The regulator monthly update on UK regulation relating to securities laws, is provided by Emma Radmore, Legal Director, Womble Bond Dickinson (UK) LLP, and covers UK regulatory developments during April 2020.
April 2020 was dominated by regulatory rule changes and guidance to help firms and customers deal with the effects of Covid-19.
Laws, Regulatory Requirements and Consultations
FCA makes temporary relief measures for credit products. The Financial Conduct Authority (“FCA”) made two key sets of temporary relief measures to help customers in the retail lending markets. Both sets took effect after emergency short-term consultations. The rules apply only to situations where customers are in financial difficulties because of Covid-19 (not to those who were already in difficulties, to whom the normal forbearance rules apply), and nothing in them prevents firms from agreeing alternative solutions with customers, if they are in the customers’ best interests. FCA also limited the application of certain rules that would otherwise have required firms to make detailed enquiries of customers.
The first set of rules related to consumer loans, credit cards and overdrafts on personal bank accounts, and FCA required firms to implement them by 14 April 2020.
Personal loans and personal credit cards
The new rules on personal loans apply to customers who have entered into a regulated credit agreement, secured (other than on land) or unsecured; including a guarantor loan, a logbook loan (secured by Bill of Sale), home collected credit or a loan issued by a Community Development Finance Institution and to firms who have acquired such loans. Similar rules apply in relation to personal credit cards.
The rules require firms to offer a “payment deferral” which is an “arrangement under which a firm permits the customer to make no payments (or a token payment not exceeding £1 where firms’ systems will not allow a zero payment) under their credit card or revolving credit agreement for a specified period without being considered to be in arrears.”
If a customer qualifies and wishes to receive a payment deferral, the firm must grant the payment deferral for 3 months unless the firm reasonable determines that it is not in the customer’s interest to do so. Where a 3 month payment deferral is not considered appropriate, firms must offer alternative temporary relief measures straightaway e.g. by offering reduced payments, offering a payment deferral of less than 3 months, accepting less than the usual repayment amount, rescheduling the term etc. These other measures are appropriate where a payment deferral would be deemed to create a greater overall debt burden for the particular customer.
Firms can continue to charge interest during the referral period. However, where a customer is entitled to usual forbearance after expiry of the payment deferral period, then firms should waive accrued interest during the payment deferral period at that point.
Firms cannot charge any fees or charges in connection with a payment deferral and use of a payment deferral should not negatively impact a customer’s credit file.
Firms should also provide customers with adequate information to enable them to understand the implications of a payment deferral, including the consequences of accrued interest.
Firms must review their credit card prices to understand if they are consistent with the obligation of treating customers fairly and to ensure they are not posing unjustifiable burdens on customers experiencing temporary payment difficulties, and must not suspend a customer’s credit cards or credit facility during the period of time the customer uses these measures – except under normal circumstances pertaining to fraud etc.
Firms must continue to honour rates, balance transfer, purchase deals etc even where a customer uses a deferral period and where customers have taken advantage of a payment deferral all persistent debt communications and actions must cease for that period.
The rules require firms to implement the following:
- where an overdraft has a limit of over £500 limit, no interest should be charged on the first £500 irrespective of the balance that exceeds that amount; and
- in the case of an arranged overdraft with a limit of £500 or below, the entire balance should be interest-free.
Customers have 3 months from 14 April to request the assistance (or firms can apply it to all customers without request) and the assistance will last for 3 months from the point of request or decision.
During this time, customers can still apply for new or increased overdraft facilities and firms must undertake the usual creditworthiness assessments before granting it. Creditworthiness assessments can look beyond any period of temporary financial hardship if it is reasonable to expect the customer’s financial position to improve in the future.
Firms should make it clear in their communications (including websites) that this measure is available. Firms should also brief agents/staff to identify issues where an interest free overdraft might be appropriate so that they can offer these when relevant.
Credit Files should be updated to reflect that the customer is making use of an interest-free overdraft facility.
Firms must also undertake an analysis to ensure that their overdraft prices are consistent with the obligation to treat customers fairly in light of the exceptional circumstances arising out of coronavirus.
