UK: Weekly Financial Services Regulatory Update - Week To 14.02.14

This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FCA, the PRA, 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.

Consultation papers:

14 February 2014: FCA GC14/1 Annuity Comparison Websites – Thematic Review and Guidance for Firms. The FCA has published Guidance Consultation GC14/1 in relation to annuity comparison websites. The FCA carried out a thematic review of 13 such sites (see below), and identified a number of common issues. Whilst the FCA found good practice in the presentation of alternative options to buying an annuity, and the use of jargon-free language, all the websites raised concerns with key information and risk warnings often missing or insufficiently prominent. The proposed guidance sets out what the FCA would expect to see on annuity comparison websites to ensure that they are fair, clear and not misleading. Responses should be sent by 14 March 2014.

Discussion papers:

No new developments this week.

Policy statements:

No new developments this week.

Press releases:

14 February 2014: Fraudster Benjamin Wilson sentenced to seven years imprisonment following successful FCA prosecution. The FCA has published a press release announcing that Benjamin Wilson has been sentenced at Southwark Crown Court to seven years imprisonment for fraud and forgery. This is the longest sentence for anyone prosecuted by the FCA. Mr Wilson set up an unauthorised investment firm, SureInvestment, in 2003. Mr Wilson misled the FSA by claiming that he had wound up the business and repaid the investors. He also persuaded investors to tell the regulator that he had returned monies, when in reality he had encouraged them to invest in an overseas fund. Mr Wilson did not place any money in an overseas fund, and instead only traded around 20% of the money, placing the rest in a personal bank account. The FCA obtained an injunction to freeze assets and to restrain the unauthorised activity in October 2010. When the scale of the Ponzi-style scheme became apparent (he took GBP 21.8 million from investors), a criminal investigation was launched. Mr Wilson pleaded guilty in 2013 to three counts of dishonesty and one count of operating a collective investment scheme (CIS) without being authorised by the FCA.


No new developments this week.

Final notices:

13 February 2014: FCA Final Notice: HomeServe Membership Limited. The FCA has published a Final Notice fining HomeServe Membership Limited, an insurance intermediary which sells home emergency and repairs insurance cover, GBP 30,647,400 for breaches of Principles 3 (management and control), 6 (customers' interests) and 7 (communications with clients) of the FCA's Principles for Businesses. HomeServe underwent a rapid expansion in the growth of its business and developed a profit-driven culture where profit targets were met by taking advantage of existing customers in pursuit of sales. HomeServe had serious, systemic and long running failings, and in particular, during the period January 2005 to October 2011, it mis-sold insurance policies, 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. The FCA considers the failings to be particularly serious as a significant proportion of HomeServe's customers were of retirement age and therefore more vulnerable.

HomeServe has accepted that it needs to restore its customer focus and move away from a culture of putting profits before treating customers fairly. To date, HomeServe has paid approximately GBP 12.9 million to affected customers in redress and is expected to pay a total of GBP 16.8 million.

HomeServe agreed to settle at an early stage of the investigation and qualified for a 30% discount; were it not for this discount, the fine would have been GBP 43,782,058.

Press release:

Final Notice:

Application refusals:

No new developments this week.

Approved person refusals:

No new developments this week.

Research publications:

No new developments this week.

Consumer research:

14 February 2014: FCA TR14/2 – Thematic Review of Annuities. The FCA has published Thematic Review TR14/2 on annuities. The FCA found that some parts of the annuities market are not working well for some consumers. For example, it found that 80% of consumers who purchase their annuity from their existing provider could get a better deal on the open market. The groups of consumers most at risk include those with small pension funds (less than GBP 5,000), and those who should be eligible for an enhanced annuity. In response to the thematic review, the FCA has launched a competition market study into retirement income (see below) and published a guidance consultation on annuity comparison websites (GC14/1) (see above). The FCA has also stated that there will be further supervisory work to look at how pension provider sales teams conduct themselves when selling annuities to existing customers. Although the FCA is not proposing the creation of new rules at this stage, it will continue to assess very carefully whether changes to rules are necessary.

