monthly regulatory update june 2017 - rsm uk

MONTHLY REGULATORY UPDATE

JUNE 2017

Monthly Regulatory Update June 2017 | 1

The following is a summary of the pronouncements issued since our last regulatory update for the financial services

sector issued in June 2017. This update will be provided on a monthly basis and the format is currently under review.

FINANCIAL CONDUCT AUTHORITY (FCA)

Policy Statement (PS)

PS17/13 Investment and corporate banking: prohibition of restrictive contractual clauses

Date Published - 27 June 2017

Overview:

This policy statement sets out FCA rules to ban contractual clauses that restrict competition without being clearly

beneficial to clients.

Applicable to:

The ban will affect firms that provide primary market services and clients of these firms.

Next Steps:

The final rules come into effect for agreements entered into after 3 January 2018. Firms affected by these changes need to ensure procedures are in place to ensure these types of clauses are not used in any written agreements with clients. Firms should consider amending templates for contracts and engagement letters, and updating any guidance, policies and training around the terms that can be agreed with clients.

Consultation Paper (CP)

CP17/15 Powers in relation to LIBOR contributions


Overview:

LIBOR is a systemically important benchmark underpinning transactions in many different markets worldwide. Its reliability and accuracy are very important to market integrity, in the UK and globally.

LIBOR is based on input data that is contributed by banks. The FCA has the power to require banks to contribute this data if necessary, and will have new powers to require contributions under the EU Benchmarks Regulation (BMR) when the European Commission designates LIBOR as a ‘critical’ benchmark, potentially later this year, or when the BMR applies in full in 2018.

The FCA is consulting on how it would use its compulsion powers for the London Interbank Offered Rate (LIBOR) and setting out the proposed approach to using these powers.

Applicable to:

This consultation most directly affects banks that are current or potential submitters to LIBOR, and the administrator of LIBOR, ICE Benchmark Administration Limited (IBA). Firms using LIBOR, for example, in hedging products or loan agreements, may also be indirectly affected.


CP17/15 Powers in relation to LIBOR contributions

Next Steps:

The FCA will consider feedback and aim to publish a summary of responses and a Policy Statement in September 2017. The FCA may include a revised version of the draft rule, but do not plan to make the rule except in circumstances where it believes it is necessary to do so.

CP17/13 Fourth Money Laundering Directive and Fund Transfer Regulation Implementation


Overview:

In September 2016 and March 2017, the Treasury published consultation papers implementing the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR2017). MLR2017 came into force on 26 June 2017 and replaced the Money Laundering Regulations 2007 (MLR2007) and the Transfer of Funds (Information on the Payer) Regulations 2007 (TFR2007).

The FCA proposes to apply its existing policy and procedure to the exercise of the enforcement powers under MLR2017. This will mirror the current approach under MLR2007. The proposed amendments to DEPP and EG give effect to these proposals.

Applicable to:

These proposals will be of interest to all persons that may be subject to supervision and/or enforcement action by the FCA under the regulations. This will include (but is not limited to):

• banks and other credit institutions

• building societies

• wealth management firms

• investment managers

• auction platforms

Next Steps:

The FCA will consider the feedback received to this CP and publish rules in a policy statement in July 2017.

CP17/16 Advising on Pension Transfers


Overview:

The FCA is seeking to provide advisers with a framework which better enables them to give the right advice so that consumers make better informed decisions. The FCA has rules which govern advice given to consumers wishing to transfer safeguarded benefits. Transferring from such a pension, to one without any safeguards, is an important decision for consumers to take and historically has been unlikely to be in their best interests

The proposals set out in this consultation aim to reflect the current environment and the increased demand for pension transfer advice.


CP17/16 Advising on Pension Transfers

Applicable to:

This consultation will primarily be of interest to financial advisory firms advising on pension transfers, those acting as pension transfer specialists, pension providers, and those providing software for pension transfer advice.

The consultation may also be of interest to employer sponsors of defined benefit pensions, employee benefit consultants, consumers groups, providers of qualifications, providers of professional indemnity insurance and other industry and professional bodies.

Next Steps:

The FCA will consider feedback to this consultation paper and publish rules in a Policy Statement by early 2018.

CP17/18 Consultation on implementing asset management market study remedies and changes to

our Handbook


Overview:

The FCA’s asset management market study found weak price competition in parts of the industry. The FCA set out proposed remedies to address these issues. This Consultation Paper is part of the implementation of that package of remedies.