The second set of measures took effect from 27 April and comprise:
- for motor finance:
- a 3 month payment freeze for customers experiencing temporary difficulties
- where these customers need to use the vehicle, firms should not be looking to end the agreement or repossess the vehicle
- firms should not alter Personal Contract Purchase or Personal Contract Hire agreements in a way that is unfair – for instance they should not base balloon payments on a temporary depreciation of car prices, and must act fairly where they adjust terms
- firms should work with customers who want to keep their vehicles at the end of their agreement but cannot cover the payment due to Covid-19 difficulties. Again, firms must avoid unfair outcomes, and note that refinancing the balloon payment may not be appropriate
- for high-cost short-term credit (“HCSTC”), including payday loans:
- a one month payment freeze that involves no additional interest
- FCA expects firms will use the deferral period to speak to customers about whether they are likely to be able to resume payments and, if they cannot, provide forbearance in line with FCA rules
- firms should consider whether immediate formal forbearance might be more appropriate for customers in difficulties before Covid-19 or who expect their difficulties to last longer than one month;
- other credit products, including rent-to-own (“RTO”), buy-now-pay-later (“BNPL”) and pawnbroking:
- a 3 month payment freeze and
- pawnbrokers should extend the redemption period for the freeze period or not serve notice of sale for an item for that period – and must suspend any sales of which they have given notice;
- BNPL promotional periods must to be extended by 3 months for customers within them;
- RTO firms should not repossess goods during the 3 month period if the customer needs them;
- no firm should pass onto a customer any additional charges incurred because firms are unable to take payment, collect or repossess goods and
- firms must consider whether a payment freeze is in the customer’s best interests and, if it is not (eg because of interest that would accrue), offer an alternative, such as waiving interest or rescheduling the term of the loan.
Covid-19: FCA sets out its expectations for wet-ink signatures. FCA issued a statement setting out its expectations of firms when dealing with the need for ‘wet-ink’ signatures in light of Covid-19 restrictions. Its rules do not explicitly require wet-ink signatures in agreements, nor do they prevent firms from using electronic signatures in agreements. The validity of electronic signatures is a matter of law and FCA expects firms to consider the legal position themselves. Firms must also consider any related requirements set out in FCA’s Principles for Businesses and general rules. For example, FCA says:
- Firms should consider Principles 2, 3 and 6 and review the risks and harms of using electronic signatures, and take appropriate steps to minimise those.
- Firms should consider the client’s best interests rule and the fair, clear and not misleading rule to ensure that when clients sign documents electronically, this does not make it more difficult for them to understand what they are agreeing to.
Firms may use electronic signatures for all interactions with FCA.
Dear CEO Letter: SME Lending. FCA published a Dear CEO Letter setting out its expectations of Banks who lend to SMEs. Whilst SME lending sits mostly outside FCA’s scope, FCA has called out that any activity undertaken by a firm subject to the Senior Managers and Certification Regime (SMCR) is caught by the regime, regardless if the activity is regulated or not. That being said, FCA has confirmed that it expects each bank that lends to SMEs to have at least one senior manager responsible for that activity. It also further noted that it has recently recognised the new Lending Standards Board’s Standards of Lending Practice for Business Customers which is relevant to how relevant employees and senior managers discharge their duties under SMCR. FCA reminds CEOs and the Board of their duties in respect of these customers and confirms that FCA has set up a new small business unit to coordinate activities in this area.
FCA updates guidance for pensions firms. FCA has published an update for financial services firms operating in the pensions market. This represents an attempt to allow both FCA and those firms to reprioritise resources towards preventing and reducing consumer harm during the pandemic, and provide pensions providers with additional information on how to deal with these risks in their customer communications given the current financial stress and market uncertainty. In particular the update confirms that FCA has extended the implementation date for the new income drawdown rules for six-months; and also includes guidance on how firms should handle:
- income drawdown queries;
- requests to transfer defined benefit pots into non defined benefit arrangements (and the associated requirements); and
- communicating with customers without inadvertently straying into providing regulated advice, for example by giving appropriate warnings where a customer is considering de-risking or otherwise switching investments, and providing balanced information to customers on likely questions and concerns raised by the current market volatility.
The update includes a useful table setting out the main risk factors that FCA see as applying during the pandemic and is likely to be helpful for firms providing these types of advice in supporting their customers. Firms can take further comfort from FCA’s statement that the Financial Services Ombudsman has confirmed that in the event of complaints it will be taking the content of this FCA communication into account when making decisions.
FCA consults on fees. FCA has published its fees and levies proposals for 2020/2021. Covid-19 has affected FCA’s plans, and it is taking action to protect small and medium sized firms from the burden of regulatory fees. Comments are (at least currently) due by 19 May, with a view to final rules in July.
The headline figure in the proposals is a 2% increase in core budget in line with inflation, but FCA has managed to identify cost savings in several core activities, and can use the money saved to invest in its digital systems and development of its data strategy. It does, though, need to increase levies on relevant firms in respect of costs of Brexit-related activities.
Overall, the Annual Funding Requirement will increase by 5.2%, but minimum fees will be frozen for the smallest firms, which will mean that 71% of firms that only pay minimum fees will see no change. Medium sized and smaller firms will also 90 days to pay fees, meaning that 89% of firms will have until the end of the calendar year to pay.
This year, scope change costs will include the SMCR, claims management companies (CMCs) and consumer credit, but FCA can return an over-recovery from its work on the EU Markets in Financial Instruments Directive. It proposes a £12m increase in its funding allocation to consumer credit but can keep variable fee rates unchanged given current over-recovery (which has not impacted those firms that pay only minimum fees).
