Regulation round-up October 2013

Information for all firms

Consumer Credit

At the start of the month the FCA set out its plans for the regulation of Consumer Credit from April of next year.

While the media has focused on the anticipated changes for regulating payday lending, the paper covers much more. It explains how we are proposing to regulate firms or individuals who offer credit cards, personal loans, selling goods or services on credit offering goods for hire, or providing debt counselling or debt adjusting services to consumers. The consultation period lasts until 3 December 2013.

Misleading investors and compliance failings

We censured Catalyst Investment Group Limited for misleading investors in their promotion of bonds offered by ARM Asset Backed Securities SA, based in Luxembourg. But for the fact that they are in default, Catalyst would have been fined £450,000.

Catalyst offered the bonds to investment intermediaries and independent financial advisers in the UK, who in turn promoted and sold them to retail investors.  

Despite knowing that ARM’s application for a licence from the Luxembourg regulator (the CSSF) to issue the bonds was unresolved, Catalyst continued to accept funds from investors without disclosing ARM’s position, or the risk that ARM could be liquidated if its licence application failed. Alison Moran, Catalyst’s former compliance officer, has been fined £20,000 for her failure to ensure that information was communicated to investors. We have also decided to take action against Timothy Roberts (the CEO) and Andrew Wilkins (a former director), who have referred their cases to the Upper Tribunal.

Enforcement developments and emerging issues

Tracey McDermott, Director of Enforcement and Financial Crime, gave the keynote address at this month’s NERA Economic Consulting seminar. Tracey underlined our on-going commitment to credible deterrence, and referred to a number of recent Enforcement cases, including the £138 million fine of JP Morgan and £14 million fine of ICAP, as indicative of the need to effect a change in culture within firms.

Tracey noted that “firms must grasp the nettle and embed cultural values that champion positive behaviour and make clear that there is no room for misconduct”, but warned that, “unless we see an extended period of firms walking the walk as well as talking the talk, trust will not be regained, and we will all – industry, regulators and most importantly consumers – be worse off as a result.”     

FCA publishes data on complaints and redress for the first half of 2013

Consumer complaints reported by financial services firms fell by 500,000 between the second half of 2012 and the first half of 2013. Our data shows 2.9million complaints were made in the first half of 2013, compared to 3.4million consumer complaints reported by firms in the previous six months.

We found 51% of the complaints reported in the first half of 2013 were upheld, with £2.55 billion of redress paid to consumers. 92% of the complaints reported in the first half of 2013 were closed in eight weeks, the highest percentage since this data was first published in 2006.

PS13/9: Publishing information about enforcement warning notices

We have published a Policy Statement which confirms how we will use our new power to publicise warning notices by publishing information about proposed enforcement action. Previously, we could only publish information about enforcement proceedings at a later stage in the enforcement process, once we had decided to take action.

Following a period of consultation, we said that information would be made public through a warning notice statement that will usually name the firm under investigation and, in certain circumstances, name an individual.

Current thematic work on money laundering and bribery and corruption risks

As announced at our Financial Crime Conference in June 2013, we are currently undertaking a piece of follow up thematic work to assess anti-money laundering controls in smaller banks and anti-bribery and corruption controls in smaller commercial insurance brokers.

As part of our remit to protect consumers and enhance the integrity of the market, firms must put in place systems and controls to prevent the risk that they could be used to further financial crime; including money laundering and bribery and corruption. This means firms have to identify and assess the extent to which they are exposed to these risks and put in place adequate controls in order to mitigate them. For further information, please refer to our Financial Crime: a guide for firms.


Our response to the Parliamentary Commission on Banking Standards (PCBS)

The PCBS has set out a new vision for the UK banking sector.  We welcome its final report and we have set out our response. Our response sets out our initial views on the recommendations directed at the FCA, and to the Government’s response to the report. We intend to take forward most of the recommendations that relate to us.

Treating Customers Fairly

We fined Clydesdale Bank £8.9 million for failing to inform its customers clearly of their rights after the bank miscalculated the repayments on over 42,500 mortgages, leading to shortfalls in approximately 22,000 accounts because customers made repayments that were insufficient to repay their mortgages by the end of the agreed terms. Letters the bank sent to customers suggested that they had no alternative but to bring their repayments up to date.

Many customers, however, could have rejected demands to repay the shortfalls caused by Clydesdale’s calculation errors. By prioritising repayment, Clydesdale wrongly sought to balance its own commercial interests against the requirement to treat customers fairly.  Clydesdale has agreed to compensate all those who underpaid on their mortgages as a result and write to other affected customers.

Financial Advisers

FG13/8 - A guide for Self-Invested Personal Pensions (SIPP) operators

When the 2012 SIPP operator thematic report was published, 23 October 2012, we proposed updated guidance which relates to the following FCA Handbook rule(s):

  • Conduct of Business sourcebook (COBS) 3.2.3R (2);
  • Supervision manual (SUP) chapter 3.10; and
  • Client Assets sourcebook (CASS) 6 (where relevant) and CASS 7.

This guidance has now been finalised. No substantive changes were made to the guidance following the consultation period. 