The FCA proposes measures to strengthen the rules on authorised fund managers to act in their investors’ best interests. This includes governance reforms which, together with the forthcoming Senior Managers and Certification Regime (SM&CR), will hold asset managers to greater account. These reforms include introducing independent directors on to the Board of fund managers and requiring them to consider value for money.

Applicable to:

Investment managers, management companies (including authorised fund managers (AFMs) and depositaries of UCITS and other authorised funds). It will also interest representative industry bodies, consumer groups, advisory firms and financial advisers.

Insurance companies and closed-ended investment companies will also be interested in some of the proposals to retail investment products other than authorised funds.

Next Steps:

The FCA will consider feedback to this consultation paper and any revised rules will be published in a subsequent handbook notice.


Thematic Review (TR)

TR16/6 Principals and their appointed representatives in the general insurance sector


Overview:

This report sets out the findings from the FCA thematic review of principal firms and their appointed representatives in the general insurance sector. The review focused on principal firms’ understanding of their responsibilities for their appointed representatives and oversight of their activities.

Applicable to:

This report is aimed primarily at general insurers and intermediaries who have appointed and accepted responsibility for appointed representatives distributing general insurance products to their customers, as well as appointed representatives themselves. However, the findings may also be applicable to principals and appointed representatives operating in other sectors of the UK financial services industry.

Next Steps:

The FCA has already taken action to intervene with five of the firms in the sample, is sharing the findings with the general insurance sector via this report, and also sending a Dear CEO letter to the chief executive officers of principal firms with appointed representatives in the sector setting out expectations.

The FCA will continue to work with the principal firms included in the detailed review to address the issues identified and will perform additional work with some of the firms in the wider survey sample not previously included in the detailed work.

Call for Input

Call for Input on access to insurance


Overview:

In this call for input the FCA invites views on the challenges firms face in providing travel insurance for consumers who have, or have had cancer, together with the rationale for pricing differentiations in quoted premiums.

Applicable to:

The FCA are seeking views, supported by examples and evidence where possible, of the challenges firms face in

providing travel insurance for consumers who have, or have had cancer, and the reasoning for pricing

differentiations in quoted premiums.

Next Steps:

This represents the first stage in FCA broader engagement with stakeholders to improve their understanding of the issues facing vulnerable consumers accessing different financial markets. While this paper focuses on travel insurance for people who have, or have had, cancer, the findings will broadly apply to other pre-existing medical conditions, and also to other protection products.

In late 2017 the FCA expect to publish a Feedback Statement with the findings and set out next steps in light of the responses.


FCA Reviews

Pension lifestyle investment strategies – our findings


Overview:

The FCA contacted life insurers to understand their approach to pension lifestyle investment strategies in light of the pension reforms in 2015 and the resulting changes in consumer behaviour.

The FCA assessed firms’ approaches to, and plans for, lifestyle investment strategies based on information provided but did not systematically review the detail of firms’ approaches (eg the asset mix in default funds or the content of all communications).

Key Findings:

Most firms are reviewing, or have plans to review, this business over the course of 2017. The FCA is concerned at the timeliness of these reviews, particularly for customers approaching or having already entered their de-risking phase and the lack of clear communication to these customers explaining how their lifestyle strategy relates to their retirement options following 2015’s pension reforms.

The FCA is also concerned that firms’ plans for reviewing this business are on a slower track, with reviews typically not planned until late 2017 and into 2018. The same concerns outlined above for customers approaching retirement and the need for clear communication also apply to these older policies.

Next Steps:

The FCA is following up with firms where they have identified concerns and will be inviting firms in the sector to a roundtable event in Q2 2017 to discuss the findings.

Speeches

• Improving access to insurance – Speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at the FCA Insurance Access events advised that in previous work, the FCA has found there are a range of access issues that can impact consumers. In insurance, these are particularly prevalent for people who have, or have had, cancer and other pre-existing medical conditions. The FCA wants to understand the market and consumers’ journeys better and has launched a Call for Input focusing on this area. This is an opportunity for the industry, regulators and consumer groups to work together to produce meaningful change for vulnerable consumers.