Specific proposals include:
- dividing the SMCR scope change costs between insurers and solo-regulated firms – as banks have already had these fees recovered, and the SMCR does not apply to sole traders;
- allocating the CMC charge to the CMC fee block;
- allocating the EU withdrawal costs across fee-blocks that include banks, insurers, fund managers and propriety traders;
- increasing the funding allocation to the consumer credit fee block following successful allocation and recovery of consumer credit scope change costs;
- using income as a means of calculating periodic fees for multilateral and organised trading facilities
- increasing insurance business transfer application fees to £20,000 for life and £12,500 for non-life; and
- charging for prospectus approval applications
Overall, the largest movement will be seen by consumer credit firms who will pay an increase of 30.8% of funding requirement (for the reasons noted above) insurers, who will pay a 7.1% increase , with deposit takers, managing agents, Lloyd’s, portfolio managers and firms that deal as principal paying between 5-6% increase. Periodic fees will change, although many fee payers will see no, or only inflation-linked differences to the current fees, and others may see a reduction.
In terms of application fees, FCA notes these have remained unchanged for many years, which has had the effect of authorised firms effectively subsidising applications. To update application fees in line with inflation would move the fees for straightforward applications to £2,500, moderately complex to £8,500 and complex to £42,000. FCA plans to review these and will consult later in the year on its thoughts.
FCA will consult separately later in the year on proposals for crypto-asset business periodic fees in relation to business it supervises under antl-money laundering legislation, while increasing the periodic fee for other MLR supervised businesses by 2% to $469.
Separately, FCA seeks views on whether it should undertake a communications and information campaign on areas where there is real risk of consumer harm to supplement ScamSmart.
Finally, FCA notes that FOS has significantly revised its funding arrangements and has asked FCA to raise a lower levy than envisaged, which will make the overall increase in levy less than expected, while the FSCS costs are significant, and a direct result of firm failure, which is of course likely to be impacted further by Covid-19. FCA also collects levies for the MaPS, devolved authorities in respect of debt advice and Treasury in respect of illegal money laundering prevention.
As usual, the consultation includes a draft instrument, showing the proposed changes for each fee block.
FCA publishes update on Strong Customer Authentication. In 2019, new rules on how banks or payment services providers verify customers’ identities or validate payment instructions were introduced to further enhance the security of payments and limit fraud. These changers are known as Strong Customer Authentication (“SCA”). In its update FCA confirms that, for online banking, the SCA changes were expected to be completed by 14 March 2020.
For online shopping, the e-commerce industry – including card issuers, payments firms and online retailers – has until March 2021 to implement SCA.
FCA says it is working with firms to implement SCA in a way that protects consumers while minimising disruption. It also wants to ensure that authentication methods are available for all groups of consumers.
Banks or payment services providers should keep customers up to date if they are planning any changes to their authentication process. Such changes could affect how customers access their account online or when making payments.
The update also mentions that there may be changes to the way customers authenticate themselves when shopping online. Card issuers should keep customers up to date about any planned changes.
Regulators clarify SMCR obligations during Covid-19. The PRA and FCA set out their expectations on dual-regulated firms under the SMCR. The regulators say they recognise firms will have to keep their governance arrangements under review, and intend to be flexible. It notes that although statute requires regulatory notification of significant changes to senior management function (SMF) responsibilities, there is no statutory deadline – as a result, the regulators will expect firms to submit changes as soon as reasonably practicable, and will understand submissions may take longer than would be normal. The regulators are also considering whether the current rule that allows the provision of 12-week “emergency” cover is likely to give firms enough flexibility in the current circumstances. It would be better for firms to reallocate the functions of a temporarily absent SMF holder to other senior managers, but if this is not possible, the 12 week rule can be invoked, but if it is, it is critical for firms to ensure records keep a clear picture of responsibilities, given that individual will not have a SOR. FCA intends to issue a Modification by Consent to the 12-week rule. Under the modification, firms that need to make temporary arrangements lasting more than 12 weeks can make a notification that will have the effect of meaning they can extend arrangements up to 36 weeks.
The guidance also notes the regulators do not expect a single SMF to be responsible for all parts of a firm’s response to Covid-19, except for allocation of the key worker identification to the SMF1, as already stated. Otherwise, the regulators think many aspects of a response may naturally sit with the SMF24 holder, if a firm has one – particularly in respect of business continuity, information security and outsourcing.
In relation to furloughing SMF holders, the regulators note that firms must, as appropriate, always have individuals in specific key positions, depending on the firm’s categorisation and business type. Individuals performing these functions, as well as FCA required functions (Compliance Oversight, MLRO and Limited Scope Function) should be furloughed only as a measure of last resort. For non-mandatory SMFs, firms may furlough SMF holders if, for example, the business line for which they are responsible is suspended, but must think carefully about the risks this would create. Firms do not need to make any notifications in respect of furloughed SMFs unless they leave the firm but should update their supervisor by email or call.
Finally, firms should continue to take reasonable steps to complete any annual certifications of employees that are due to expire while coronavirus restrictions are in place. While there may be some need for flexibility, staff who are not fit and proper must not be re-certified.
