This month in summary
On 18 April 2017, the FCA published its Mission and Business Plan for 2017/18. With the aim of improving transparency, together these documents are designed to provide a detailed insight into how FCA operates and sets its priorities for the year ahead.
The Mission's key purpose is to give firms and consumers greater clarity about how the FCA prioritises its interventions in financial markets. The FCA's stated Mission is to serve the public interest through the objectives given to it by Parliament, ultimately seeking to improve the way financial markets work and how firms conduct their businesses. The Mission 2017/18 document contains details of broad approach the FCA takes and what interested parties can expect in a variety of areas. Topics covered include:
Alongside its Mission statement, the FCA has published its Business Plan for 2017/18. This gives details on the specific areas of work the FCA is prioritising for the next year. The Business Plan also includes the FCA's Sector Views (the first time these have been published) which highlight issues and developments the FCA sees in the sectors it regulates. Key areas identified include:
The Business Plan also states that the FCA plans to undertake an exploratory piece on work on the motor finance industry. It notes that motor finance has grown rapidly in recently years and expresses concern that there may be a lack of transparency, potential conflicts of interest and irresponsible lending occurring. The FCA will use the results of this piece to assess whether and how it will intervene in the market and perhaps signals the beginning of increased regulatory oversight of the motor finance industry.
It will be useful for all firms to read these documents to get a better sense of how the FCA operates, sets objectives and measures its performance. Collectively these documents provide a good insight into the FCA's plans for the year ahead and can give some indication of the areas that will see more attention and scrutiny. The Business Plan in particular gives details on areas the FCA sees as requiring investigation and potential problems it has identified.
On 3 April 2017, the FCA proposed new rules to help customers who are in persistent credit card debt. Following its study of the UK credit card market, the FCA has expressed significant concerns about the scale, extent and nature of problematic credit card debt and will introduce new rules aimed at reducing it.
The FCA defines credit card customers in persistent debt as those who have paid more in interest and charges than they have repaid of the amount they borrowed, over an 18 month period. It is estimated that around 3.3 million people in the UK are in persistent debt, with 1.8 million falling into this category for two consecutive periods of 18 months.
The FCA's proposals will require firms to take a series of steps to help customers in persistent debt. When a customer has been in persistent debt for 18 months, firms will be required to prompt them to increase the size or frequency of their repayments if they can afford to do so. If a customer is still in persistent debt after a further consecutive 18 month period, firms must take steps, such as proposing a repayment plan, to help that customer to repay their outstanding balance more quickly. Customers who do not respond, or who confirm that they can afford to repay faster but decline to do so, would have the ability to use their card suspended.
The FCA also proposes that where a customer cannot afford any of the options proposed to repay their balance more quickly, firms must take further steps to assist them to repay the balance in a reasonable period, for example by reducing, waiving or cancelling any interest or charges. It is expected that firms would normally suspend use of the customer's card during this period.
In light of these changes, firms providing credit cards must ensure they are capable of monitoring customers in persistent debt and should be prepared to be more proactive in providing assistance. Due to these extra requirements, firms should ensure that its customers can afford repayments or risk being forced to offer costly assistance or cancel interest and charges if the customer falls into persistent debt.
In a speech published on 10 April 2017, Christopher Woolard, Executive Director of Strategy and Competition at the FCA, highlighted the next steps for the FCA's Project Innovate initiative.
Project Innovate went live in October 2014 with the aim of encouraging innovation in the interests of consumers and promoting competition through disruptive innovation. Through Project Innovate, the FCA aims to help firms tackle regulatory barriers to innovation and ensure the right conditions exist for beneficial competition.
The FCA is looking to expand the reach of this project in a number of areas. For example, the FCA's Advice Unit, which currently assists firms developing automated advice models, will now have a broader remit, taking in firms within the mortgage, general insurance and debt sectors, as well as firms that want to provide guidance instead of regulated advice.
Two main areas of focus have been identified for Project Innovate. Firstly, it will look at innovation more globally. The FCA sees this as having potential benefits for consumers and the wider economy as the transfer of ideas and innovation breaks down barriers for entry, giving firms more flexibility to innovate. As part of this, the FCA has recently signed cooperation agreements with its counterparts in China, Japan, Canada and Hong Kong and sees innovation as a topic of growing important for regulators worldwide.