• Andrew Bailey speech on retail banking in the UK - reflections from the FCA – Speech by Andrew Bailey, Chief Executive of the FCA, at the BBA Retail Banking Conference on retail banking in the UK. Reflections from the FCA advised that one big lesson from Northern Rock is the importance of understanding business models and where banks earn their returns and how stable those returns are. Retail banks are complex because they provide consumers with many products, which can be very long lived and there is scope for cross-subsidies between products and between customers. The FCA is undertaking a strategic review of retail banking business models focusing on links between different products and services and their relative profitability.


Press release

• Admiral agrees to contact customers who may have been given inaccurate information in renewal documents – New rules introduced by the FCA in April 2017 require firms to clearly show the insurance premium a customer paid last year alongside their proposed renewal premium. The FCA has found that Admiral included inaccurate premium amounts in renewal documents issued to some customers by publishing last year’s quoted premium, before discounts were applied, rather than what the customer actually paid. Admiral will now make changes to ensure it is fully compliant with FCA rules.

Admiral has agreed with the FCA to contact affected customers who renewed their policies after 1 April 2017, who may have received inaccurate information. If affected customers choose to go to another insurer, they will be able to cancel without penalty and will have their premium refunded.

The FCA is currently assessing firms’ implementation of these rules to ensure that firms are giving customers clear and fair disclosure on their renewal prices. The FCA has seen good practice but some concerning examples and will continue to address specific concerns with individual firms.


Consultation Paper (CP)

CP6/17 Regulatory reporting: occasional consultation paper


Overview:

This PRA consultation paper sets out proposals for minor amendments to the templates and reporting instructions for PRA101 to PRA103 (Capital+), PRA108, and the removal of the definition of ‘whole-firm liquidity modification’ from the PRA Rulebook.

The proposals would result in changes to the Regulatory Reporting Part of the PRA Rulebook and reporting templates and instructions PRA101 to PRA103 and PRA108. Appendix 1 of Supervisory Statement (SS) 34/15 ‘Guidelines for completing regulatory reports’ will be updated to link to the amended templates when final policy is published.

Applicable to:

The proposals in relation to the Capital+ and PRA108 templates are relevant to PRA-authorised UK banks, building societies, PRA-designated investment firms. The removal of the definition of ‘whole-firm liquidity modification’ is relevant to non-EEA banks authorised to accept deposits through a branch in the United Kingdom.

Next Steps:

This consultation closes in July 2017 and the PRA invites feedback on the proposals set out in this consultation.

CP8/17 Strengthening accountability in banking and insurance: optimisations to the SIMR, and

changes to SMR forms


Overview:

In this CP, the PRA sets out proposed amendments and optimisations to the Senior Insurance Managers Regime (SIMR). It also includes a proposal to strengthen governance through requiring insurers to take steps to encourage board diversity. This CP also proposes consequential amendments to the Senior Managers Regime (SMR) forms following Policy Statement (PS) 12/17 ‘Strengthening accountability in banking and insurance: amendments and optimisations’.

Applicable to:

Chapters 2 and 3 of the CP are relevant to all Solvency II insurance firms (ie UK Solvency II firms, the Society of Lloyd’s and Lloyd’s managing agents, and third country (re)insurance branches), and to large non-Directive firms (large NDFs). Chapter 4 of this CP is relevant to banks, building societies, credit unions, and PRA designated investment firms (collectively known as Relevant Authorised Persons (RAPs)).

PRUDENTIAL REGULATION AUTHORITY (PRA)


CP8/17 Strengthening accountability in banking and insurance: optimisations to the SIMR, and

changes to SMR forms

Next Steps:

The consultation on the proposals in:

• Chapters 2 and 3 closes on Friday 22 September 2017; and

• Chapter 4 closes on Monday 14 August 2017.

The PRA intends to publish the final rules on the proposals in Chapters 2 and 3 in 2017 Q4 and proposes that rules would be implemented two months after their publication. The PRA intends to publish the final rules and forms for the proposals in Chapter 4 in 2017 Q3.

CP9/17 Recovery planning


Overview:

In this CP, the PRA proposes a new supervisory statement (SS) on recovery planning that would supersede SS18/13 ‘Recovery Planning’ and that sets out additional expectations of firms. This CP also includes a proposal to clarify the PRA’s expectations on the approach to recovery planning for groups containing a ring-fenced body (RFB), through a proposed update to SS8/16 ‘Ring-fenced Bodies (RFBs)’.