Parliament Committee seeks equivalence answers. The Third Report of Session of the House of Commons European Scrutiny Committee seeks clarification on the Government’s intentions for negotiations of equivalence arrangements with the EU from the end of the transitional period.
The report is wide-ranging but, in relation to financial services, states the Committee has asked John Glen, Economic Secretary to the Treasury, to seek further information on the intentions behind any agreement. It notes the EU’s general publications around third-country equivalence, and queries why the UK Government appears to be seeking some more limited preferential treatment based on the EU assessing equivalence by June 2020. It says it is unclear what happens if equivalence is not obtained. It also queries the benefits of equivalence if it is not available for some key areas of the financial services marketplace and also notes that equivalence very rarely leads to full cross-border market access in any event. It notes the UK has no right to equivalence and that the EU has not committed to granting it – and that, where it does grant it, it is likely to insist on some form of continued substantive regulatory alignment.
The UK is understood to be asking for some structure in any withdrawal of equivalence and does not want to have to commit to regulatory alignment. The Committee wants more clarification on how the UK would propose to approach the trade off between regulatory freedom and EU market access, and does not understand why the UK is wedded to the EU finishing its assessments by June – since even this would not guarantee market access by the end of the transition period.
The letter to John Glen makes these, and other, points, and asks whether the Financial Services Bill will give Treasury powers to update UK law in line with EU amendments, which would allow continued alignment without the need for more primary legislation. It asks:
- what the proposed “institutional arrangement” in relation to financial services is;
- which equivalence assessments are priority;
- for confirmation that the Government seeks only positive equivalence assessments for financial services by June, rather than actual legal decisions, but also asks why this deadline is so critical;
- for more detail on the “structural” restrictions on withdrawal of equivalence that the Government wants and whether there are some equivalence decisions that the Government will not pursue as the risks to market and financial stability are too great;
- for specific information on how the Government intends to pursue cooperation in relation to European Market Infrastructure Regulation (“EMIR”), and the “comparable compliance” mechanism ; and
- for clarity on the relevant provisions in the Financial Services Bill.
Regulatory Speeches, Reviews and Enforcement Action
Secure Customer Authentication E-commerce deadline extended. FCA has extended the deadline for firms to implement their e-commerce SCA by 6 months from 14 March 2021 to 14 September 2021. This is to minimise potential disruption to consumers and merchants, in light of COVID-19. After 14 September 2021, any firm that fails to comply with the requirements for SCA will be subject to full FCA supervisory and enforcement action.
Further statement on the impact of Covid-19 on the timeline for LIBOR transition. Following a joint statement on 25 March, the Working Group on Sterling Risk-Free Rates has issued a further statement on the impact of Coronavirus on the timeline for firms’ LIBOR transition plans. The statement says that the Working Group, FCA and Bank of England recognise that it will not be feasible to complete transition away from LIBOR across all new sterling LIBOR linked loans by the original end-Q3 2020 target. There will likely be a continued use of LIBOR linked loans into Q4 2020 to maintain the smooth flow of credit. The Working Group therefore recommends:
- By the end of Q3 2020 lenders should be in a position to offer non-LIBOR linked products to their customers;
- After the end of Q3 2020 lenders should include clear contractual arrangements in all new and re-financed LIBOR-referencing loan products to facilitate conversion ahead of end-2021, through pre-agreed conversion terms or an agreed process for renegotiation, to SONIA or other alternatives; and
- All new issuance of sterling LIBOR-referencing loan products that expire after the end of 2021 should cease by the end of Q1 2021.
Essentially, the original Q3 2020 target for no new LIBOR linked loans to be issued has been pushed back to Q1 2021. The target to include contractual conversion mechanisms in all loans issued from Q3 2020 will nonetheless constitute an ambitious goal for lenders and borrowers to meet.
FCA publishes skilled person data. FCA has publicised the number of skilled persons reports commissioned in January to March 2020. It commissioned 24 in total, of which 9 related to retail banking and 6 to retail lending. 6 of the reports were on financial crime, 4 each on conduct of business and controls/risk management framework and 2 on client assets. 6 related to dedicated supervision firms.
FCA publishes report on PPI complaint deadline. FCA has published its final report on the impact of the deadline for Payment Protection Insurance complaints. It concludes that its 2 year communications campaign led to a significant increase in consumer awareness of the deadline and understanding of the issue. In the 14 final months of the campaign, 8.9m complaints were submitted, compared to 3.7m in the first 10 months, out of a total of around 32.4m.
Covid-19: PSR Update. The Payment Systems Regulator updated on its plans to ensure customers could still have access to cash, explaining how banks are trying to keep branches open, and the options the Post Office offers. It reassured customers that there is no shortage of cash.
