UK: Financial Regulatory Developments (FReD) - 21 February 2014

Last Updated: 23 February 2014

UK Government and Parliament


DPAs to take effect: The parts of the Crime and Courts Act 2013 relating to deferred prosecution agreements (DPAs) will take effect from 24 February. (Source: DPAs to Take Effect)

Contact: Howard Cohen or Emma Radmore


Lords Select Committee criticises EU plans: A House of Lords Subcommittee on EU Economic and Finanical Affairs has published a report which looks at EU proposals for rescuing failing banks. It found the proposals to be "inadequately funded, overly complicated and politically unrealistic". (Source: Lords Select Committee Criticises EU Plans)

Contact: Andrew Barber or Juan Jose Manchado

HM Treasury (Treasury)

Treasury publishes consumer credit orders: Treasury has published a draft statutory instrument designating as credit-related regulated activities the activities of debt collection and of entering into, or exercising rights under, a regulated consumer credit agreement. An authorised person will be guilty of an offence where it carries out a credit-related regulated activity otherwise than in accordance with its permission. It also made the Order setting out the new regulated activities relating to consumer credit and amending, mainly, the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. A draft of this Order had previously been published. (Source: The Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014 and RAO Amendment Order 2014)

Contact: Andrew Barber or Emma Radmore

Treasury updates sanctions: Treasury has updated the sanctions lists to reflect the expiry of certain final designations and an update to the list relating to Syria. (Source: Treasury Updates Sanctions)

Contact: Emma Radmore or Howard Cohen

Competition Commission

Competition Commission looks at payday lenders size and concentration: The Competition Commission has published a working paper assessing the size and concentration of the payday lending sector. The sector comprises around 90 lenders and total payday revenue amounts to around £1.1 billion. (Source: Working Papers)

Contact: Andrew Barber or Howard Cohen

Serious Fraud Office (SFO)

SFO and DPP publish DPA code: SFO and the Director of Public Prosecutions (DPP) have published the guidance for prosecutors on DPAs, to take effect from 24 February. The guidance, which was consulted on in late 2013, sets the procedural requirements and legal considerations for use of a DPA for certain offences by corporates relating to financial crime. David Green, Director of SFO, making it clear that DPAs were not a way for corporates to "buy themselves out of trouble", said "the most important features of the DPA regime outlined in the code are judicial oversight, and unequivocal cooperation from the corporate. Prosecution remains the preferred option for corporate criminality." Alison Saunders, the DPP, said she thought it would only rarely be appropriate for the Crown Prosecution Service to use DPAs. (Source: SFO and DPP Publish DPA Code)

Contact: Howard Cohen or Emma Radmore

UK Financial Services and Markets Regulators

Financial Conduct Authority (FCA)

FCA updates consumer credit pages: FCA has added several new pages to its website to help firms prepare for consumer credit authorisation by it. The pages relate to:

  • preparing for authorisation;
  • approved persons; and
  • principals and appointed representatives.

(Source: FCA Updates Consumer Credit Pages)

Contact: Andrew Barber or Emma Radmore

FCA fines HomeServe for widespread failings: FCA has imposed its largest ever retail fine of £30,647,400 to HomeServe Membership Limited (HomeServe). It found that HomeServe had serious, systemic and long-running failings, extending across many key aspects of its business. In particular, for nearly seven years following the regulation of insurance mediation, it missold insurance policies, it failed to investigate complaints adequately, its Board was insufficiently engaged with compliance matters and its senior management were reluctant to address risks to customers if there was a cost implication involved. FCA stressed that HomeServe had not put its customers' interests first, by putting quantity before quality. HomeServe has started a remediation exercise and has already paid over £12 million in redress. FCA found a number of significant breaches including:

  • failure to act on regulatory reports and guidance on misselling;
  • failure properly to train senior management;
  • failure to address conflicts in remuneration policies, including in the complaints handling department; and
  • failure to have in place proper IT systems.

