 We recently set out our proposals for a price cap on the rent-to-own (RTO) sector – these are now open for consultation. Through this work, we’re aiming to protect some of the most financially vulnerable people in the UK – saving them up to £22.7m per year. Subject to consultation, the cap will come into force in April 2019.
This is part of our wider review of high-cost credit, which we published in May. We’re also looking at other markets, including overdrafts, home collected credit, catalogue credit and store cards. We’ve proposed a price cap for the RTO sector to limit both the cost of the product and the charge for credit. This should stop customers being charged many multiples more than the price of a product on the high street. It would save the people who use RTO significant sums on essential household goods such as fridges and washing machines.
But while we’re taking steps to protect consumers across the high-cost credit sector, we also recognise the need to promote alternatives. We are working with the Government and other relevant organisations to support a number of initiatives. We want consumers to have access to lower cost credit options. But we also want to promote the availability of alternatives which meet consumers' needs without taking out credit. This could include other sources for essential household goods.
Our work on high-cost credit isn’t over yet. But this is an important milestone, and one which we hope will make a significant difference to consumers.
The Management of Long-Term Mortgage Arrears and Forbearance Thematic Review
We published the findings from our thematic review into the management of long-term arrears and forbearance in December. The review covered 8 lenders representing a cross-section of the market, including large retail banks, building societies, non-bank lenders and closed-book lenders. Our work focused specifically on firms’ interactions with customers with mortgage arrears of greater than 12 months. We looked at firms’ arrears management policies and strategies and reviewed customer files, to understand how well firms are delivering appropriate customer outcomes.
In the cases we reviewed, we found that firms generally treated customers in long-term financial difficulty appropriately. Overall, firms are making appropriate arrangements with their customers on sustainable terms, considering their individual circumstances and potential vulnerabilities.
We found isolated examples of harm where customers were unable to recover from their arrears position and their mortgage debt continued to increase. This was observed where customers were on high interest rates.
We also found some inconsistencies in firms’ arrears management practices that may result in a poor customer experience and have the potential to cause harm. This was disappointing, given our previous detailed guidance on good and poor arrears management. We found examples of:
- incomplete record keeping
- inconsistent handling of vulnerable customers and barriers to engagement
- inadequate reviews of arrangements and lack of consideration of other options
- inaccurate communications
We are reiterating the need for firms to comply with our MCOB rules (MCOB 13 and MCOB 12). We have provided feedback to the firms in our sample and will continue to monitor this area through ongoing supervisory activity, taking further regulatory action if appropriate. Our message to customers is that they should not ignore their arrears situation and should engage with their lender or independent third party for advice and to explore appropriate and sustainable options. If they do so early this may prevent the situation from worsening.
Cyber and technology resilience in UK financial services
We have published a report covering the themes from the Cyber and Technology Resilience cross-sector survey.
To gain a better understanding of the industry’s resilience, the FCA surveyed 296 firms during 2017 and 2018 to assess their technology and cyber capabilities. Firms self-assessed their capabilities and the FCA then analysed the responses for each firm and across sectors.
Our report identifies areas of strength, and explores some of the key challenges firms reported to us. In particular, firms identified concerns around management of third parties, detection of attacks, identification of key assets, and training for staff in high risk roles.
The report is relevant for all firms, whatever your size. We draw out the different responses from large and smaller firms, and we encourage all firms to consider how the findings apply to you.
We have also published the text of a speech that Megan Butler, Director of Supervision - Investment, Wholesale and Specialist, delivered at Bloomberg on 27 November 2018. This speech explores some of the key themes from the report, and looks at ways that firms can address cyber risk.
Alongside the report and the speech, we have published an infographic about how to react to a ransomware attack. Firms need to tell the FCA as soon as they know of ‘material’ cyber incidents which affect the firm. The infographic looks at the steps firms can take to protect themselves, as well as points to consider when responding and recovering from an attack.