Covid-19: FCA Updates. In addition to the specific rule changes already discussed, FCA published the following covid-19 updates in April:
- updated guidance on changes to regulatory reporting;
- updated statement on its expectations on financial resilience for solo-regulated firms in respect of wind-down plans, discretionary distribution of capital and non-bank lenders;
- a Dear CEO letter about the need to treat fairly corporate customers who are preparing to raised equity finance. It has heard of some banks that may have used their lending relationship to get roles on equity mandates which their issuer customers may not otherwise have appointed them on – and worse, that this is often for a fee but with no real additional services being provided. FCA reminds firms of the many Principles and Rules that this practice would breach. It will be contacting firms who have had both a lending and equity manager relationship with a customer to enquire how it ensured it treated its customers fairly and handled inside information appropriately;
- clarification of the relationship between its rules and the UK’s government funding schemes for small businesses, the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan (BBL) schemes. It notes that, pending the roll-out of the BBL scheme, which, from 4 May, will give small businesses access to interest free loans for the first 12 months for amounts between £2,000 – £50,000, firms that comply with the newly amended requirements of the CBILS do not need to comply with certain provisions of its Consumer Credit Sourcebook. Separately, it is allowing firms not to carry out further customer due diligence (CDD) on customers who on whom it had already carried out checks before they applied under the schemes, unless any red flags or alerts are present. Firms must apply appropriate CDD to new customers, although in some circumstances simplified measures may suffice;
- update to its information page for firms, in respect of professional qualification exams. It notes that while professional exams are being cancelled, firms must still ensure employees have the skills, knowledge and expertise they need to discharge their responsibilities. But it will not take action against firms who have not been able to ensure employees get qualifications within set time periods because of these cancellations. It will generally allow a further 12 months if required and appropriate, and will adopt the approach in relation to exams postponed or cancelled up to the end of October;
- a new webpage on Professional Indemnity Insurance (“PII”) cover for financial advisers. It recognises that firms may be concerned about their ability to renew their PII during the Covid-19 crisis, which may impact on their operational resilience. It has been speaking to the market, and believes sufficient cover should be available, and it expects firms to have it. It cannot mandate to insurers what cover they should offer at what cost, but notes the insurers must meet their regulatory obligations. It notes that if it sees renewals are a problem, it will consider how to address this, and says firms should contact it if they are concerned they will not be able to get appropriate cover;
- guidance on its temporary measures for submission of regulatory returns. It is applying an extension for all submissions due up to and including 30 June 2020. The page lists the returns that benefit from a 1 or 2 month extension, and confirms that firms need not submit an Employers’ Liability Register return. But there is no extension for returns that are not listed. FCA has also confirmed there will be no administrative fee for any late returns by SMEs until 30 June; and
- an update to its expectations on solo-regulated firms in respect of the SMCR;
- a summary of queries it has received on client assets compliance and its views. It has set up a dedicated email address for queries, but expects firms to have researched the problem and the rules before coming to FCA for help. The main queries have been around:
- handling of cheques which are delivered to unmanned offices and therefore not banked – FCA says it expects firms to have taken whatever mitigatory steps are possible in the circumstances to avoid breaching the Client Assets Sourcebook (CASS) rule that requires cheques representing client money to be banked promptly;
- likelihood of increased costs of CASS audit reports because of multiple breaches. FCA merely comments that it does not see this would necessarily follow but that firms should be aware of the obligation to notify FCA if they will be reporting late and to notify specific breaches under the Supervision Manual and other Handbook provisions;
- physical asset reconciliations where firms cannot access the location where physical assets are held;
- depositing client money: FCA expects firms to have considered their options before contacting it if they are having difficulty segregating monies appropriately;
- breach reporting; and
- CASS firm classification if firms cross thresholds – but FCA says firms should follow the normal January notification requirement; and
- its expectations regarding funds – noting in particular its agreement to a delay in publication of annual and half-yearly fund reports, its agreement in principle that general meetings can be held in a virtual format and its acceptance of electronic signatures on applications. It also notes that firms having issues in managing their funds within risk limits should speak to their supervisor – but they should already have in place plans to deal with this type of event and take appropriate remedial action;
- made its rules on deferring commencement of various handbook provisions on pension transfers, investment pathways, platform switching and access to insurance, to various dates separately notified;
- updated its policy statement on signposting to travel insurance for consumers with medical conditions and associated guidance. FCA has postponed the start date for the signposting rules;
- published guidance to firms on how they can explain to customers the consequences of realising their investment in these times of market volatility without straying into giving personal recommendations. But it stresses the guidance is limited to the exceptional circumstances arising from Covid-19 and is not intended to have any longer term application. The guidance gives examples of some messages that would not be personal recommendations, and FCA says it has spoken to FOS about what view it would take if it received a complaint relevant to the guidance – FOS has said it would take FCA note into account;
- updated its information page for firms to address pensions issues: it notes firms are facing challenges implementing the rule changes on information for consumers entering pension drawdown or taking an income for the first time and the annual information they get. It appreciates the 6 April deadline may be unachievable, but urges firms to comply as soon as possible, and tell it if they cannot do so before 31 May; and
- updated its list of postponed workstreams, setting out consultations, policy statements, rule changes, reports and reviews that are being delayed.
