part but not the follow-up email with instructions from research agency Kantar Public, please check your junk mail folder. If you wish to reply, please complete the online questionnaire by 19 March, to make sure your views are taken into account. We will report our findings in the summer. 

FCA Statement: Proposal to introduce a public register

Following feedback on our proposals for the Financial Services Register, we plan to consult on how we can make information about a wider group of individuals publicly available.

In February, we announced our intention to consult on how we should make this information available.

We will ask for feedback on our proposals when we publish our consultation paper.

We will respond to all other feedback we received about extending SM&CR in a Policy Statement in the summer.

PSD2: Guidance and requirements on operational and security risk

We are consulting on proposals under the Payment Services Regulations 2017, relating to operational and security risk and minor amendments to our Approach Document. 

We are consulting on

Operational and security risk management:

We propose to require payment service providers (PSPs) to comply with EBA Guidelines on operational and security risks under PSD2 and to report to us at least annually. We are also proposing new Approach Document Guidance.

Consequential changes to our Approach Document:

Our proposals mirror legal changes to the use of agents by registered account information service providers and the way insurance safeguarding policy proceeds need to be treated.

This affects

All PSPs should review this consultation.

Next steps

The consultation will last 6 weeks. You can respond to it by following the instructions in the consultation document.

CRR article 493(4-7) permission - Transitional arrangement for exemption from certain large exposures limits

The Capital Requirements Regulation (CRR) has been updated by article 1(2) of Regulation (EU) 2017/2395 which incorporates the new paragraphs 4 to 7 in article 493 of the CRR. It now provides for a transitional arrangement for the exemption from large exposure limits available to exposures to certain public sector debt of Member States denominated in the domestic currencies of any Member States. The transitional period will be 3 years starting from 1 January 2018 for exposures of this type incurred on or after 12 December 2017.

IFPRU investment firms may apply for a permission under CRR article 493(4-7). Subject to our discretion, this permission would allow IFPRU investment firms to incur any of the exposures provided for in the new paragraph 5 of CRR article 493 meeting the conditions set out in paragraph 6, up to the following limits:

100% of the institution's Tier 1 capital until 31 December 2018

75% of the institution's Tier 1 capital until 31 December 2019

50% of the institution's Tier 1 capital until 31 December 2020

See how to apply for a capital requirements permission.

For more information see Article 1(2) of Regulation (EU) 2017/2395.

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