Regulation round-up September 2018

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

September 2018 Quick Links


Introduction: Charles Randell, Chair

Welcome to the September issue of Regulation round-up.

A lot has been written about the 10 year anniversary of the collapse of Lehman Brothers, but I would like to add a few words of my own.  

Amid the analyses of whether the financial system is now more stable and speculation about where the next crisis could come from, I don’t want us to forget the human cost of the great recession, which vast numbers of people paid with their quality of life, their jobs, their savings, their physical and mental health and even their lives. 

It was World Suicide Prevention Day on 10 September, and I was reminded of the novelist John Niven’s powerful account of his brother’s death from suicide at the end of a combination of health, social and debt problems that became overwhelming. Everyone in the financial services system has an almost Hippocratic duty to treat customers fairly. Access to credit can enhance quality of life – as long as the debt is collected with a focus on affordability and the welfare of the customer. For many people, however, having financial resilience in the form of rainy day savings is a key protection against the problems that life can bring. 

One of the best parts of my job as chair of the FCA is meeting people outside the organisation and hearing about the financial challenges they face and how the work of the FCA affects them. I have seen a number of inspiring examples of how firms, voluntary organisations, consumer groups and local government are using their initiative to help the most vulnerable in society more effectively access the combination of services they need. In particular, I’ve seen the power of good debt advice to turn people’s lives around so that they can build their financial resilience – and the danger of bad debt advice making it worse.   

We now live in a world where people work, save and borrow in a fundamentally different way to the way they did 10 years ago. But it is my sincere belief that if regulators and financial service firms are closely attuned to the needs of vulnerable customers we will be able to rebuild the trust in financial services which was lost 10 years ago.  

With that in mind, I encourage you to respond to our Discussion Paper on a Duty of Care that we published alongside our Approach to Consumers before the discussion closes in November.


Hot topics

SM&CR

Have your say: Consultation on SM&CR for claims management companies launched

Claims management companies (CMCs) come under our regulation from next April and we’ll be providing updates to help you get ready for the change and authorisation.

We’re currently consulting on extending the Senior Management and Certification Regime (SM&CR) to CMCs. The Consultation Paper launched today (20/09/18) sets out our draft rules and guidance for CMCs relating to the SM&CR.  

Bringing the claims management industry in line with other financial services firms, the changes are part of improving professional standards, conduct and governance. The SM&CR aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct. This will benefit consumers and firms and improve trust in the industry by reducing bad practice, including aggressive sales tactics.  

Firms’ culture and governance is a continuing priority for us.  

The deadline for responding to the consultation is 6 December 2018. 

Our Senior Managers and Certification Regime will begin extending to CMCs from December 2019 when nearly all employees will have to abide by Conduct Rules and some senior managers will have to be approved by us.

It is important that claims management companies understand these proposals and what they mean for them. They should read the consultation and sign up to our email updates to receive details of the events we are holding in the autumn. At these events, we’ll explain our proposals, listen to your views and give you the chance to ask us questions. You can register to attend here.

Later this year, we will give claims management companies more information about the next steps we will take to transfer them from being regulated by the Claims Management Regulator to us. We will publish the final rules in a policy statement in spring 2019.

See our website for more information and support on preparing for regulation, including our consultation on Fees which is also currently open.

Communications Approach to final regulatory technical standards and draft EBA guidance under the revised Payment Services Directive (PSD2)

We have published a consultation CP 18/25 on our Approach to final Regulatory Technical Standards (RTS) and EBA guidelines under the revised Payment Services Directive (PSD2). The consultation closes 12 October 2018.  

We are consulting on new rules and amendments to our guidance particularly in relation to the security of customers’ payments and how firms interact for the purposes of ‘open banking’. We are aligning our approach with final EBA guidelines on fraud reporting and Passporting RTS. We are also taking the opportunity to clarify our existing expectations based on our practical experience of authorising and registering firms under PSD2 since September 2017. In addition, complaints reporting rules are being extended to cover authorised push payment fraud.  

All payment service providers, including banks, building societies, payment and e-money institutions should read the CP.

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Banks and Building Societies

Outsourcing

We have completed a review of retail banks’ use of outsourcing. The potential types of harm arising from outsourcing include service disruption (impacting consumers’ access to products and services) and poor customer service. We focused on firms’ approaches to outsourcing and did not test whether these are mitigating the risk of harm in practice.  

