Financial services regulation
Speeches and communications
FCA launches market study on competition in the mortgage sector and consults on changes to the MLAR
On 1 December 2016, the FCA published its third and final sunlight remedy data set, which shows the lowest interest rates available from 32 providers of cash savings accounts and easy access cash ISAs as at 1 October 2016.
In its cash savings market study issued in January 2015, the FCA found that accounts opened a long time ago pay lower interest rates than those opened more recently. Despite this, the FCA found that a significant number of consumers do not move their money to accounts that might pay more interest – even with the same provider. This sparked the FCA's work on shining a light on firms' strategies towards their long-standing customers and generating competition and innovation in the financial market.
In light of the FCA's findings, new rules came into force on 1 December 2016 requiring firms that offer cash savings accounts to provide key information in a clear summary box to help consumers compare saving accounts. Firms will also have to remind consumers about any changes in interest rates or the end of an introductory rate and will be required to provide a quicker and easier switching process.
The final set of sunlight remedy data continues to show that some consumers could be better off by opening a different account. It also shows that:
As this is the final set of trial data for the sunlight remedy, the FCA will now evaluate the effectiveness of this remedy and consider whether to introduce this new disclosure, or other remedies into handbook rules.
In a Policy Statement published in December 2015, the FCA committed to publishing an industry target for seven day cash ISA switching. The British Bankers Association, the Building Societies Association and Tax Incentivised Savings Association have welcomed this target by seeking to achieve a minimum of 80% of cash ISA transfers within seven working days going forward. The FCA has noted that roughly 66% of all transfers are being carried out within this time frame currently.
Firms should note that the FCA will continue to work with the industry on improving the speed of transfers and the industry will be publishing the details of its performance against the 80% target quarterly from April 2017.
The regulator remains concerned about the treatment of long-standing customers and will continue to consider the need for any broader regulatory intervention across the savings account market to improve switching going forward.
Read more about the FCA's findings.
On 6 December 2016, the FCA published a consultation paper proposing stricter rules for firms selling contract for difference (CFD) products to retail customers.
CFDs, such as spread bets and rolling spot foreign exchange products, are complex financial instruments offered by investment firms, often through online platforms. They were historically marketed to sophisticated investors but there has been a recent increase in marketing to retail investors with smaller firms relying on mass inexperienced retail customers to grow their business.
This has sparked a concern with the FCA that retail customers are opening and trading CFD products that they do not adequately understand and these customers should therefore be appropriately protected. This concern is supported by the FCA’s analysis of a representative sample of client accounts for CFD firms which found that 82% of clients lost money on these products.
The FCA's thematic review published in 2015 also found shortcomings in the appropriateness test required under the Markets in Financial Instruments Directive, including risk warnings and anti-money laundering checks, across all firms in the sample.
The FCA is therefore proposing a package of measures intended to enhance protection for retail customers by limiting the risks of CFD products and ensuring that the customers are better informed. These include:
The FCA is also setting out within the consultation paper its vision on a range of policy measures for binary bets that would complement existing conduct of business rules, once these products are brought into the FCA’s regulatory scope.
Firms should note that the FCA has serious concerns that the increasing number of retail clients trading in CFD products could result in rapid, large and unexpected losses and as a result, this has become a focus area for the regulator going forward. Firms are required to respond to the FCA's consultation paper by 7 March 2017 and should expect further legislative change to the regulation of binary bets to bring them within the scope of the FCA.
Read more about the FCA's consultation paper
On 9 December 2016, the FCA published its finalised guidance on actions firms should be taking in order to treat their closed-book customers fairly. This is to ensure that customers who have life insurance products that are closed to new business do not receive less attention than customers who have recently taken out a new product. This is in line with the FCA's 2016/17 Business Plan and its Mission Statement issued in October 2016.
The guidance follows the findings of the FCA’s thematic review into the fair treatment of long-standing customers in the life insurance sector. It sets out four high-level customer outcomes:
The products covered by the guidance are personal pensions (including SIPPS and Retirement Annuity Contracts), endowments, investment bonds and whole-of-life policies. However, the FCA expects firms to consider the guidance in informing their practices and processes in respect of all products, including actively marketed products, in which long-standing customers are invested.
Firms should prioritise keeping customers well informed about the products they are being invested in, including being clear about the policy's performance and the charges applied. Firms should also be proactive in identifying the drivers of overall product performance and ensure that customers do not face unreasonable barriers to exit or unfair charges if they stop paying premiums into the policy.