FCA publishes complaints figures for H2 2019. FCA has published the complaints figures for regulated firms for the second half of 2019. The data showed an increase in complaints from 4.29m in the first half of 2019 to 6.02m in the second half of 2019. In its press release, FCA says the increase in complaints was mainly driven by a 75% increase in the volume of PPI complaints received, from 2.12m to 3.71m. FCA confirms that PPI complaints made up 62% of all complaints received, making it the most complained about product during this period. In addition to this, FCA says there was a 6% increase in all other complaint volumes compared with the first half of 2019, from 2.18m to 2.31m. Excluding PPI complaints, the most complained about products were current accounts (10% of all complaints), credit cards (6%) and other general insurance products (5%). Complaints about home finance products decreased from 8.7 to 8.4 complaints per 1,000 balances outstanding, while investment products increased from 2.1 to 2.3. Overall, excluding PPI, FCA says the average redress per complaint upheld decreased from £200 in the first half of 2019 to £184 in the second half of 2019.
FOS publishes help on avoiding scams and fraud. The Financial Ombudsman Service (“FOS“) recognises that the type of complaint it sees is constantly evolving, as fraudsters develop new methods or seek to exploit events, such as the current impact of Covid-19. To help consumers, the FOS has published details on protecting consumers’ personal information and what to do if consumers have a complaint about a fraud or scam, and don’t think they’ve been treated fairly by a financial business. It particularly notes checking the authenticity of any communications purporting to be from the Government.
FOS updates on Covid-19 activities. The latest edition of Ombudsman News focuses on:
- how it is working to help complainants during the Covid-19 crisis, including on how it has changed its helpline hours – for which it apologises but asks that it only be called if suffering severe ill-health or financial hardship. It also confirms that it will not be opening any post until its offices reopen and notes it will take longer than ideal to resolve complaints;
- how it is monitoring Government guidance on Covid-19, and the advice FCA has been giving to firms. It says it has a well-established approach to many of the issues that may arise, and says it will look at all available evidence and arguments to decide what is fair and reasonable. It gives specific guidance on what it will consider in relation to section 75 complaints, financial difficulties, car finance and similar arrangements, insurance, business interruption insurance, wedding insurance and mortgages. It stresses that, in relation to insurance, insurers should be considering not only the policy terms but also what is fair and reasonable in the circumstances – for instance where people have cancelled travel sooner than would be normal but ultimately would have had to cancel before the date of travel, or whether a wedding would have been called off, for example, if participants were unwell;
- consumer information on avoiding fraud and scams;
- complaints data for the last half year, showing the new cases among the top 5 business groups and by number of cases. PPI still provides the most new cases, followed quite closely by banking and credit;
- FOS’ plan and budget for 2020/21; and
- reminding firms of the increase in the maximum award payable, from 1 April.
PSR publishes APP scam thoughts. The PSR has published a summary of a conference call between key players in the payments industry to discuss the progress being made in tackling APP scams. It decided to go ahead with the call, not least as Covid-19 has provided fraudsters with more opportunity to prey on the vulnerable.
- noted the Contingent Reimbursement Model (“CRM”) Code has now been in place for 10 months, and the importance of it working effectively;
- noted that APP scams are increasing, and most of the fraud is on personal accounts;
- said the PSR is pleased at firms’ reactions to the introduction of COP – and noted the letter it sent to firms saying it would not take action against them if they failed to meet the COP deadline because of Covid-19, so long as they compensated customers who likely would not have lost money had the safeguards been in place;
- discussed why only 40% of cases assessed under the Code had been reimbursed up to the end of 2019 – when the expected figure would have been a lot higher. It is possible there is a problem with the data, but it is critical to work out what is happening, so as to improve outcomes for customers;
- discussed recent findings of the Lending Standards Board (“LSB”) and FOS, which again suggest outcomes are not where they should be;
- turned to barriers to Code participation, and how they could be removed;
- moved onto the Pay.UK decision on “no blame funding” – and how rules could and should change over time; and
- looked at the way forward, including possible action by the PSR – whose current view is that it does not have the power to require reimbursement to be made to Authorised Push Payment (“APP”) scam victims. As a result, there has to be another solution, involving an industry solution or rule changes and working with Faster Payments.
FCA Business Plan 2020/21. FCA published its business plan for the coming year this morning. The plan focuses around 5 key priorities for the year. It has been significantly reshaped because of coronavirus as it was intended to show FCA’s strategic focus for the next 3 years. Instead, the regulator will review the plan as the global financial position becomes clearer.
Transforming how FCA works and regulates
Coronavirus has meant that FCA has had to change the way it regulates and it wants to be ready for the future. In order to meet the change in demand and pace, it has identified a few key outcomes it wants to focus on:
- FCA wants to be able to make faster and more effective decisions
- It plans to invest, to grow and develop its capabilities in order to keep pace with the evolving and more complex regulatory context it is working in.
