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.
We hope that you will find this update useful. If you have any queries about any of the information in this update or financial services regulatory matters generally, please contact one of the individuals listed in the 'Contacts' section of this publication.
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Consultation papers:
No new developments this week.
Discussion papers:
No new developments this week.
Policy statements:
No new developments this week.
Press releases:
13 February: FSA secures Supreme Court win in satellite warranty case. The Supreme Court has unanimously dismissed appeals by Digital Satellite Warranty Cover (DSWC), and Bernard Freeman and Michael Sullivan, trading as Satellite Services (Satellite). The FSA had previously secured winding up orders from the High Court against DSWC and Satellite on 31 January 2011 on the basis that the firms were offering consumers extended warranty cover for satellite TV equipment, which amounted to contracts of insurance, without FSA authorisation. An important feature of the cover was that neither DSWC nor Satellite were required to pay their customers money - the cover involved the repair or replacement of the equipment in the event of breakdown, malfunction or physical damage. However, the High Court ruled that the extended warranties amounted to contracts of insurance – something that requires FSA authorisation. The Supreme Court upheld that decision.
http://www.fsa.gov.uk/library/communication/pr/2013/015.shtml
13 February: FSA publishes the results of a mystery shopping review into the quality of investment advice in banks and building societies. The Financial Services Authority (FSA) has published the results of a mystery shopping review, carried out between March and September 2012, looking into the quality of investment advice given by banks and building societies. This is the first time that the FSA has published the results of a mystery shopping exercise since the Payment Protection Insurance (PPI) mystery shopping exercise in September 2008. This mystery shopping review assessed six major firms in the retail banking sector, focusing on the quality of advice given to customers looking to invest a lump-sum. The use of mystery shopping as a supervisory tool is an example of the more intrusive approach that will be used by the Financial Conduct Authority (FCA). This commitment was made in 'Journey to the FCA' which was published in October 2012.
The FSA assessed 231 mystery shops across six major firms in the retail banking sector, focusing on the quality of advice given to customers looking to invest a lump sum. The results show that, while approximately three-quarters of customers received good advice, there were concerns with the quality of advice in the other quarter, where in 11% of cases customers received poor advice and in 15% of cases advisers did not gather enough information to ensure the advice was suitable. In response to this report, the firms involved have agreed to retrain advisers, make substantial changes to their advice processes and controls for new business, and undertake past business reviews to identify historic poor advice and put this right for customers. Firms have also been required to employ an independent third party to either carry out or oversee this work. One firm has been referred to enforcement.
Press release: http://www.fsa.gov.uk/library/communication/pr/2013/014.shtml
Full review: http://www.fsa.gov.uk/static/pubs/other/thematic_assessing_retail_banking.pdf
11 February: FSA secures High Court victory against illegal land banking firm, Asset Land. The FSA has won a key victory in the battle against unauthorised businesses after the High Court declared that David Banner-Eve, Stuart Cohen, Asset Land Investments Plc and Asset L.I. Inc. ran an illegal land bank by operating a collective investment scheme without FSA authorisation. Following this judgement the FSA will seek orders from the High Court banning Banner-Eve and Cohen for life from selling interests in land banking schemes for business purposes in the UK. The FSA will also seek orders from the High Court for the payment of at least £15 million by Banner- Eve, Cohen and the Asset Land companies to return to investors. Although freezing injunctions obtained last year will remain in place, the FSA has not yet identified any assets that would enable more than a small proportion of these payments to be made, and therefore it is unclear how much will ultimately be returned to investors. The FSA is continuing to make enquiries to trace the funds paid by investors. The FSA does not regulate the sale of land, but land banking can amount to collective investment, something that does require FSA authorisation. Banner- Eve, Cohen and the Asset Land companies have never been authorised by the FSA to sell land in this way so their land sales were unlawful. Furthermore, as their business activities were unauthorised, victims of the scam were not covered by the Financial Services Compensation Scheme.
http://www.fsa.gov.uk/library/communication/pr/2013/012.shtml
Speeches:
11 February: Market Force and the Chartered Institute's Nicholas Barbon Lectures. On 11 February 2013 the FSA published a speech, dated 6 February 2013, by Andrew Bailey, Managing Director of the Prudential Business Unit, on market forces. Mr Bailey discussed why it makes sense to place prudential supervision of insurance in the Prudential Regulation Authority (PRA) alongside banks and major investment firms, citing the common necessity of assurance of continuity of access to critical financial services as one of the core reasons. He also noted that in creating the "twin peaks" model, the with-profits area has been the most challenging. Mr Bailey spoke on the issue of systemic risk in relation to insurers and he noted that there were some insurance firms and specific sectors that, because of their size and complexity pose a greater risk to the financial system. Mr Bailey noted that for these firms, the PRA would adopt a more enhanced and intensive style of supervision.
http://www.fsa.gov.uk/library/communication/speeches/2013/0206-ab
Bulletins and newsletters:
The FSA has published its final newsletter on the Retail Distribution Review (RDR). The newsletter includes:
- Advice on whether an advisory firm can meet the independence rule if it only recommends "passive investments"
- A reminder of the new RDR data requirements.