(Source: FCA Fines HomeServe for Widespread Failings)

Contact: Emma Radmore or Andrew Barber

FCA publishes annuities review: FCA has published its thematic review on annuities, together with a guidance consultation and details of a retirement income market study. FCA is worried that most consumers buy their annuities from existing providers without considering whether they could get a better deal on the open market. In 80% of cases, it thinks the open market would provide a better outcome. The then Financial Services Authority introduced rules in 2002 requiring firms to tell their customers of the choices available, but only last year the Association of British Insurers introduced a Code of Conduct and the Pensions Regulator published guidance for trustees of Occupational Pension Schemes. FCA's study looked at consumer behaviour, at shopping around and switching and at the drivers for change. It found certain consumers were particularly likely to be disadvantaged - those with small pension funds who are generally not offered good deals whether by their existing provider or by shopping around and those who could get enhanced annuities who would be better served by shopping around. As a result of its review, FCA has decided it should undertake a competition market study on retirement income products. FCA may ask firms to change their behaviour immediately following the results of the study and may take further action if it finds poor practices. In tandem with the review and market study, FCA is consulting on guidance on good and poor practices in the annuity comparison website market. It seeks comments on the guidance by 14 March. It expects to publish interim findings from the market study in the summer, and to publish the final report within a year. (Source: FCA Publishes Annuities Thematic ReviewFCA Guidance Consultation on Annuity Comparison Sites and FCA Annuity Market Study)

Contact: Michael Wainwright or Josie Day

FCA updates on AIFMD: FCA has reconsidered its interpretation of the definition of "funds under management" for the purposes of Article 9(3) of AIFMD. It has decided that the current requirement can lead to disproportionate outcomes in certain circumstances and plans to amend it so that derivatives can be valued at their market value rather than requiring them to be converted to their underlying positions when calculating the value of portfolios. In the meantime, and so that prospective alternative investment fund managers (AIFMs) will not need to delay their applications, FCA has made available a "modification by consent", to allow individual AIFMs and UCITS firms subject to the rules in chapter 11 of the Interim Prudential Sourcebook for Investment Firms (IPRU(INV)) to take advantage of the proposed change. Firms applying for AIFM status that wish to benefit from this can note in their application for authorisation that they have been granted the modification. It has also updated its fees pages in relation to AIFM applications and the National Private Placement Regime (NPPR). (Source: FCA Updates on AIFMD and Funds Under ManagementFCA Updates on AIFMD Fees and FCA Publishes Funds under Management Modification)

Contact: Rosali Pretorius or Kam Dhillon

FCA announces redress scheme for YBS mortgage customers: FCA has announced that Yorkshire Building Society (YBS) will set up a redress scheme to refund administration fees, and the interest accrued on those fees, charged to mortgage customers in arrears. FCA had raised concerns that YBS may have charged fees to customers incorrectly. The redress scheme will extend to all fees charged since January 2009, regardless of whether they were charged correctly or not, to avoid delays and uncertainty. YBS will publish details of the redress scheme on its website and will contact current and former customers proactively. The total bill is expected to reach £8.4 million. (Source: Over 30,000 YBS Customers to be Refunded Mortgage Arrears Fees)

Contact: Andrew Barber or Josie Day

FCA obtains favourable ruling on unauthorised CISs: FCA has announced that the High Court has ruled in its favour in the case it brought against firms and individuals for promotion and operation of collective investment schemes (CISs) without authorisation. Leave to appeal has been granted. (Source: FCA Wins Case Against Capital Alternatives)

Contact: Emma Radmore or Josie Day

FCA offers new modifications by consent: FCA has given directions making the following modifications available to firms:

  • Modification by consent of COBS and COLL, available to authorised fund managers of non-UCITS retail schemes.
  • Modification by consent of COLL 5.6.22R, available to the depositary of a non-UCITS retail scheme (NURS) whose investment objective and policy include the power to invest in immovable property.
  • Modification by consent of CASS 1A.1.1R (3), for CASS Medium or CASS Large firms that have wound up their client money holdings and cancelled their client money positions.