Preparing your firm for Brexit
We have published further information on how firms may be affected by Brexit. This will help firms to consider the implications for their business and their customers, and to plan accordingly.
We expect that firms will have considered the issues that we have previously highlighted. We have updated our webpage on preparing your firm for Brexit to follow up on some key areas:
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contract continuity – firms which do business in the EEA under a passport need to consider how they will continue to service customers with existing contracts after Brexit
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execution of firms’ contingency plans – firms should consider their clients’ best interests when executing their plans
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customer communications – we remind firms of the importance of considering what communications to customers will be necessary to explain how Brexit might affect them
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data sharing – firms need to consider whether they transfer personal data between the UK and EEA. We expect firms to consider what contingency plans may be necessary
Read more about how we are preparing for Brexit.
Senior Managers and Certification Regime (SM&CR): Client Dealing Function
The SM&CR commenced for banking firms in 2016 and for insurers in December 2018.
We understand that uncertainty exists on whether administrative functions would be in the scope of the Client Dealing Function in the certification regime. The Client Dealing Function covers roles that include dealing in, or arranging investments with, retail and professional clients.
We plan to consult on clarifying the scope of the Client Dealing Function and make final rules before December 2019, ahead of commencement for solo-regulated firms. More information on the interim arrangements is available on our website.
Live & Local 2018/19 events
We are continuing the series of UK-wide interactive workshops for representatives of regulated firms who are qualified to give Defined Benefit pension transfer advice. The workshops will:
- highlight the key points that firms should consider when operating in this market
- reiterate our expectations when transacting this type of business
- highlight our updated rules and guidance
- include an interactive case study to put into practice our expectations
Registration is open for workshops taking place from January to March 2019. Visit our Live & Local webpage for further details.
Additional sessions will be announced in the coming months. Sign up to our Live & Local email updates to be alerted.
FCA and PRA changes to mortgage reporting requirements
In a joint Consultation Paper (CP), the FCA and the Prudential Regulation Authority (PRA) set out proposals for new reporting requirements that would apply to mortgage lenders and home finance administrators. The CP contains proposals made solely by the FCA in relation to our objectives as well as joint proposals that are given effect through a combination of PRA and FCA rules. We are asking for comments by 22 March 2019.
Live & Local 2018/19 events for regulated firms
We are continuing our monthly ‘Ask the regulator’ Q&A roundtable discussions for mortgage advisers and lenders across the UK to pose questions and provide feedback directly to a panel of senior FCA representatives and industry experts.
Registration details for events taking place to March 2019 can be found on our Live & Local webpage. Additional dates and locations in 2019 will be announced in the coming months. Sign up to our Live & Local email updates to be alerted.
General Insurance Pricing Practices
On 31 October 2018, we published our thematic report on general insurance pricing practices setting out our key findings and expectations along with a Dear CEO letter. These will primarily be of interest to retail general insurance firms who are involved in insurance pricing activities. However, our findings and expectations in relation to pricing governance and controls and the impact of the implementation of the Insurance Distribution Directive are relevant to all insurance firms involved in insurance pricing activities and the senior managers governing these firms. Consumer groups and consumers purchasing household insurance may also find the report of interest.
Liberty Mutual Insurance Europe SE fined £5.2 million
Liberty Mutual Insurance Europe SE has been fined £5.2 million for failures in its oversight of mobile phone insurance claims and complaints handling.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said: ’Fair, effective, and prompt settlement of claims is a fundamental requirement of mobile phone insurance, and customers should expect that any claim they make, or any subsequent complaint they lodge, will be dealt with fairly. Insurers must put in place adequate measures to make sure that claims and complaints are handled fairly, especially where those functions are outsourced.’
Senior Managers and Certification Regime (SM&CR): Extension to Insurers
The Senior Managers and Certification Regime (SM&CR) has been extended to all insurers regulated by the FCA and Prudential Regulation Authority from 10 December. The SM&CR replaces the Senior Insurance Managers Regime (SIMR) and the Revised Approved Persons Regime for insurance firms.