- As well making use of its wide range of regulatory tools, it wants to operate in a more integrated and simplified way through its ‘One FCA’ concept.
- Prioritise end outcomes for consumers, markets and firms
- it plans on being clearer with firms on the end consumer outcomes FCA is targeting through its work.
- Intelligence and Information
- In order to be able to use information and intelligence better, FCA is reviewing its processes around retrieval, analytics and acting on such information
- Investment in systems is in processes, in particular through its data strategy to help FCA use data better to understand markets and consumers better.
- For firms, it plans to streamline data and regulatory returns through Digital Regulatory Reporting and through better regulatory coordination between FCA, Bank, PSR, CMA, Treasury and other public bodies.
- Influence internationally on issues that affect UK markets and consumers
- FCA plans on building stronger links with global partners to ensure that it can respond in the most effective way to global challenges.
Enabling effective consumer investment decisions
FCA is concerned with the amount of consumer losses that can be caused by the pension/retail investment sectors working poorly. This is highlighted by the stat that those consumers who are scammed lose an average of 22 years’ pensions savings. FCA is concerned with the significant risk of harm in these markets driven in part by consumer’s personal responsibility for complex decisions through the shift to defined contribution pensions and pension freedoms. FCA wants to ensure consumers are supported to make better decisions and will do this through targeting 3 outcomes:
- ensuring investment products are appropriate for consumer needs – through design, offering good value for money and being marketed in a clear, fair and not misleading way.
- supporting consumers to make effective decisions – through access to high-quality advice and support and awareness of scams and fraud. In particular, a consumer harm campaign is being planned for the retail investment sector.
- ensuring higher standards of governance is adhered to – right through firms’ distribution chains.
Ensuring consumer credit markets work well
The coronavirus has had a major impact on this sector. As a result of this and other factors, FCA will focus on delivering the following outcomes:
- consumers can find products that meet their needs – through delivery of clear and simple information to ensure ranges and features can be easily understood.
- consumers do not become over-indebted by being given credit they cannot afford.
- affordable credit is available to smooth consumption – through increasing access to fair and affordable credit including alternatives to high-cost credit.
- consumers can take control of their debt at an early stage when they fall into financial difficulty – encouraging and helping firms be able to identify consumers at risk at an early stage and to give them suitable forbearance and encouraging debt advice.
Making payments safe and accessible
FCA acknowledges that the payments sector is developing quickly and FCA wants to ensure this market continues to be safe and varied.
FCA has identified 3 outcomes it wants to deliver and to do so, will collaborate with other regulators:
- consumers transacting safely with payment firms – there will be a focus on payment firms’ systems and controls to ensure they are robust enough to combat fraud and operational outages.
- payment firms meeting their regulatory responsibilities while competing on quality and value – FCA will crack down on firms who fail to deliver safeguarding and other regulatory requirements. It also expects open banking to increase competition in this sector to help consumers access high-quality, fair value products and services.
- consumers and SMEs having access to a variety of payments services – FCA wants to ensure certain consumer groups and consumers are not excluded from access to different payment methods. A key priority here is ensuring consumers continue to have Access to Cash.
Delivering fair value in a digital age
FCA wants to ensure it has the necessary skills and tools to effectively supervise firms in the age of Big Data. A particular focus will be on how digital technologies is affecting vulnerable customers and FCA will focus on 3 outcomes:
- consumers can choose from products that meet their needs, at a suitable quality and price – consumers should have confidence that they are getting appropriate quality and services and that they have the information to assess this.
- digital innovation and competition supports greater value for consumers – a focus will continue on ethical use of data including preventing undue bias or discrimination.
- vulnerable consumers are not exploited or targeted with poor value products and services and access to key products and services is fair – through robust policies.
In relation to the 5 key priorities, FCA will work across sectors in areas that have a broad market impact:
- EU withdrawal and wider international work
- Climate change
- Innovation and technology
- Operational resilience
- Financial crime
- Culture in financial services
FCA will also continue to work to address harm in the following areas as part of its sector work:
- Wholesale financial markets (orderly transition from LIBOR, clean markets, good value, high quality products, orderly markets in a range of conditions, a market that meets users needs)
- Investment management (ensuring investors get high-quality, fair value products and services – looking at effective disclosure, effective governance and SMCR, how host SCD firms discharge their responsibilities, LIBOR risk)
- Retail banking (looking at ensuring Access to Cash, operational resilience, minimising fraud and financial crime, a wide range of services are available, high quality products and services are offered, cash savings remedies are delivered including SEAR)
- General insurance and protection (looking to ensure products and services are suitable for customer needs and deliver on their promises through clear, fair and not misleading communications, focusing on value measures, renewals and switching, access to GI&P products is maintained especially for vulnerable customers who should be sign posted to alternative specialist products that might better meet their needs, looking at pricing practices, operational resilience.