Press release:

Thematic Review:

14 February 2014: FCA retirement income market study. The FCA has published terms of reference for a market study into retirement income to see whether competition in this market is working well for consumers, on the basis of its thematic review of annuities (see above). The FCA will also consider measures that could be implemented to promote competition, and will look at products which are purchased from a pension pot that provide an income during retirement, such as annuities, income drawdown, and other alternative products. Comments should be sent by 14 March 2014.

Press release:

Terms of reference:

10 February 2014: FCA TR14/1 – Transition Management Review. The FCA has published Thematic Review TR14/1 on transition management. Over GBP 165 billion of assets invested in pensions and other large funds are transferred between investment managers, markets and products every year by 13 specialist transition management (TM) providers. The review looked at:

  • How firms move investment portfolios between different managers and markets for asset owners
  • The size of the market and the business models carried on within it
  • The levels of oversight, governance and controls within the firms conducting transition management

The FCA found that TM providers demonstrated the existence of appropriate controls and an understanding of the risks. However, the quality and effectiveness of controls, marketing materials, governance and transparency varied.

Press release:

Thematic Review:

Other FCA and PRA publications:

14 February 2014: FCA new consumer credit webpages and local authority interim permission form. The FCA published the following in view of its taking over responsibility for consumer credit regulation from the OFT from 1 April 2014:

  • A webpage setting out how firms carrying out consumer credit activities should prepare for authorisation

  • A webpage providing information on how the FCA's approved persons regime will apply to firms carrying on consumer credit activities

  • A webpage explaining how the appointed representative regime will apply to firms carrying on consumer credit activities

  • A form for local authorities to use to notify the FCA if they want interim permission to carry on consumer credit business within the scope of the Consumer Credit Directive on and after 1 April 2014, together with an explanatory memorandum

14 February 2014: FCA update on calculation of additional own funds under AIFMD. The FCA has updated its webpage on the Alternative Investment Fund Managers Directive (AIFMD) with a section about the calculation of additional own funds. The FCA is currently considering its interpretation of the definition of "funds under management" for the purposes of Article 9(3) of the AIFMD. This follows representations from a number of firms. The definition is used to calculate the amount of additional own funds a manager must hold. The FCA is concerned that its current requirement in Chapter 11 of the Interim Prudential sourcebook for investment business, IPRU(INV) 11, can lead to disproportionate outcomes. The FCA will consult on amending the requirement in a quarterly consultation later in 2014. The proposed change will allow for derivatives to be valued at their market value rather than requiring them to be converted to their underlying positions when calculating the value of portfolios.

13 February 2014: FCA board minutes for December 2013 meeting. The FCA has published the minutes of the FCA board meeting on 12 December 2013. Points of interest discussed at the meeting include:

  • At the FCA Risk Committee meeting held on 19 November 2013 it was agreed that the FCA needed to be able to understand consumer credit firms' business models in more detail to be able to target interventions, and it was noted that the FCA would only have information gathering powers in respect of these firms from 1 April 2014, when it takes over responsibility for consumer credit regulation from the OFT
  • It is likely there will be an independent review of the regulatory decision making process, including the Regulatory Decisions Committee (RDC)
  • The FCA plans to issue a discussion paper in early 2014 relating to the issue regarding fairness in mortgage contracts
  • The FCA intends to publish its Risk Outlook and Business Plan for 2014/15 in March 2014

12 February 2014: FCA modification by consent of meaning of funds under management in IPRU(INV) 11. The FCA has published a new webpage announcing a modification by consent of the meaning of "funds under management" in Chapter 11 of the Interim Prudential sourcebook for investment business, IPRU(INV) 11, (see above). The modification changes the meaning of "funds under management" so that firms whose assets under management include derivative instruments can value those instruments at market value, rather than requiring those instruments to be converted into their equivalent positions in the underlying assets and valued on the basis of that equivalent position. The modification is set out in an undated direction, which is valid until 31 January 2015 or on the change of the Glossary definition of "funds under management" that is used in IPRU(INV) 11, unless subsequently withdrawn.