The extension of the SM&CR will ensure that all staff understand who has ultimate and overall responsibility. It will also ensure firms’ governance arrangements are transparent and set clear expectations for the conduct of all financial services staff.
Senior Managers and Certification Regime (SM&CR): Client Dealing Function
The SM&CR commenced for banking firms in March 2016, for insurers in December 2018 and will be extended to solo-regulated firms in December 2019.
We understand that uncertainty exists on whether administrative functions would be in the scope of the Client Dealing Function in the certification regime. The Client Dealing Function covers roles that include dealing in, or arranging investments with, retail and professional clients. It also includes individuals giving financial advice in relation to designated investment business, or acting in the capacity of an investment manager. We plan to consult on clarifying the scope of the Client Dealing Function and make final rules before December 2019, ahead of commencement for solo-regulated firms. More information on the interim arrangements is available on our website.
IDD – delivering clear, fair outcomes for consumers from the insurance sector
The Insurance Distribution Directive (IDD) came into effect on 1 October 2018. We also introduced some changes to our rules to support the IDD.
With good customer outcomes at the heart of our supervisory strategy, we are keen to stress the importance of firms implementing the IDD effectively. In IDD – delivering clear, fair outcomes for consumers from the insurance sector we call on firms to ensure they comply with the requirements and continue to focus on improved customer outcomes. It’s important to take note of our key areas of interest as our Supervision teams will be focusing on how firms are complying.
Live & Local 2018/19 events for regulated firms
We are continuing our UK-wide programme of events for general insurance firms. We are offering:
- interactive workshop on the extension of the Senior Managers and Certification Regime (SM&CR) and the Insurance Distribution Directive (IDD)
- ‘ask the regulator’ Q&A roundtable discussions where general insurance firms pose questions and provide feedback directly to a panel of FCA and industry representatives in an open, informal setting
Registration is open for these events taking place to March 2019. Visit our Live & Local webpage for more information. Additional dates and locations in 2019 will be announced in the coming months. Sign up to our Live & Local email updates to be alerted.
Findings from our recent work on pension transfer advice
In December, we published the findings of our recent targeted work on pension transfer advice. We are disappointed to have found that less than 50% of the advice we reviewed was suitable. Our assessing suitability review in 2017 showed that around 90% of advice on pensions and investments was suitable. It is unacceptable that pension transfer advice should persistently remain at such a low level in comparison to investment advice. We expect firms to take prompt action on our findings and to check that their business model and advice processes do not exhibit similar failings.
There is nothing new to report from this sector.
New Settlement Internalisation reporting requirement
From July 2019, firms will be obliged to report settlement internalisation under Article 9 of the EU Central Securities Depositories Regulation (CSDR).
Under the CSDR, an institution is considered to be a settlement internaliser if it settles transfer orders on behalf of clients on its own account rather than through a Central Securities Depository (CSD).
This will apply to firms that have the regulatory permissions necessary to carry out the following activity:
- arranging safeguarding and administration of assets
- safeguarding and administration of assets (without arranging)
Reports are required to be sent to the Bank of England, as the designated competent authority under the Central Securities Depositories Regulations 2014. The first reports are due by 12 July 2019, covering the period from April 2019 until the end of June 2019.
What firms should do
Firms should refer to the Bank of England’s website for further information. Firms should complete the survey on the Bank of England’s website if they think they will be captured by the reporting obligation.
Senior Managers and Certification Regime (SM&CR): Client Dealing Function
The SM&CR commenced for banking firms in March 2016, for insurers in December 2018 and will be extended to solo-regulated firms in December 2019.
We understand that uncertainty exists on whether administrative functions would be in the scope of the Client Dealing Function in the certification regime. The Client Dealing Function covers roles that include dealing in, or arranging investments with, retail and professional clients. It also includes individuals giving financial advice in relation to designated investment business, or acting in the capacity of an investment manager.