FOS confirms case fees and releases 2020/21 budget. In early April, FCA confirmed the FOS 2020/21 budget. Key elements include:
- continuing to allow 25 “fee” cases for firms outside the group account fee arrangement – so 90% of firms will pay no case fees;
- 50 free cases for each group within the group account fee arrangement;
- a £650 case fee when payable;
- all minimum levies to be frozen;
- A case fee to levy income for FOS of only 70:30, less than it consulted on, with the cost of the changes coming from a reduction in FOS’ reserves.
PSR publishes Annual Plan and Budget for 2020/21. The Payment Systems Regulator has published its annual plan and budget, which sets out its key aims and activities for the year 2020/21 alongside its expected costs.
The PSR acknowledges that, due to the impacts of the Covid-19 pandemic, it may have to adapt some of the activities set out in its plan, but says it will communicate any changes it makes as they happen. The plan makes it clear that the PSR aims to continue its work on opening up access to payment systems, promoting effective competition in the markets for payment systems and their services, and promoting users’ interests – particularly in enhancing fraud prevention and protection.
The PSR’s key projects for 2020/21 are:
- The New Payments Architecture (“NPA”) – working towards ensuring that the NPA delivers a resilient way of making digital payments that supports more competition and innovation, supporting payment services that benefit the people and organisations using them.
- Access to cash – working towards ensuring that people can continue to access and use cash from the ATM networks where they want or need to.
- Card-acquiring market review – aiming to ensure the market for card-acquiring services works well, supported by effective competition.
- APP scams and Confirmation of Payee – working towards seeing scams reduced, and ensuring that victims are protected.
- Competition and regulatory enforcement casework – working towards ensuring that payment systems and markets are more competitive and/or deliver better outcomes for users. This includes tackling anti-competitive conduct, so that there is a credible deterrence against such behaviour.
- Sector intelligence and analysis – enhancing the way it assesses developments in payments, to make sure it has the right insights at the right time to help it advance its objectives.
- Strategy setting – working towards making sure its stakeholders are clear on what its longer-term focus is, and effectively planning its work to support its long-term outcomes.
- Revised Powers and Procedure Guidance – ensuring stakeholders understand how the PSR works, how it decides whether to take any regulatory or enforcement action, the processes it follows, and what can be expected from it.
OFSI fines Standard Chartered £20m for sanctions breaches. In early April the Office of Financial Sanctions Implementation (“OFSI”) published details of two monetary penalties totalling £20.47m on Standard Chartered Bank for breaches of sanctions against Ukraine, following a voluntary disclosure by the bank.
OFSI levied two separate fines, one under the relevant EU Regulation (£7.6m) and one under the UK Ukraine (EU Financial Sanctions)(No 3) Regulations 2014 (£12.7m). The breaches related to the provisions that ban any EU person from making loans or credit, or being part of an arrangement to make loans or credit, available to sanctioned entities where the loan or credit has maturity of over 30 days. Originally, OFSI had proposed fines of £11.9m and £19.6m respectively, but these were reduced on a review by the Economic Secretary to the Treasury.
The restrictions took effect in 2014. The bank made a series of 102 loans between April 2015 and January 2018 to Denizbank A.S., which at the time was almost wholly owned by Sberbank, which was subject to restrictive measures. As a result, the restrictions also applied to Denizbank as its majority-held subsidiary.
One exemption to the general ban on loans and credit covers those with the specific and documented objective of financing the import or export of non-prohibited goods between the EU and a third country. The exemption is aimed at protecting legitimate EU trade and so requires that the trades concern goods coming into or out of the EU.
On examination, OFSI found that around 70 of the relevant loans did not have the necessary EU nexus. The loans totalled around £266m, of which 21 loans, valued at around £97m, were made after 7 April 2017, the date on which OFSI acquired powers to fine under s146 of the Policing and Crime Act 2017. OFSI’s penalty was based on these loans.
OFSI’s investigation determined that the bank had initially ceased all trade finance business with Denizbank when it became a sanctioned entity, but had gradually introduced dispensations for business it believed to be exempt. But OFSI found the dispensations were not appropriately put in place and as a result their operation allowed loans that were not covered by an exemption to be made – and these failings lasted some time.
The Bank had made a voluntary disclosure, carried out a detailed internal investigation and provided a detailed report to OFSI and, as a result, OFSI reduced the penalties for the offence, which is considered “the most serious”, by 30%.
The Bank exercised its right to have the penalties reviewed by a Minister, who agreed the breach was “most serious” and upheld the decision to impose fines. But the Minister found that the fact the bank had not intended to breach the restrictions, and the measures it took once it discovered the breach, should have been given more weight in the penalty consideration, and as a result reduced both penalties. The bank paid the reduced penalty without further appeal.
Emma Radmore (legal director) is a member of Womble Bond Dickinson (UK) LLP's financial services team.
Contact her at firstname.lastname@example.org
© Womble Bond Dickinson (UK) LLP 2020. This publication is not designed to provide legal, financial or other professional advice and nothing in it should be construed as such. Please see www.womblebonddickinson.com for legal notices.