UK: Weekly Financial Services Regulatory Update - 16.03.12

This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FSA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.

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Consultation papers:

15 March: Regulating bidding for Emissions Allowances under Phase Three of EU Emissions Trading Scheme. The FSA has published a consultation paper (CP12/6) on the regulation of bidding for Emissions Allowances under the EU Emissions Trading Scheme. The paper outlines the FSA's proposals in relation to how it will authorise and supervise firms intending to bid on auction platforms in those circumstances where it is deemed to be a regulated activity. Proposals include:

  • Treating bidding on an auction platform as any other MiFID business where it is deemed to be MiFID business, and
  • Authorising auction regulation business against the requirements stated in EU Commission Auction Regulation 1031/2010 ("CAR") in addition to taking anti-money laundering measures and regulating certain approved persons

The deadline for responses is 19 April 2012 and final proposals are anticipated to be published in late May 2012. cp12-06.pdf cp12-06-newsletter.pdf

Discussion papers:

No new developments this week.

Policy statements:

No new developments this week.

Press releases:

16 March: FSA Chief Executive to leave organisation at the end of June. Hector Sants has announced his intention to leave his position at the FSA at the end of June 2012. Having originally handed in his resignation in February 2010, the date has now been set to allow him to complete delivery of the Government's plan to separate prudential and conduct financial regulation in the UK. Upon leaving, Sants' role as head of the Prudential Business Unit will be taken up by Andrew Bailey whilst Martin Wheatley will remain the head of the Conduct Business Unit and future CEO of the Financial Conduct Authority.

14 March: Shadow Banking and Financial Instability: Lord Turner speech to the CASS Business School. In a speech to the CASS Business School, the Chairman of the FSA, Lord Turner, sets out how the 'shadow banking' sector contributed to the financial crisis, the risks it still poses to financial stability and the importance of a sufficiently comprehensive and radical policy response.

He highlights that the 2007-08 financial crisis was not one simply caused by high street banks but one where shadow banking activities played a major role. He also stresses that major reforms had been put in place in the wake of the crisis for 'normal' banks including increased capital and liquidity requirements and better supervision, but said there had yet to be a similar response to the 'shadow' sector and that this needed to be addressed urgently.

He reaffirmed the determination of the Financial Stability Board (FSB) to "get to grips with shadow banking issues", in order to ensure that adequate responses to the risks involved were put in place.

For the related speech, please see the relevant section of this update. shtml

13 March: Head of European Credit Sales at Credit Suisse fined £210,000 for improper market conduct, disclosing client confidential information and exhibiting a lack of skill, care and diligence. The FSA has fined Nicholas Kyprios, Head of European Credit Sales at Credit Suisse in London, £210,000 for improper market conduct in disclosing confidential client information ahead of a significant bond issue in November 2009.

Credit Suisse acted on behalf of Liberty Global, Inc. (Liberty) during its takeover of UnityMedia GmbH (UnityMedia) which was part-financed by a €2.5 billion bond issue. Kyprios was wall-crossed regarding the takeover and the proposed bond issue, and instructed in writing not to disclose any confidential and/or inside information he had been given to third parties.

On 11 November 2009, Kyprios called a fund manager to invite him to the bond issue road show. Although Kyprios did not have a pre-meditated intention to disclose the client confidential information, the fund manager asked Kyprios about the bond issue and in response Kyprios engaged in a guessing game during which he signalled specific information to the fund manager.

Kyprios agreed to settle at an early stage and in doing so qualified for a 30 per cent discount on the financial penalty. Without the reduction, the FSA would have fined Kyprios £300,000.

For the Final Notice, please see the relevant section of this update. shtml


14 March: Shadow Banking and Financial Instability. The FSA has published a speech (including speech notes and slides) delivered by Lord Turner, FSA Chairman at the CASS Business School, setting out how the shadow banking sector contributed to the financial crisis and the risks it continues to pose to financial stability. Lord Turner also outlines the current national and international reform agenda in relation to financial stability and recommends a comprehensive and radical policy response.

For the related press release, please see the relevant section of this update. pdf

13 March: Euroclear Central Bank Conference on Financial Stability. The FSA has published a speech by Andrew Bailey, FSA Director of UK Banks & Building Societies at the Euroclear Central Bank Conference on Financial Stability in Paris.

Mr Bailey considers a number of the deeper challenges faced in the UK as the system of financial regulation is reformed, something expected to happen in a year from now when new legislation comes into effect.