- A reminder about the limited circumstances in which adviser charges can be paid over a period of time
- A summary of the key findings from research conducted last year among retail investment advisers to track progress against the RDR professional standards requirements
The newsletter also contains a link to FAQs on the new RDR rules which have been published by the FSA.
http://www.fsa.gov.uk/static/pubs/newsletters/rdr9.pdf
Final notices:
14 February: FSA fines Nestor Healthcare Group £175,000 for clearance to deal failings. The FSA has fined Nestor Healthcare Group Limited (Nestor) £175,000 for failing to take adequate steps to ensure that its board members and senior executives complied with the share dealing provisions of the FSA's Model Code. Although Nestor had a policy on how senior staff should obtain clearance to trade in the company's shares, breaches occurred because Nestor's weak procedures allowed this policy to be forgotten by the board. The FSA concluded that between 18 October 2006 and 30 June 2010, Nestor did not take all proper and reasonable steps to secure the compliance of persons discharging managerial responsibility in accordance with paragraphs 3-7 of the Model Code. By failing to do so, Nestor breached Listing Rule 9.2.8. Nestor also failed to take reasonable steps to enable its directors to understand their responsibilities and obligations under the Model Code or to maintain adequate procedures, systems and controls to enable it to comply with its obligations under Listing Rule 9.2.8. As a result of these failings, a number of share purchases were carried out without the required approval or proper clearance. The FSA does not allege that any of the dealings referred to in the Final Notice were based on inside information. This is the first fine imposed on a company by the FSA for breaches of the Listing Rules and the Listing Principles relating to compliance with the Model Code. Nestor agreed to settle at an early stage and therefore qualified for a 30% discount. Were it not for this discount, the FSA would have imposed a financial penalty of £250,000.
Press release: http://www.fsa.gov.uk/library/communication/pr/2013/016.shtml
Final Notice: http://www.fsa.gov.uk/static/pubs/final/nestor.pdf
13 February: Final Notice: Ryan & Company Insurance Brokers. The FSA has published a Final Notice cancelling Ryan & Company Insurance Brokers' Part IV permission. The FSA concluded that Ryan & Company Insurance Brokers was not a fit and proper person because it has failed to comply with the regulatory requirement to submit its Retail Mediation Activities Return for the period ended 31 July 2012 (the RMAR). The FSA also considered that Ryan & Company Insurance Brokers had not been open and co-operative in all its dealings with the FSA, in that it failed to respond to the FSA's repeated requests for it to submit the RMAR, and that therefore it failed to comply with Principle 11.
http://www.fsa.gov.uk/static/pubs/final/ryan_company.pdf
12 February: UBS fined £9.45m for failings in its sale of AIG fund. The FSA has fined UBS AG (UBS) for failures in the sale of the AIG Enhanced Variable Rate Fund (the Fund). These failures led to UBS customers being exposed to an unacceptable risk of an unsuitable sale of the Fund. UBS also failed to deal properly with complaints about sales of the Fund. Between 1 December 2003 and 15 September 2008 UBS sold the Fund to 1,998 high net worth customers. After conducting a sample review of sales of the Fund to 33 customers, the FSA found that 19 were mis-sold and there was a considerable risk that 12 of the remaining 14 may have also been mis-sold. UBS's failings were serious and included:
- Failing to carry out adequate due diligence on the Fund before selling it to customers and failing to ensure that advisers could correctly determine its suitability for customers
- Recommending the Fund to customers even though it did not provide the level of capital security they sought.
- Wrongly indicating that the Fund was a cash fund that invested in money market instruments
- Failing to respond appropriately during the 2007-8 financial crisis when UBS had concerns about the fund
- Failing to fairly assess customer complaints relating to sales of the Fund
- Not maintaining adequate sales records, including a record on what basis customers were sold the Fund
As a result of these failings, UBS breached Principle 9 and Principle 6 of the FSA's Principles for Business. UBS agreed to settle at an early stage entitling it to a 30% discount on its fine. Were it not for this discount, the FSA would have imposed a financial penalty of £13.5 million on UBS.
Press release: http://www.fsa.gov.uk/library/communication/pr/2013/013.shtml
Final Notice: http://www.fsa.gov.uk/static/pubs/final/ubsag.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:
14 February: Interest rate hedging products announcement. Following the recent announcement that Barclays, Lloyds and RBS would start work on reviewing sales of interest rate hedging products (IRHPs) to small businesses, a number of other banks have also agreed to conduct a review. Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks (part of the National Australia Group (Europe)), Co-operative Bank and Santander UK have now also agreed to review their sales of IRHPs in line with the approach set out in the FSA's report.
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):
No new developments this week.
London Stock Exchange (LSE):
No new developments this week.
Legislative updates
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.
Michael Tang - Global Financial Services Digital Transformation Leader, Aug 2017 (Video)
