Selected recent news from the UK's conduct regulator:
On 27 February, HM Treasury opened a consultation on the "Transposition of the Insurance Distribution Directive" setting out draft legislation amending the Financial Services and Markets Act 2000. The government states that the FCA will be responsible for implementing the majority of IDD through its rules, and will be consulting separately on its proposals alongside this consultation. Responses are requested by 22 May 2017. The IDD is a minimum harmonising directive (i.e. Member States can add provisions or increase the scope and, indeed, the UK government seeks views on additional provisions proposed) requiring the regulation of insurance distribution activities in relation to most contracts of insurance. It must be transposed into national law by 23 February 2018.
On 23 February, the FCA published a special edition of Regulation Round-Up, focused on their consultation on FSCS funding (the publication was reported in OAC Digest of 19 December last year). Currently, authorised product providers only contribute to the costs of failed intermediaries from levies they pay for their own intermediation activities within the intermediation funding classes, and also to any costs incurred if the retail pool is triggered. The FCA believe it is appropriate that providers now pay additional contributions. They propose different options for changing the FSCS funding classes which will affect the levies paid with provider contributions increasing significantly under each option. Providers would be charged from the first pound of any claim. The regulator is also considering whether firms should pay a higher levy if they distribute "higher risk" products. The consultation closes on 31 March 2017. [Background information: This funding review focuses on levies for compensation costs and specific costs, not base costs.]
The top three reasons that consumers contact the FCA are a query about firm registration or regulation, a customer service issue and scams according to Issue 8 of the FCA's Data Bulletin published on 23 February. In addition to looking at trends on who is contacting the FCA and the nature of their enquiry, the latest edition looks at trends in the retirement income market.
On 15 February, the FCA published "New evidence on liquidity in UK corporate bond markets" suggesting a decline over the past two years.
In his speech "What makes good conduct regulation?" on 13 February, the FCA's Chairman suggested such rules are "built upon government policy, clear objectives and perimeters, shared understanding of risk tolerance, operational excellence, and efficient measurement of outcomes".
On 31 January, the FCA published "CP17/3: Proposed Handbook changes to reflect the new regulatory framework for Insurance Linked Securities." The previous consultation (see OAC Digest of 28 November 2016), about the proposed authorisation and supervision regime for Insurance Special Purpose Vehicles (ISPVs) in the UK, closed last week. [Background information: Insurance Linked Securities (ILS) are financial instruments, which are sold to investors, where the value of the security is linked to an insurable loss event.]
On 31 January, the FCA's chief economist opined that "if MBF [Market Based Finance] is monitored carefully, and any significant risks clearly arising are addressed, it can generate significant welfare gains for society". The FCA published the speech "Shadow banking - the potential risks and rewards" on 21 February. A previous FSB paper noted that "Some authorities or market participants prefer to use other terms such as “market-based financing” instead of “shadow banking”. Shadow banking is defined as credit intermediation carried out on and priced (by non-banks) on global markets for money and risk and is an activity undertaken by a number of entities including insurers.
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