(Source: Modification by Consent)

Contact: Emma Radmore or Kam Dhillon

Prudential Regulation Authority (PRA)

PRA consults on recognition of deferred tax under Solvency II: PRA is consulting on several aspects of the balance sheet and regulatory capital calculations applicable under the forthcoming Solvency II Directive. The proposed supervisory statement sets out PRA's expectations on the credibility of profits projections and on firms' recognition of deferred tax assets or the tax effects of a 1-in-200 shock. (Source: Solvency II: Recognition of Deferred Tax)

Contact: Michael Wainwright or Juan Jose Manchado

Financial Ombudsman Scheme (FOS)

FOS updates on accepting decisions and suing for the balance: FOS has updated its technical resource on "compensation" to remind consumers that, following a recent Court of Appeal decision, it is very unlikely that a consumer who has accepted an FOS maximum award could pursue further compensation in court. (Source: Compensation: Can the Consumer Accept our Decision and Take the Financial Business to Court for the Balance?)

Contact: Felicity Ewing or Emma Radmore

Other Authorities/Regulators/Industry Associations

City of London Law Society (CLLS)

CLLS responds on EU/UK balance of competences: CLLS has responded to Treasury's review of the balance between EU and UK competences. It calls for the:

  • automatic deferral of implementation dates where the timetable for producing secondary legislation is not met;
  • publication by the Commission of compliance with the Better Regulation principles; and
  • guidance by Treasury and the UK regulators on their approach to interpreting EU legislation.

(Source: Response on EU/UK Balance of Competences)

Contact: Rosali Pretorius or Juan Jose Manchado

Financial Action Task Force (FATF)

FATF announces plenary outcomes: FATF has announced the outcomes of its latest plenary meeting:

  • Antigua and Barbuda, Bangladesh and Vietnam are no longer on the list of jurisdictions with Anti-Money Laundering (AML)/(Counter Terrorist Finance (CFT) deficiencies and they will no longer be subject to FATF's ongoing process.
  • Kenya and Tanzania have been moved to the ongoing process list due to the progress in their action plan agreed with FATF.
  • FATF continues working on mutual evaluations, voluntary tax compliance programmes, beneficial ownership requirements and assessment of compliance with FATF Standards.
  • FATF also decided to continue its work on virtual currencies and to hold a meeting with AML/CFT experts and data protection experts.

In the UK, Treasury has updated its advisory notice on AML/CFT controls in overseas jurisdictions to reflect FATF's lists of high-risk and non-cooperative jurisdictions and of jurisdictions committed to an action plan. (Source: Outcomes from the Meeting of the FATF Plenary, Paris 12-14 February 2014 and AML/CFT Controls in Overseas Jurisdictions – Advisory Notice)

Contact: Emma Radmore or Andrew Barber

Investment Management Association (IMA)

IMA makes recommendations on use of dealing commission: IMA has published a report on the use of dealing commission for the purchase of investment research. The report sets out recommendations to IMA members, announces IMA actions and calls for international convergence. (Source: The Use of Dealing Commission for the Purchase of Investment Research)

Contact: Michael Wainwright or Kam Dhillon

Wealth Management Association (WMA)

WMA calls for derogation of KIDs requirements in PRIPs secondary markets: WMA has published a paper reminding of the difficulties that the provision of a Key Investor Document (KID) would cause in the on-exchange secondary markets for packaged retail investment products (PRIPs). It recommends a full derogation from pre-trade KID provision in distance selling similar to the modification by consent available in the UK for UCITS. A separate position paper addresses other issues in the PRIPs Regulation proposal, such as in relation to the inclusion of corporate bonds within scope, liability for the KID, and viewing a discretionary fund manager as the retail client for the purposes of receiving the KID. (Source: KIIDs, KIDs, UCITS, PRIPs, and Secondary Market Trading and KIDs)

Contact: Emma Radmore or Josie Day

Wolfsberg Group

Wolfsberg Group agrees foreign correspondent banking principles: The Wolfsberg Group has published a set of guidance principles on managing the risk of money laundering, terrorist financing and evasion of sanctions in foreign correspondent banking relationships. The principles also extend to those relationships where the client is an affiliate, subsidiary or branch of the bank offering correspondent banking services. Banks may also apply the principles to their relationships with non-financial institutions and to SWIFT-Relationship Management Application relationships. The Wolfsberg group has also made available an FAQ document and a Questionnaire aimed at helping correspondent banks carry out due diligence. (Source: Wolfsberg News - 18 February 2014)

Contact: Emma Radmore or Andrew Barber

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