We have listened to the feedback we have received on this issue and in response we will consult on clarifying the scope and make final rules before December 2019, ahead of commencement for solo-regulated firms. More information on the interim arrangements on the scope of the Client Dealing Function is available on our website.
Furniture companies failing to comply with CONC 3 rules
We have seen examples where furniture companies are not complying with CONC 3, which sets out the FCA rules around firms’ financial promotions, particularly for websites.
Some websites offer ‘0% Interest Free Credit’ but fail to state the minimum spend required (and in some cases, the offer appears alongside products which are cheaper than the minimum spend).
Some sites offer payment options including cost of credit, triggering the requirement for a representative example, but this is not included. Some fail to contain a prominent credit broker statement.
We remind firms of their obligations, in particular under CONC 3.3.1R, 3.5.5R, 3.5.12R and 3.7.7R.
There is nothing new to report from this sector.
There is nothing new to report from this sector.
There is nothing new to report from this sector.
Proposed changes to the Handbook and binding technical standards
On 23 November 2018, we published further proposals on how we will amend our Handbook and EU derived binding technical standards (BTS) if the UK leaves the EU without an implementation period.
It builds on the consultation we published in October (CP18/28) and includes amendments to reflect:
- the temporary permissions regime
- the new credit rating agency and trade repository regimes
We are also consulting on guidance on our approach to non-Handbook guidance and our approach to forms that appear in the Handbook.
The consultation closes on 21 December 2018. You can find out more about our proposals and how to respond on our website.
Read the consultation paper (CP18/36)
Temporary permissions regime for inbound passporting EEA firms and funds
If the UK leaves the EU in March 2019 without an implementation period in place the temporary permissions regime will allow EEA firms and funds to continue regulated business in the UK. To prepare to enter the regime, firms and fund managers should:
Find out more about the regime.
Registration for credit rating agencies and trade repositories after Brexit
When the UK leaves the EU, we will become the UK regulator of credit rating agencies and trade repositories.
We have published the draft forms that credit rating agencies and trade repositories will need to complete to register with us.
Weekly news and publications alerts
Subscribe to receive our weekly round-ups of news and publications published on the FCA website. Sent every Friday, the email covers our news items, including press releases and speeches, and publications, research and data, and notices from the week.
Approach to Authorisation update
We have published our Approach to Authorisation and feedback statement. It outlines the role and purpose of authorisation and how it fits into the FCA’s overall regulatory system and decision-making framework; and how we serve the public interest by ensuring that firms and individuals meet our minimum standards.
Watch our webinar on improving culture in financial services
On 23 November, we held a live webinar on the topic of psychological safety and how we can create a speak up, listen up culture in financial services. It was hosted by Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations. Jonathan was joined by a panel of experts for an in-depth discussion followed by a Q&A session. The panellists were:
- Wendy Addison, founder of SpeakOut-Speak-Up, former whistle-blower, and courageous conversation advocate
- James Elfer, Founder and Behavioural Insights Director of More Than Now
- Dr. Stephen Pereira, Consultant Psychiatrist, Private Practice
You can now view the webinar on our website.
Guidance on Expected Credit Loss Provisioning under IFRS 9: Financial Instruments
The Taskforce on Disclosures about Expected Credit Losses has published its Recommendations on a comprehensive set of IFRS 9 Expected Credit Loss disclosures aimed at the largest UK banks and building societies, but also useful to smaller financial institutions applying International Financial Reporting Standard 9: Financial Instruments for the first time.
The expected credit losses impairment model introduced by IFRS 9 replaces the incurred loss model previously used by banks and is expected to have a significant effect on how loan loss provisions are calculated.
As the year comes to an end we would like to know what you like about Regulation round-up and any improvements you’d like to see. You can submit your feedback via regroundup@fca.org.uk.
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