Since our last publication, the FCA has finalised guidance on fair treatment of mortgage customers in payment shortfall and the impact of automatic capitalisation. In other news, the ESAs' Joint Committee has published its report on cross-section risks and vulnerabilities facing the EU financial system.
FCA finalised guidance on fair treatment of mortgage customers in payment shortfall and impact of automatic capitalisation
Finalised guidance on the fair treatment of mortgage customers in payment shortfall (also known as arrears) and the impact of automatic capitalisation (FG17/4) has been published by the FCA. The guidance will help set out a remediation framework for customers who have suffered harm because of automatic capitalisation of payment shortfall, as the FCA is concerned that this practice can lead to unfair outcomes for customers.
FCA Mission 2017
FCA has published its Mission 2017, together with a feedback statement (FS17/1) outlining the FCA's overall responses to its consultation paper on its future mission. The Mission sets out, at a high-level, the framework for the strategic decisions the FCA makes, the reasoning behind its work, and the way it chooses which tools to use.
FCA's 2017/18 business plan
FCA has published its 2017/18 business plan. Areas of focus across the financial services sector for 2017/18 include the following:
- Firms' culture and governance.
- Financial crime and anti-money laundering (AML).
- Promoting competition and innovation.
- Technological change and resilience.
- Treatment of existing customers.
- Consumer vulnerability and access to financial services.
The FCA has also, for the first time, published its sector views for 2017, which highlight the issues and developments the FCA sees in the sectors it regulates.
FCA speech on managing cyber-security threats
An FCA speech by Nausicaa Delfas, the FCA Executive Director, has been published which addresses the steps firms can take to tackle cyber-security threats. The speech summarises the financial services sector's most prominent cyber-security threats, including distributed denial-of-service (DDOS) attacks and the risk of "ransomware" which is malicious software installed onto firms' networks.
ICO fines loan firm for spam texts
Finance brokerage firm Monevo Ltd, based in Macclesfield, Cheshire, has been fined £40,000 by the Information Commissioner’s Office (ICO) for sending thousands of spam text messages promoting loans. The company sent 44,172 unsolicited marketing texts in three months, and had obtained recipients’ personal details from third party websites in breach of privacy law.
FCA consults on 2017/18 regulated fee and levy rate proposals
The FCA has published a consultation paper on regulated fee and levy rate proposals for 2017/18 (CP17/12). In CP17/12, the FCA sets out the proposed 2017/18 regulatory fees and levies for itself, the Financial Ombudsman Service (FOS), the Money Advice Service (MAS), the Pension Wise service and HM Treasury's illegal money lending expenses. The FCA explains that for 2017/18 its annual funding requirement (AFR) is £526.9 million. This is an increase of £7.6 million (that is, 1.5%) over the AFR for 2016/17. The increase is driven by an inflation-aligned £5.1 million (that is, 1%) increase in the FCA's ongoing regulatory activities (ORA) budget and £2.5 million for EU withdrawal costs.
New FCA webpage on "durable medium"
FCA has published the April 2017 edition of its Regulation Round-up. Among other things, the news and publications section of the round-up refers to a new "durable medium" FCA webpage. The webpage (which was last updated on 7 April 2017) aims to clarify the meaning of durable medium, as well as explaining its origin, purpose and interpretation. In relation to the interpretation of durable medium, the FCA suggests that firms may wish to consider relevant EU cases to decide whether a particular system or technology might meet the durable medium criteria.
PRA publishes 2017 stress test scenario for firms not participating in the 2017 concurrent stress test
The PRA has published the 2017 stress test scenario, which is published every six months. The scenario is intended to help firms calibrate the severity of their own capital planning stress scenarios under Pillar 2, and should not undermine firms' efforts and responsibility to develop their own scenarios.
Updated LMA consumer wordings guidance for managing agents
Lloyd's Market Association (LMA) has published an updated version of its consumer wordings guidance (v3.0). It is intended to assist managing agents with the practicalities of drafting new consumer products and adapting existing commercial wording to produce consumer versions. In an accompanying bulletin, the LMA explains that the guidance has been updated to reflect:
- Claims handling: clarification relating to insured’s duty to mitigate the loss.
- Data Protection (General Data Protection Regulation (GDPR)): placeholder added.
- Rights of Third Parties: further clarified Third Parties (Rights Against Insurers) Act 2010.
- Law and Jurisdiction: added Lloyd’s requirement.
- Expanded guidance on definitions and exclusions.
- New renewal documentation section to incorporate FCA rules on renewals transparency, which took effect from 01 April 2017
LMA, 20 April 2017
ESAs' Joint Committee report on cross-sector risks facing EU financial system: April 2017
The Joint Committee of the European Supervisory Authorities (ESAs) (that is, the EBA, EIOPA and ESMA) has published its report (JC 2017 09) on risks and vulnerabilities in the EU financial system.
The Joint Committee highlights the following main risks to the financial system:
- Low profitability. The banking sector is being affected by high levels of non-performing loans (NPLs), high litigation costs, overcapacity, and lack of focus in strategies to return to sustained profitability. Addressing NPL challenges includes increasing supervisory action, making progress in structural reforms, and improving the efficiency of secondary markets. Insurers face substantial challenges arising from prolonged low interest rates, and the fund industry's rates of returns are subdued and remain mostly negative.
- Valuation risk. Increased asset price volatility and liquidity concerns have heightened risks relating to adequate valuation of asset prices. This has been exacerbated by political uncertainties.
- Interconnectedness within the financial system. Interconnectedness adds to financial sector risks. This includes concentration risk caused by highly correlated equity price movements for insurers and banks, and high exposures of EU insurers to EU banks. Interconnectedness with the wider financial system is also increasing.
- Cyber risks and other IT-related risks. Cyber risk appears as a major risk and is on the rise. Currently, denial-of-service attacks, data theft or manipulation, malicious software, misinformation and false identification are the most relevant forms. Operational risks related to ICT risks also appear to be on the rise across the financial sector.