Overall, we did not identify significant concerns. Below are some areas for firms to consider: 

  • In November 2017 the Prudential Regulatory Authority introduced a prescribed responsibility for outsourcing. Firms should be clear that those assigned this prescribed responsibility have overall accountability for outsourcing. This includes where the responsibility for managing third parties is delegated. 
  • Firms must continue to have robust governance arrangements for outsourcing, including effective processes to identify, manage, monitor and report the risks it is (or might be) exposed to, as appropriate. These arrangements should help firms identify and reduce the potential harm to consumers if things were to go wrong.
  • Consumers can be exposed to potential harm when a firm’s third party relationship ends, particularly if it ends unexpectedly. Robust oversight arrangements, that include sufficiently tested exit plans for different scenarios, will help reduce the potential harm by ensuring business continuity.
  • Firms appear to be increasingly considering outsourcing to the cloud. We explained our expectations in this area in July’s Regulation Round-up
  • The EBA is currently consulting on draft Guidelines on outsourcing arrangements.

We have a continued focus on outsourcing and may undertake further work in this area.

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Financial Advisers

New Live & Local 2018/19 events

From October 2018, we are holding interactive workshops across the UK for representatives from regulated firms who are qualified to give Defined Benefit pension transfer advice. The workshops will:

  • highlight the key points that firms should consider when operating in this market
  • reiterate our expectations when transacting this type of business
  • highlight our updated rules and guidance
  • include an interactive case study to put into practice our expectations  

Registration is now open for sessions from October to December, with additional dates and locations in 2019 to be announced later this year. For further details, visit our Live & Local webpage.

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Mortgage Advisers and Lenders

Insurance brokers due diligence on insurers

The recent failures of Alpha, Enterprise and Gable demonstrate the harm that can be caused to customers if an insurer fails and is unable to pay the claims. Our publication ‘Insurance brokers and due diligence on insurers’ addresses the vital role that insurance brokers have to play in preventing further instances of customer harm through failing insurers. 

Insurance brokers are viewed as trusted professionals with insurance expertise. We expect them to demonstrate that they have carefully considered the insurers that they place their customers’ business with. To support this, we list examples of what brokers should consider as part of their insurer due diligence with links to relevant web pages.  

Our message is clear on the importance of providing clear insurer details to allow customers to make informed decisions on where their insurance is being placed.

We plan further work to verify that insurance brokers are conducting appropriate due diligence on the insurers they use.

Live & Local 2018/19 events

The new series of monthly ‘Ask the regulator’ Q&A roundtable discussions featuring senior FCA representatives and industry experts will begin this month in Leicester. Registration is currently open for sessions taking place until December – details can be found on our Live & Local webpage. Additional dates and locations in 2019 will be announced later this year.

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General Insurance Intermediaries and Insurers

Insurance brokers due diligence on insurers

The recent failures of Alpha, Enterprise and Gable demonstrate the harm that can be caused to customers if an insurer fails and is unable to pay the claims. Our publication ‘Insurance brokers and due diligence on insurers’ addresses the vital role that insurance brokers have to play in preventing further instances of customer harm through failing insurers. 

Insurance brokers are viewed as trusted professionals with insurance expertise. We expect them to demonstrate that they have carefully considered the insurers that they place their customers’ business with. To support this, we list examples of what brokers should consider as part of their insurer due diligence with links to relevant web pages.  

Our message is clear on the importance of providing clear insurer details to allow customers to make informed decisions on where their insurance is being placed.

We plan further work to verify that insurance brokers are conducting appropriate due diligence on the insurers they use.

Insurance Distribution Directive (IDD)

Our rules implementing the Insurance Distribution Directive (IDD) apply to firms from 1 October 2018. Our IDD material can be found on our dedicated IDD web page.

Live & Local 2018/19 events for regulated firms

The 2018/19 programme of events for general insurance firms begins in September with the events:

  • Interactive workshop on the extension of the Senior Managers and Certification Regime (SM&CR) and the Insurance Distribution Directive (IDD)
  • ‘Ask the regulator’ Q&A roundtable discussions where general insurance firms engage with a panel of FCA and industry representatives in an open, informal setting.  