Firms are expected to review their business practices within three months of 9 December 2016 and, if necessary, make changes to them in light of the guidance. The FCA has recognised that it is not introducing new rules in this area, but this guidance is designed to help firms know what is expected of them to ensure their customers are treated fairly going forwards.
For further information and a link to the guidance, please see the FCA website.
On 14 December 2016, the FCA announced that it is inviting discussion on the future funding of the Financial Services Compensation Scheme (FSCS). It has also launched a consultation on a number of specific changes to its scheme rules.
The FSCS is the UK’s statutory compensation scheme of last resort, which can step in when an authorised financial services firm is unable, or likely to be unable, to pay claims against it. Firms from across the financial services industry pay levies to fund both the FSCS’s operating costs and the compensation it pays out.
The FCA is inviting responses on a number of options for changing both the funding of the FSCS and the coverage it provides to consumers. These options include:
The FCA is also consulting on a number of specific proposals to change rules affecting the scope and operation of FSCS funding, including:
Firms must respond to the consultation paper by 31 March 2017 and the FCA is looking to issue a further consultation paper on proposed rule changes in Autumn 2017.
For further information and a link to the consultation paper, see the FCA website.
On the 16 December 2016, the Payment Systems Regulator (PSR) published its response to the Which? super complaint regarding consumer safeguards in the market for push payments.
The super-complaint was submitted to the PSR, as it is the regulator for the payment systems used in push payment fraud. However, Which? also sent the super-complaint to the Financial Conduct Authority (FCA), which has provided advice and assistance to the PSR on its response.
In summary, the PSR has found that authorised push payments (APP) scams are a growing problem that need to be addressed and it has proposed a package that it believes will lead to better protection and awareness of these scams going forward. The PSR's research has identified three main issues that need to be addressed:
To help address these concerns, the PSR has secured agreement from Financial Fraud Action UK to help bring about change:
Firms should also note that the FCA will be taking forward the following actions:
On 8 December 2016, the FCA reiterated its concern that debt management firms are failing to meet its rules relating to carrying out appropriate annual reviews and has issued a ‘Dear CEO’ letter reminding firms of these requirements.
Firms should be aware that all debt management plans (DMP) must be reviewed at least once a year and the results of that review must be provided to the customer in a durable medium. If a customer does not co-operate with a review, the firm must take reasonable steps to encourage the customer to do so. Firms cannot just conduct a ‘desk-based review’ based on old information. Where a customer continues not to engage with the process, firms should consider lawfully ending its involvement in the consumer's DMP.
On 9 December 2016, the FCA issued an update on the post-implementation review of the loan-based and investment-based crowdfunding market after its earlier call for input issued in July 2016.
The update reveals that the FCA intends to issue a consultation paper on additional rules in a number of areas in the first quarter of 2017. These additional rules include requirements on the content and timing of disclosures by both loan-based and investment-based crowdfunding platforms.
For loan-based crowdfunding the FCA also intends to consult on:
Andrew Bailey, Chief Executive of the FCA, stated that the FCA's focus in this area is on "ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers". He stated that weaknesses identified in a number of areas show that investor protection needs to be strengthened.
Some issues for both loan-based and investment-based crowdfunding platforms already identified by the FCA include:
Issues for loan-based crowdfunding in particular include:
Firms in the crowdfunding sector should begin reviewing processes in place to ensure protection for the investor in light of the above issues and remain alert for the FCA's proposed consultation paper in the next few months. The FCA will continue its research into this market and will publish a second consultation on further rule changes if they are deemed required.
For further information see the FCA website.
Mortgage market study
On 12 December 2016, the FCA launched a market study to consider whether competition in the mortgage sector can be improved to benefit consumers (the study).
The study will focus on first charge residential mortgages and cover each stage of the customer journey, including the mortgage purchasing process as well as decisions or barriers to consumers making a decision across the lifecycle of the mortgage.
Second charge mortgages are being excluded from the scope of the study, as the FCA considers the sector has been through a period of significant regulatory change. However, the FCA has said it is not precluded from considering whether the insights gained through the study are of relevance to the second charge market and any issues around competition in the sector will be picked up through the FCA’s future work.
The study will look at two broad questions:
The FCA wants to understand whether consumers are provided with enough information to choose between products and services on an informed basis and are in a position to understand whether these represent good value for money. The study will examine whether there are any concerns that are more pronounced for different types of products and/or consumers with different circumstances, and if necessary, will consider what can be changed to help consumers make better choices.