12 February 2014: FCA update on passporting under AIFMD. The FCA has updated its news webpage on the Alternative Investment Fund Managers Directive (AIFMD). The FCA advises that EU negotiations on the MiFID II legislative proposals reached agreement late in 2013 to introduce an amendment to Article 33 of the AIFMD. The amendment will make it explicit that:

  • The right to passport an alternative investment fund manager's (AIFM) services in other member states extends to any services under Article 6(4) of the AIFMD that it is authorised in its home member state to provide; and
  • Article 33 provides the mechanism for the AIFM to make use of the passport by requesting its home state regulator to issue a notification to the relevant host state regulator to that effect.

The FCA warns that some member states may have already implemented in their national law the Commission's original view that there is no passport under the AIFMD for MiFID services, and it may take them some time to change the law and begin accepting the passporting of MiFID services.

11 February 2014: FCA policy development update no 10. The FCA has published its policy development update for January 2014 (PDU no 10). This legal update summarises the publications that the FCA proposes to publish, as set out in PDU no 10. The update also indicates the changes to the publishing schedule set out in the FCA's PDU no 9, published on 13 January 2014.

10 February 2014: FCA "Dear Head of Compliance" letter and short survey on reporting under COREP. The FCA has published a "Dear Head of Compliance" letter it has sent to FCA-authorised firms regarding providing regulatory data using the harmonised European reporting standards known as COREP and FINREP. A change in reporting has come about as a result of implementation in the UK of the Capital Requirements Regulation (CRR) on 1 January 2014. Firms to whom the letter has been sent are asked to respond, on a voluntary basis, by 28 February 2014, to a short "COREP readiness" survey. The FCA will use survey responses to refine its plans for the final stages of implementation, including ensuring further communications and directions are appropriate and that it is able to adequately supervise firms during the change in reporting.

10 February 2014: FCA factsheets on EMIR reporting and non-financial counterparties. The FCA has published the following factsheets relating to EMIR (the Regulation on over-the-counter (OTC) derivatives, central counterparties and trade repositories):

  • A factsheet for counterparties who need to comply with EMIR reporting obligations

  • A factsheet for non-financial counterparties (NCFs) calculating the clearing threshold and which are part of a group with entities that are financial counterparties (FCs)

10 February 2014: FCA Market Watch issue 45. The FCA has published issue 45 of Market Watch, which includes:

  • A reminder to firms of their duties under the FCA's rules, and specifically, the FCA is concerned that brokers in certain markets, including regulated contract for differences (CFD) and spread-bet firms and those offering rolling spot forex CFD, may be failing to recognise that their activities fall within the scope of the best execution rules
  • An update on suspicious transactions reports (STRs)

7 February 2014: PRA feedback on insurance data collection exercises in 2013. The PRA has published feedback about the insurance data collection exercises it conducted in May 2013, which covers:

  • A comparison of individual capital assessment (ICAS), standard formula solvency capital requirement (SCR), and internal model SCR
  • Standardised risk information
  • The credit benchmark portfolio survey
  • The stochastic simulations survey

An accompanying Solvency II Directive webpage explains that the PRA encourages all firms to respond to future data requests, use the comments and feedback to improve the quality of data, and improve their assessment of insurance risk. The PRA plans to repeat the data request to internal model firms in the second quarter of 2014.



7 February 2014: PRA update on Solvency II regulatory reporting industry working group. The PRA has published minutes and a set of Q&As following a meeting of the Solvency II regulatory reporting industry working group. The minutes focus on known issues with data and the use of eXtensible Business Reporting Language (XBRL). The Q&As have been put together to help insurance firms and other organisations working on Solvency II with questions they may have on the submission of information, both in the preparatory phase and at implementation. Questions have been submitted by industry representatives of the working group and answered by the PRA.



UKLA publications:

No new developments this week.

Upper Tribunal (Tax and Chancery Chamber):

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:

7 February 2014: Rescue legislation for industrial and provident societies laid before Parliament. The Industrial and Provident Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 has been laid before Parliament. The Order makes available the CVA, administration and scheme of arrangement processes for "relevant societies", being societies registered under the Industrial and Provident Societies Act 1965 other than societies that provide social housing. Relevant societies include credit unions as well as other types of industrial and provident society. The Order is due to come into force on 6 April 2014.


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