However, the FCA has also expressed concerns as more governments and regulators show an interest in innovation. For example, in adopting approaches similar to the FCA's Regulatory Sandbox initiative, which allows innovative firms to test their ideas in a live environment with fewer regulatory obligations, some believe that from the various models and standards different jurisdictions adopt, a ‘Wild West’ version could emerge leading to irresponsible innovation in financial products which ultimately undermines trust in financial regulation.
The second area of focus for the FCA is regional as it looks to help support FinTech hubs outside of London, notably in the Edinburgh-Glasgow corridor and the Leeds-Manchester area. The FCA's plan here is to work with local authorities, development partners and firms in these locations to encourage the emergence of more innovative firms, whether home grown or inward investors.
The future plans for Project Innovate have the potential to benefit a wide range of areas. Alongside existing programmes to support innovation, the FCA's expanded approach will offer greater assistance to newer firms and the specific support that will be offered regionally will assist the growth of innovative firms throughout the UK. For firms wanting to establish themselves internationally, the FCA's increasing focus in this area will be helpful, particularly in countries where a cooperation agreement is in place.
Read more on Project Innovate
On 26 April 2017, the FCA published data on the number of complaints reported by firms for the second half of 2017. The total number of complaints reported for this period was 3.04 million. This is higher than previous reporting periods because under the new FCA rules, which came into force on 30 June 2016, all complaints are now captured in the data.
The data reflect the fact that under the new rules, financial services firms have longer to resolve complaints informally. Firms now have three days to address a complaint to a consumer's satisfaction, rather than having to address a complaint by the end of the next business day.
The FCA believes the new dataset is more informative because it shows the number of complaints against the size of the business. It also provides greater insight on the products that consumers complain about. This information will provide a better understanding of the areas where consumer satisfaction is low.
Greater transparency of complaints information will enable customers looking to invest or buy financial products to be better informed about the products that have caused concern for other customers.
Payment protection insurance (PPI) is the most complained about product with 865,000 complaints and £1.9 billion paid in redress, followed by current accounts, which attracted around 514,000 complaints.
This is useful information for firms and may help in anticipating and addressing areas of complaints and redress.
For a link to the FCA website and for more information please click here.
On 7 April 2017, The FCA published a press release stating that it has imposed financial penalties on two former Worldspreads Limited (WSL) employees and banned them from engaging in regulated activity. WSL operated a spread betting business which collapsed in 2012.
WSL's former Chief Financial Officer, Niall O'Kelly, was fined £11,900 and former Financial Controller, Lukhvir Thind, was fined £105,000 for engaging in market abuse. Both have been permanently banned from performing any function related to regulated activity.
In August 2007, the holding company of WSL, Worldspreads Group (WSG), floated on the Alternative Investment Market of the London Stock Exchange. The admission documentation for the floatation was found to contain materially misleading information and omitted key information that investors would have needed to make an informed decision about the company. Mr O'Kelly was closely involved in drafting this documentation and was also found to have helped manage an undisclosed ‘internal hedging’ strategy at WSL using fake client trading accounts and the unauthorised use of actual client trading accounts to artificially inflate assets of WSG's balance sheet.
In addition both Mr O'Kelly and Mr Thind were found to have falsified critical financial information concerning WSL's client liabilities and cash position, resulting in material shortfalls in WSL's client money position being concealed from investors. These misstatements amounted to £15.9 million by 2011. WSL was unable to meet this client money liability which ultimately led to its collapse in 2012.
Mr O’Kelly and Mr Thind agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% discount. Mr O’Kelly also provided evidence of serious financial hardship. Were it not for the discount and Mr O’Kelly’s financial circumstances, the FCA would have fined Mr O’Kelly £468,756 and Mr Thind £150,000.
This demonstrates the FCA's commitment to pursuing sanctions against individuals engaging in market abuse but should also serve as an example on the damage such behaviour can cause to a firm's position.
For a link to the FCA website and for more information please click here.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions
On 12 October 2018, the FCA published a Guidance Consultation (GC 18/4) on the Senior Managers and Certification Regime on statements of responsibilities (SoRs) and responsibilities maps (which apply to enhanced firms).