For the related press release, please see the relevant section of this update.

Bulletins and newsletters:

No new developments this week.

Final notices:

13 March: Nicholas James Kyprios. The FSA has issued a final notice, dated 13 March 2012, imposing a financial penalty of £210,000 upon Mr Nicholas Kyprios, Head of Credit Sales at Credit Suisse Securities (Europe) Limited ("Credit Suisse"). Mr Kyprios has been held to have disclosed inside information, which was confidential to a client of Credit Suisse, to a potential investor without wall-crossing him. This conduct was held to be a breach of Principles 2 (skill, care and diligence) and 3 (market conduct) of the FSA's Statements of Principles for Approved Persons.

The FSA took the view that a large financial penalty was appropriate due to the need for there to be a deterrent against such behaviour. A £300,000 penalty was therefore held to be appropriate in the circumstances but this was reduced to £210,000 on the basis that Mr Kyprios was entitled to a 30 per cent discount for agreeing to settle at an early stage.

For the related press release, please see the relevant section of this update. Pdf

Application refusals:

No new developments this week.

Approved person refusals:

No new developments this week.

Research publications:

No new developments this week.

Consumer research:

No new developments this week.

Other FSA publications:

15 March: Undertaking from the Cheshire Mortgage Corporation Limited. The FSA has published an undertaking given by Cheshire Mortgage Corporation Limited under the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCRs") in relation to the terms it uses in its customer mortgage information booklet. The FSA has determined that the terms, which outline that Cheshire could vary the mortgage interest rate at any time by providing the customer with notification, could be regarded as unfair under the UTCCRs based upon the imbalance in the respective parties' rights and obligations that these terms create and the potential power to cause consumer detriment. The FSA further considered that including the terms meant that the firm was failing to act in good faith and was not dealing openly with consumers. The firm has agreed to amend the term so as to make it both clearer and fairer in relation to consumers. pdf

13 March: FSA Mortgage Lending Data published. The FSA has published its latest Mortgage Lending Data for the United Kingdom.

Key statistics for Q4 2011 include:

  • The total value of outstanding loans at the end of Q4 was £1,218bn, an increase of less than 0.1 per cent on last quarter
  • New advances in the quarter amounted to £40bn, 8 per cent lower than in Q3 but some 9 per cent higher than the amount advanced in Q4 2010
  • The overall average interest rate on new advances continued to fall during the quarter, down from 3.59 per cent to 3.49 per cent, a new low for the series. The reduction was a result of a fall in the rate for fixed rate lending more than offsetting a small increase in the variable rate
  • New commitments totalled £37bn in the quarter, 11 per cent down on Q3 but 7 per cent higher than in Q4 last year, and
  • Lending for house purchases accounted for 61 per cent of new advances, up on Q3, and 58 per cent of commitments, a small decrease from last quarter. The proportion of advances for remortgages (32 per cent) was as much as in Q3, though there was an increase in commitments from 32 per cent to 34 per cent

13 March: Retail Conduct Risk Outlook 2012: FSA publishes an analysis of the main risks facing consumers. The FSA has published an analysis of the main risks which potentially face consumers in the financial services sector over the next 12 to 18 months.

The Retail Conduct Risk Outlook shows that consumers continue to struggle with the effects of a slower economy, low interest rates and poor returns on investments. The FSA found evidence that many people are trying to tackle this by saving more, shopping around and paying off their debt.

The publication analyses the wider external factors in the economy, the pressures on different firms and how this might impact on different consumers, and is an essential part of helping the FSA target its resources. Supervisors will be working with firms to ensure they address the risks raised.

Early intervention to try and stop issues escalating into mass consumer detriment is one of the main objectives of the FSA's conduct agenda this year, particularly as it develops the approach of the successor body, the Financial Conduct Authority. shtml

UKLA publications:

No new developments this week.

Upper Tribunal (Tax and Chancery Chamber) (formerly Financial Services and Markets Tribunal (FSMT)):

No new developments this week.

Financial Ombudsman Service (FOS):

12 March: FOS online technical resource for rediscovered old passbooks and dormant accounts. The FOS has published a new online technical resource outlining the common complaints received in relation to rediscovered old passbooks and dormant accounts. It outlines the types of complaints most often received, the circumstances in which it is able to consider such complaints, the applicable time limits to such complaints, and the documentation required from a complainant and from the financial business involved. technical_notes/passbooks-and-dormant-accounts.htm

London Stock Exchange (LSE):

No new developments this week.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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