Implementation of capital requirements for personal investment firms (PIFs) deferred

The capital requirements for PIFs, which were published by the Financial Services Authority (FSA), are being deferred for two years and will now come into force on 31 December 2015. Recent developments have led us to question whether the approach in the new rules remains the most appropriate. In particular, many firms are still implementing changes to their business models as a result of the Retail Distribution Review and the European Banking Authority is undertaking work (the Capital Requirements Directive) for non-PIFs, which will be relevant.

Mortgage Brokers

Mortgage Market Review (MMR) - readiness tracking survey findings – phase 1

In May we asked around 5400 firms to complete an outline survey to help us assess how ready firms were to implement the MMR. We have now published the full findings from that survey.

What are firms telling us?

  • Two thirds are on track; one third are not.
  • The one third can get back on track by drawing up an action plan.  We will help them do this.
  • Firms liked the readiness survey and found it a useful educational tool.

Mortgage Market Review (MMR) - readiness tracking survey – phase 2

In December we will issue our second (and last) MMR readiness tracking survey.  We will ask you to state your general readiness and where any final clarification is required from the FCA.  Please check your compliance contact email address is up to date to ensure you receive the survey:

Insurers/Insurance intermediaries

TR13/8 - The governance of unit-linked funds

We have published a report which summarises the findings of our thematic review of the governance of unit-linked funds. We wanted to ensure firms offering unit-linked funds were meeting our requirements and consumers were protected.

We found no material issues evident throughout our sample of firms that could have posed a serious threat to customers’ investments. So we do not believe there is any significant widespread, systemic failings in the sector. We did, however, find some specific problems in individual firms, which – if left unchecked – could have led to customers being disadvantaged.

Outsourcing claim activities to private investigators

We have published a factsheet which will help insurers understand whether they have appropriate controls, oversight and due diligence procedures when using external private investigators. It explains our expectations of insurers when using private investigators and the actions we are taking to address potential risks to consumers.

Notice of Undertaking - esure Insurance Limited

We have published a Notice of Undertaking from esure Insurance Limited, who in response to our concerns over fairness and clarity, have agreed to change two cancellation terms of the terms and conditions in its home insurance and car insurance policies.

Investment Managers and Stockbrokers (Retail and Wholesale)

Asset Management Conference, 30th October

Our Asset Management Conference will be at the Excel Exhibition & Convention Centre on 30th October. We will give an overview of our asset management strategy and details of our approach to regulating the sector. It will give you an insight into the key pieces of work we will be undertaking over the next six months and highlight the key risks that we will address.  

Definition of platform services

We have published feedback to chapter four of our recent QCP (CP13/3) where we consulted on a correction to the definition of ‘platform service’. We had made a correction to our definition of ‘platform service’ in our paper PS13/1 in April 2013, but said we would consult on this corrected definition to ensure there were no unintended consequences. We consulted in our published feedback to chapter four of our recent June quarterly CP and are now confirming that we have not changed the definition of ‘platform service’ as a result. Firms will need to consider whether they fall within scope of the definition.

Capital Requirements Directive (CRD IV) GABRIEL reporting schedules

From 1 January 2014 the rules for the CRD IV will come into force . CRD IV is made up of the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD).

CRD IV implements standardised EU regulatory reporting. Firms which fall under CRD IV will be subject to reporting regulatory and financial data (COREP and FINREP) through GABRIEL using a reporting language called XBRL (extensible Business Reporting Language). This is different from the current requirements of CRD III.

Firms’ reporting schedules on GABRIEL for 2014 do not currently reflect the CRD IV requirements. The Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) are in the process of updating schedules for the firms which fall under CRD IV.

We are aiming to have up-to-date reporting schedules available in the first quarter of 2014. Until then, firms will still see data items of the pre-CRD IV regime, such as FSA003, appearing on their schedules for 2014 reporting periods. 

Updated Capital Requirements Directive (CRDIV) web pages

We are responsible for the prudential regulation of a large number of investment firms subject to the Capital Requirements Directive (CRD). The latest version of this legislation – CRD IV – comes into effect on 1 January 2014. To help with the implementation we have updated our web pages with a series of frequently asked questions. They include what this means for firms, European updates, harmonised reporting and generic CRD IV FAQs.

CRD IV Investment Firm Briefings
6 November 2013, FCA Office, London, E14 5HS
26 November 2013, The George Hotel, Edinburgh, EH2 2PB

The purpose of these briefings is to raise awareness of the capital requirements directive amongst CRD investment firms, including changes to policy and reporting.

There will be a significant change to what and how firms will report under the regime and we want firms to be in the best possible place to comply with the new harmonised reporting requirements.

These briefings will help you understand how the changes, both domestic and international, affect firms and any associated timescales for implementation.


Further information and to make a booking

FCA Markets Conference 2013
Tuesday, 19 November 2013, The Brewery, London, EC1Y 4SD

As the conduct and markets regulator for the UK, we want markets to work well and remain competitive to ensure that we have fair, stable and orderly markets and consumers, both retail and wholesale, are fairly treated.

At the Conference, we will discuss some of the most significant new policies affecting UK financial markets and set out our expectations and priorities for regulating UK markets.

£435 + VAT (£522)

View the agenda and make a booking

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