OAC Compliance News Roundup No.9 - Published January 2012

A Happy New Year to you, and welcome to this, the 9th edition of our monthly Compliance News Roundup, highlighting the regulatory developments which have occurred during the last month which we think will be of interest.

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1. Parliament backs FSA over tougher early warning powers
2. Government proposal to withdraw life assurance premium relief
3. PS11/15: "Financial crime: a guide for firms - feedback to CP11/12 and final guide"
4. CP11/31: "Mortgage Market Review: proposed package of reforms"
5. FOS publication: "Our plans and budget for 2012/2013"
6. FOS publication: "Charging for our work: modernising our case fee arrangements from 2013 – a preliminary consultation paper"

Parliament backs FSA over tougher early warning powers

In its report dated 19 December 2011 on the Draft Financial Services Bill, the House of Lords and House of Commons Joint Committee has agreed with the FSA that the new regulator, the FCA, should not be required to consult before publishing early warning notices. The Government has stated that the FCA will consider whether or not to publish on a case-by-case basis, rather than being required to publish.

The committee says:

"Given the powers of regulators in other sectors, and indeed the process in criminal and civil proceedings, we see no reason why financial services firms should be granted greater dispensation from public disclosure.

"Requiring the FCA to consult could seriously undermine the effectiveness of this new power. The fact that the FCA will not be publishing the warning notice itself, but only the fact that it has issued one, and the fact that it will need to take into account a number of considerations in deciding what to publish should provide sufficient safeguards.

"We recommend that the requirement to consult before disclosing the fact that a warning has been issued should be removed from the draft bill."

See in particular paragraph 258 (page 61) of the report in the link below:

www.publications.parliament.uk/pa/jt201012/jtselect/jtdraftfin/236/236.pdf

Government proposal to withdraw life assurance premium relief

The Government, as part of its tax simplification initiative, has decided to stop life assurance premium relief which still applies to many pre-1984 policies. Draft legislation has now been published with a view to inclusion in the 2012 Finance Bill. The main points include:

• relief will no longer be available for premiums due after 5 April 2015;
• life offices will not be able to submit claims after 5 April 2016; and
• saving provisions are proposed for former industrial branch policies and friendly society tax-exempt business which may need alteration on withdrawal of this relief. The provision will avoid policies becoming non-qualifying.

For premiums to gain relief they must not only be due and payable before 6 April 2015 but must also be paid before that date. The latter condition could lead to a significant number of cases losing relief to which they would otherwise be entitled, given the practical difficulties surrounding premium collection.

www.hm-treasury.gov.uk/d/ots_life_assurance.pdf

PS11/15: "Financial crime: a guide for firms – feedback to CP11/12 and final guide"

This Policy Statement reports on the main issues arising from Consultation Paper 11/12 (Financial crime: a guide for firms), and publishes the final guide.

The paper is important to all firms and their advisers as it explains steps that firms can take to reduce the risk of being used to further financial crime and, by doing so, help themselves to meet relevant legal obligations. In it the FSA gives guidance to firms about how to structure their systems and controls to prevent fraud committed by or against their customers.

www.fsa.gov.uk/pages/Library/Policy/Policy/2011/11_15.shtml

CP11/31: "Mortgage Market Review: Proposed package of reforms"

FSA Consultation Paper 11/31 was published in December 2011, and the FSA is asking for comments on this CP by 30 March 2012.

Whilst few of our clients are active as mortgage lenders, this consultation is nevertheless of interest because some of the proposals represent a shifting of the regulatory position that may (or, of course, may not) be carried over into other areas in future. These include:

• the burden of responsibility placed on lenders to assess affordability (independently of any work in this area undertaken by an adviser);
• a proposal to ban most non-advised sales where there is a “spoken or other interactive dialogue” between a customer and a firm. Any interaction with a customer will be construed as advice;
• a further proposal to require that some niche products (such as equity release, right to buy and sale and rent-back sales) must also be sold only on an advised basis;
• a prospective borrower can reject advice (including advice not to proceed) and go ahead on an execution-only basis (effectively as an insistent customer). However, sale and rent-back transactions are exempt from these provisions, as the FSA says these people tend to be in a vulnerable position. Hence, when an adviser advises against a sale and rent-back arrangement, he effectively prevents the prospect from entering into it. It remains to be seen whether such a "nanny" provision will survive consultation, but it may do;
• high net worth borrowers will continue to be able to access all types of mortgage without advice; and
• replacement of the Initial Disclosure Document on the grounds that it is not read.

One can only speculate as to the extent to which some of these provisions may, in the future, be read over into the field of investments, but there is clearly scope to do so and an appetite at the regulator to protect consumers from themselves, not simply from advisers perceived as poor. For this reason, the Consultation Paper makes interesting reading.

www.fsa.gov.uk/pubs/cp/cp11_31.pdf

FOS publication: "Our plans and budget for 2012/2013"

FOS has published its plans and budget for 2012-2013 in a consultation paper.

In preparation for the consultation, FOS states that it has already spoken with trade associations and financial services practitioners about the plans in the document, and it will shortly be consulting consumer groups as well. It will also continue to consult with stakeholders before finalising its budget for 2012/2013 in March 2012.

Comments are requested by Monday 20 February 2012.

www.financial-ombudsman.org.uk/publications/pdf/plan-budget-2012-13.pdf

FOS publication: "Charging for our work: modernising our case fee arrangements from 2013 – a preliminary consultation paper"

To accompany the consultation on FOS’s plans and budget for 2012/2013, it has published details of its intended changes to its funding, in particular as regards case fees. It is requesting comments by Monday 16 April 2012 as to whether it should move to the new charging model proposed in the paper by April 2013.

The main FOS proposals, taking account of the impact that different businesses have on its workload through the number of complaints they account for, are:

• for smaller users, FOS proposes increasing the number of free cases from 3 to 25. This would significantly reduce the number of businesses paying any case fees, so that only 1% of financial businesses would pay any case fees at all;
• for medium sized users (those that send FOS between 25 and 2,000 cases a year), it proposes that the existing model should be largely unchanged – although this group would also benefit from the increase in free cases from 3 to 25; and
• for the largest users (the ten or so financial groups that account for over 70% of FOS’s caseload), it proposes a new group account arrangement, which would develop over time to measure more accurately the costs to the ombudsman of the work generated by each of these groups.

www.financial-ombudsman.org.uk/publications/pdf/charging-for-our-work-Jan12.pdf