Applicable to:

This CP is relevant to UK banks, building societies, PRA-designated investment firms and qualifying parent undertakings (‘firms’) to which the Recovery Planning Part of the PRA Rulebook applies.

Next Steps:

Subject to consultation responses, the PRA intends to publish a final policy statement in 2017 H2. The final policy statement will specify when firms will be expected to comply with the SS, allowing a reasonable period of time for them to do so.

CP11/17 Consultations by the FPC and PRA on changes to the UK leverage ratio framework relating to the treatment of claims on central banks


Overview:

This document contains two consultations. The first consultation sets out the Financial Policy Committee’s (FPC) proposed Recommendation to the PRA to exclude claims on central banks from the leverage exposure measure in the UK leverage ratio framework; and compensate for the resulting reduction in capital required by the leverage ratio framework, by increasing the minimum requirement from 3% to 3.25%. The second consultation (Consultation Paper 11/17) sets out the PRA’s proposals for implementing the FPC’s proposed Recommendation – should it be adopted by the FPC.


CP11/17 Consultations by the FPC and PRA on changes to the UK leverage ratio framework relating to the treatment of claims on central banks

Applicable to:

These consultations are relevant to PRA-regulated banks and building societies with retail deposits equal to or greater than £50 billion on an individual or a consolidated basis.

Next Steps:

The PRA seeks feedback on its proposed approach to implementing the proposed FPC Recommendation to the PRA by 12 September 2017.

Policy Statement (PS)

PS13/17 Residential mortgage risk weights


Overview:

This PRA Policy Statement (PS) provides feedback on responses to CP 29/16 ‘Residential mortgage risk weights’. The CP set out proposed changes to the calculation of risk-weighted capital requirements in relation to residential mortgage portfolios. Applicable to:

This PS is relevant to banks and building societies that use the Internal Ratings Based (IRB) approach to calculate credit risk capital requirements for residential mortgages. This PS contains the final amendments to Supervisory Statement (SS) 11/13 ‘Internal Ratings Based (IRB) approaches’.

Next Steps:

Following consideration of respondents’ comments, the PRA has made several changes to the draft amendments to the SS contained in Appendix 1 of the CP. These changes are explained in Chapter 2. The changes extend the timetable for firms to meet the new expectations, amend the definition and formulation of cyclicality, clarify the application of the cyclicality cap to historical modelling, and emphasise the PRA expectation that firms should use margins of conservatism where there are low historical data.

Supervisory Statement (SS)

SS34/15 Guidelines for completing regulatory reports


Overview:

This supervisory statement (SS) was updated following CP 45/16 ‘Amendments to Notes for completion of the MLAR’, to include updated Notes for completing the Mortgage Lenders and Administrators Return (MLAR) (Appendix 2).

Applicable to:

This statement is addressed to all firms regulated by the PRA who are required to submit supervisory reports under the Regulatory Reporting, Close Links and Change in Control Parts of the PRA Rulebook.


MR 15/2.5 Market review into the ownership and competitiveness of infrastructure provision: remedies decision


Overview:

In July 2016 the PSR published a final report into the ownership and competitiveness of the central infrastructure that supports the three interbank payment systems - BACS, Faster Payments Service (FPS) and LINK.

This market review is part of wider work the PSR have been doing over the past two years to encourage competition and innovation across the payments industry.

The PSR found there to be no effective competition in the provision of central infrastructure services for these systems. To address this, the PSR consulted on a range of measures and set out further assessment of the ownership issues identified in the final report.

Applicable to:

This Market Review is applicable to all payment service providers.

Next Steps:

The market review is now complete. The PSR now expects the industry to begin preparations for several procurement exercises, including for any central infrastructure requirements for the Payments Strategy Forum’s new payments architecture.

PAYMENT SYSTEMS REGULATOR (PSR)


Policy brief

• Customers lacking mental capacity – On 14 June 2017, a guide entitled Vulnerability: a guide for lending - telephony, face-to-face, and online was published by the University of Bristol, the FLA, and UK Cards Association. The BSA was represented on the research advisory group and endorses the guide. The guide uses the experiences of 1,666 frontline staff across 18 finance providers to address the issues they face when managing credit applications from vulnerable customers. The guide focuses on supporting customers with a mental capacity limitation that may affect their decision-making abilities. Among other things, it focuses on a range of practical insights from front-line staff, and examines relevant elements of the FCA's CONC (consumer credit) sourcebook. A new protocol – BRUCE* – has been designed to help staff look for clues in a customer’s behaviour or speech that could indicate a problem with remembering, understanding, communicating or evaluating the credit options being discussed, and the customer making a decision about entering into a credit agreement. [*Behaviour and talk; Remembering; Understanding; Communicating; Evaluating].