Registration is now open for these events taking place from September to December 2018. Visit our Live & Local webpage for more information.

Live & Local events for compliance consultants

We have added 2 interactive workshops designed for compliance consultants on how general insurance firms can identify and prevent harm. These will take place in October in London and in November in Manchester. Following the success of these workshops with our regulated firms, we are holding these events for compliance consultants. In these events we will share with you what we have presented to our firms, and provide you with an opportunity to ask us questions and give feedback. 

Registration for these sessions is open to compliance consultants only. Further details can be found on our website.

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Payment Service Providers

Payment Services – do you need to make a notification under the Limited Network Exclusion?

Services that are based on specific payment instruments that can only be used in a limited way are excluded from the requirement for permission under the Payment Services Regulations 2017. Services that are excluded are set out in Schedule 1 Part 2 (k)(i)-(iii) PSRs. Regulation 38 PSRs requires providers of services falling within the exclusion to notify us if the total value of payment transactions in any period of 12 months exceeds €1 million. We will assess the notification to determine whether the services that are being provided fall within Part 2(k)(i)-(iii). 

Deadline
If the conditions for notification are met on 13 January 2019, the service provider must submit the notification online through the Connect portal by 10 February 2019. From 13 January 2019, service providers must submit their first notification no later than 28 days from the date on which the conditions for notification were met. 

See our Directions: https://www.fca.org.uk/publication/documents/limited-network-exclusion-direction.pdf.

For examples see Q40 in section 15.5 of our Perimeter Guidance Manual: https://www.handbook.fca.org.uk/handbook/PERG/15/?view=chapter

Live & Local events in London and Manchester

As part of the Live & Local 2018/19 programme, we are holding events in London and Manchester tailored for non-bank payment services firms. These ‘introduction to FCA Payments Supervision’ events will provide clarity on our role and expectations, and our supervisory approach. These events will also offer you an opportunity to ask us questions and meet our Payments Department. 

The events take place in September and November 2018. Dates, locations and registration link are available on the Live & Local webpage.

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EU Withdrawal

FCA’s role in preparing for EU withdrawal

Earlier in the summer, we published an update on how we are preparing for the UK leaving the European Union. This includes setting out how we will amend EU binding technical standards (detailed EU rules) and our Handbook to ensure they can function effectively when the UK leaves the EU.

Statutory instruments

As part of its approach to amending financial services legislation under the EU (Withdrawal) Act, The Treasury has begun laying Statutory Instruments (SIs) in Parliament. Six SIs have been laid to date, including the SI establishing a temporary permissions regime for FSMA firms operating in the UK under a financial services passport. The Treasury has also begun publishing a number of draft SIs, ahead of them being laid Parliament, to give stakeholders an opportunity to engage and familiarise themselves with the draft provisions. Firms do not need to prepare to implement this legislation now. Please see the Treasury website for more information.

Payment and electronic money institutions

The Treasury has published a draft of the legislation which will create the temporary permissions regime for EEA payment institutions, electronic money institutions and registered account information service providers. Further information is included in the policy notes that accompany the draft legislation.

Temporary permissions regime

The Treasury published the statutory instrument on TPR on 24 July. We have provided more details on the TPR on our website for firms and funds currently passporting into the UK.

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News and Publications

Claims management companies (CMCs): fees consultation paper

We have published a consultation paper which sets out a proposed fee structure to recover the costs of setting up the new regulatory regime for CMCs and the ongoing costs of regulating CMCs from 1 April 2019. Meanwhile, responsibility for considering complaints about CMCs will transfer from the Legal Ombudsman to the Financial Ombudsman Service, so we also set out our proposals for recovering the associated transfer costs and the Financial Ombudsman Service’s ongoing costs. 

Read the consultation and respond by 22 October 2018.

SM&CR – Insurers conversion forms open

Insurers can now access and submit the draft forms for converting Approved Persons Regime (APR) approvals to Senior Management Functions (SMFs). The deadline submitting forms is midnight on 2 December 2018.

If you work for a dual-regulated insurer, you should first check if you need to submit forms. You can check what you need to do in the Guide to the Senior Managers and Certification Regime for Insurers. Generally, you will need to if you work for a Solvency II firm, a large Non-Directive Firm (NDF) or an incoming branch.

You can find more information on our website.

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