With regard to advice, the FCA will assess:
With regard to competition, the FCA will explore:
Firms should note that the FCA is not formally consulting on the terms of reference published in connection with the Study, but is welcoming any comments on its proposed approach by 12 January 2017. An Interim Report will be published in Summer 2017, setting out any preliminary conclusions and a Final Report will be published in early 2018.
For further information see the FCA website.
On 12 December 2016, the FCA and PRA published a joint consultation updating the notes for the Mortgage Lenders & Administrators Return (MLAR), the notes for completion of the MLAR in the Supervision Manual (SUP) and the MLA-D1 form for reporting second charge lending. The changes are to reflect the introduction of the Mortgage Credit Directive and to remove inconsistencies between the PRA and FCA versions of the notes to the MLAR.
The proposed updates do not introduce any material changes to the notes to the MLAR and do not result in any new reporting requirements. However, amendments are proposed to alter the second charge reporting form MLA -D1 to change the categories for reporting so that they match form MLA-D.
The proposed changes do not represent a change in FCA policy, but will provide greater clarity on where firms should include data in the return and ensure the first charge and second charge data are directly comparable. The deadline for feedback is 13 March 2017.
For further information see the Bank of England website.
On 13 December 2016, the FCA issued a thematic review announcing that many consumer credit firms are improving the way they deal with customers in early arrears. However, the review also highlighted a number of areas where consumer credit firms still need to improve their practices.
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations, has stated that the FCA has seen "increased engagement and positive change taking place in the industry when dealing with customers in early arrears". However, he recognises that there are a number of areas where there is a need for significant improvement.
The review found that:
Overall, the findings show that a firm’s culture influences the approach taken to giving due consideration and forbearance to customers in arrears difficulties. Forbearance and repayment solutions offered to customers varied significantly in terms of the range of solutions offered and the way in which payment difficulties were assessed.
Feedback has been given to each of the firms in the sample on the practices observed in their businesses. These firms should review their businesses in light of feedback and make relevant changes. All firms should note that the FCA expects firms to promote, embed and enforce the right culture within their organisations, which has the primary objective of doing the right thing for the market and consumers. As such, firms across the wider industry should read the review, consider their own culture and approach and make improvements where necessary going forward.
On 1 December 2016, the FCA published a Decision Notice in respect of Alistair Burns, Chief Executive at TailorMade Independent Limited (TMI). Mr Burns referred this decision to the Upper Tribunal, which may uphold, vary or cancel the FCA's decision.
The FCA has decided to fine Mr Burns £233,600 and to prohibit him from performing any senior management or significant influence function in relation to regulated activity in financial services. The FCA's view is that Mr Burns failed to ensure that TMI provided suitable advice to its clients and failed to ensure that TMI managed fairly and clearly disclosed Mr Burns' own personal conflicts of interest and the conflict of interest relating to other individuals at TMI.
Between January 2010 and January 2013, TMI provided advice to customers who were considering switching their existing pension funds via self-invested personal pensions into unregulated investments such as green oil, biofuels, farmland and overseas property (Alternative Investments). During this period, 1,661 customers invested £112,420,985 in Alternative Investments, many of which were not typically permitted by their existing pension schemes. The advice to switch to these Alternative Investments was inadequately provided to customers and failed to take into account a customer's individual circumstances and their demands and needs.
The FCA also concluded that Mr Burns received significant financial benefit from his positions as a director and shareholder of an unregulated introducer also operating under the ‘TailorMade’ name, which referred clients to TMI. This created a conflict between the interests of Mr Burns in the outcome of TMI’s advice and the customer’s interest in that outcome, which should have been disclosed to customers and managed using a suitable process.
As a director, Mr Burns was required to take reasonable steps to ensure TMI complied with regulatory standards. In the FCA’s view, he did not do so and as such, he is not fit and proper to perform senior management or significant influence functions in relation to regulated activity in financial services.
On 21 December 2016, Mark Lyttleton, a former Equity Portfolio Manager at BlackRock Investment Management (UK) Limited, was sentenced to 18 months reduced with credit to 12 months on two counts of insider dealing. A confiscation order was also made in the sum of £149,861.27 and costs awarded to the FCA of £83,225.62.
Mark Steward, Executive Director of Enforcement and Market Oversight, has stated that those who are tempted to insider deal, especially financial industry professionals "must know now they are more likely to be caught than ever before and, when caught, they will likely face a custodial sentence.”
Firms and individuals should recognise that the FCA will not tread lightly when dealing with cases of insider dealing and should be more vigilant than ever to ensure that this behaviour does not take place.
For further background on the case see the FCA's website,