• Disclosure of non-financial and diversity information –The Commission published guidelines on non-financial reporting on 26 June 2017. The guidelines deal mainly with the disclosure of environmental and social information and aim to help companies disclose relevant non-financial information in a consistent and more comparable manner. They also aim to boost corporate transparency and performance, as well as to encourage companies to embrace a more sustainable approach. The guidelines will supplement the existing EU rules on non-financial reporting (Directive 2014/95/EU). Companies falling within its scope have to disclose relevant information on policies, risks and results as regards environmental matters, social and employee-related aspects, as well as respect for human rights, anti-corruption and bribery issues, and diversity on the boards of directors.

JOINT MONEY LAUNDERING STEERING GROUP (JMLSG)

News

• JMLSG revised Guidance – The revised Guidance reflects the provisions of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. It also takes account of the draft Risk Factor Guidelines published by the European Supervisory Agencies in October 2015, which have not yet been published in final.

BUILDING SOCIETIES ASSOCIATION (BSA)


News

• Former claims company manager fined £2,000 over ‘blagging’ calls to obtain personal data – A former claims company manager has been prosecuted for leading a team involved in ‘blagging’ calls to illegally obtain personal data.

• Gloucester City Council fined by ICO for leaving personal information vulnerable to attack – The ICO

has fined Gloucester City Council £100,000 after a cyber attacker accessed council employees’ sensitive

personal information.

The attacker took advantage of a weakness in the council’s website in July 2014, which led to over 30,000

emails being downloaded from council mailboxes. The messages contained financial and sensitive information

about council staff.

• Morrisons supermarket chain fined for flouting customers’ marketing wishes – A national supermarket chain has been fined for breaking the law on how people’s personal information should be treated when sending marketing emails. An investigation by the ICO found WM Morrison Supermarkets PLC deliberately sent 130,671 emails to people who had previously opted out of receiving marketing related to their Morrisons More card.

• Maidstone firm responsible for nuisance calls fined £50,000 – The ICO has issued a £50,000 fine to

MyHome Installations Ltd for pursuing people who had specifically opted out of telephone marketing.

The ICO received 169 complaints concerning the calls to phone numbers listed on the Telephone Preference Service (TPS), the UK’s official opt-out of telephone marketing register.

• Warning to SMEs as firm hit by cyber-attack fined £60,000 – Small and medium sized businesses are being warned to take note as a company which suffered a cyber-attack is fined £60,000 by the ICO. An investigation by the ICO found Berkshire-based Boomerang Video Ltd failed to take basic steps to stop its website being attacked.

INFORMATION COMMISSIONERS OFFICE (ICO)


COUNCIL OF MORTGAGE LENDERS (CML)

News

• New CML research reveals a need to narrow the gap between advice 'silos' for later life borrowers – New research undertaken for the Council of Mortgage Lenders in conjunction with the Building Societies Association (BSA) says that it is vital to adopt a more joined up approach to delivering advice to older borrowers, and to narrow the gap between mainstream lifetime mortgage advice silos. Households headed by individuals aged 55 or over form a significant part of the market numbering approximately 11.8 million (46% of all households), with over 55s holding £6.4 trillion of wealth and £2.5 trillion of property wealth. Lending to older borrowers grew in 2016 driven by remortgages and lifetime mortgages.

• Digital change raising the bar for lenders, says CML research – Digital change is radically altering consumer expectations in the mortgage market and “raising the bar for what borrowers expect from their home buying and owning experience,” according to research published by the CML. Launched at CML Mortgage Tech UK conference in London, the research Digital Change and Mortgage Borrowers says that technology has the potential to differentiate what individual lenders have to offer to customers and enhance the competitiveness of the UK mortgage market. The research, which was conducted for the CML by associate Accenture, included interviews with firms and customers across the mortgage sector. The researchers also looked at developments in mortgage markets around the world and how technology is affecting other industries.

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monthly regulatory update june 2017 - rsm uk

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