APRIL FCA Business Plan 2014/2015 and Risk Outlook The key points

Transcription

1 APRIL 2014 FCA Business Plan 2014/2015 and Risk Outlook The key points

2 Introduction On 31 March 2014, the Financial Conduct Authority (FCA) published its 2014/2015 Business Plan and Risk Outlook In this short overview briefing we pull out the key points to consider, and look at the expected priorities for the coming year. The Business Plan and Risk Outlook map out an ambitious programme of work. The backdrop is a continued focus on embedding cultural change and treating customers fairly. The FCA also breaks new ground, in particular, in announcing that it will look at the treatment of long-standing customers in life insurance, governance of with-profit funds; the use of in-house funds by wealth management funds; the treatment of commercial customers in insurance claims processes; and will raise the importance of IT resilience as a regulatory issue. The FCA expects firms to assess the relevance of the Business Plan and Risk Outlook to their own business models and strategies. Business Plan Overall focus The Business Plan derives from the FCA's strategic and operational objectives, and sets out its main anticipated activities for the year ahead. It notes the three main new activities of the FCA as being the: integration of the regulation of consumer credit: in connection with which the FCA will focus on, inter alia, payday lenders (including consulting on price caps); credit cards and overdrafts; and improving financial promotions; implementation of the new Senior Managers and Certified Persons regimes, and individual accountability generally; and preparation for the operational launch in April 2015 of the new regulator for UK payment systems. Other key activities are described as including: advancing the competition objective, largely through the use of market studies; the increasing use of thematic reviews as a supervisory tool; implementing European directives, such as AIFMD and MiFID II; a post implementation review of RDR; MMR go-live on 26 April 2014; use of enforcement tools; and assessment of AML processes and controls. The FCA is still feeling its way as to how it will realise its new operational objective to promote effective competition in the interest of consumers. From April 2015, the FCA will have concurrent powers with the Competition and Markets Authority. Market studies will remain the key tool in analysing markets for effective competition - in the coming year market studies into cash savings accounts and income products at retirement will be completed. As regards the wholesale markets, the FCA has committed to make an initial assessment of competition issues in these markets as part of a review of the sector so as to identify areas for markets studies. Sector impact Retail Key developments impacting the retail banking sector include: unauthorised transactions and unfairly rejected claims pursuant to the Payment Services Regulations 2009; packaged bank accounts compliance; and the impact of cost-cutting initiatives on different consumer groups. Long-term savings and pensions In connection with long-term savings and pensions the focus is effective due diligence for retail investment advice, in particular around suitability; sales practices at retirement; fair treatment of long-standing customers in life insurance, governance of with-profit funds, described as "zombie" funds; use of in-house funds in wealth ADDLESHAW GODDARD LLP 1

3 management firms and the management of related conflicts of interest; and client take-on risk for contracts for differences ("CFD") providers. Mortgages and consumer lending Anticipated work around mortgages and consumer lending includes: forbearance practices and the treatment of customers in arrears by payday lenders; the suitability of advice in debt management firms; MMR postimplementation testing; hybrid equity release products; the maturity of interest-only mortgages; and governance over mortgage lending strategies. General insurance and protection General insurance and protection is expected to give rise to work around: commercial claims - whether commercial customers expectations are met in the claims process; cover holders and issues in distribution chains in firms that operate in wholesale markets; the sale of premium finance to consumers alongside general insurance products; and motor legal expenses and mobile phone insurance. Wholesale banking and investment management For wholesale banking and investment management the focus is on conflicts of interest in investment banks, in particular in connection with trading positions; controls over flows of confidential information in investment banks; market abuse controls in asset managers; trader controls around benchmarks; and the agency responsibilities of asset managers. Cross sector issues Two broad cross sector issues are identified, namely: managing and incentivising the performance of staff; and raising IT resilience risks at board level and ensuring resilience against cyber attack. Risk Outlook The Risk Outlook contains an analysis of risks to the FCA's strategic and operational objectives arising from inherent factors (e.g. information asymmetries; behavioural biases; poor financial capability); structures and business conduct (e.g. conflicts of interest; poor culture and incentivisation; and market structures which prevent competition); and environmental conditions (e.g. macro-economic conditions; technological conditions; and the policy environment). Firms are expected to reflect the risks identified in their own current or future business plans and strategies. Seven forward looking areas of focus which present particularly significant risks are outlined in both the Risk Outlook and Business Plan: technological developments which may outstrip firms' investment, consumer capabilities and regulatory response; poor culture and controls; large back-books which may lead firms to act to the detriment of existing customers; retirement income products delivering poor consumer outcomes; growth of consumer credit; excessively complex terms and conditions; and house price growth potentially giving rise to, for instance, MMR avoidance around affordability.

4 The factors that are covered in both reports are summarised in Annex 1 of the Business Plan, which outlines the current and planned thematic work and market studies. This annex should be key in planning for potential FCA focus and intervention. Retail Banking Q1 Product governance, PPI redress, Mobile banking, SME banking, Cash savings. Q2 The impact of cost-cutting initiatives on different consumer groups, Unauthorised transactions. Q3/Q4 (Confirmation, scope and dates TBC) Packaged bank accounts. Long-term savings and pensions Q1 Pension reform, Retirement income study, Advice models, MiFID II, Crowdfunding, SIPP operators review, Review of post RDR charging and service disclosure, Use of in-house funds in wealth management firms, Risks at client take-on in CFD providers, Simplifying disclosure. Q2 Fair treatment of long-standing customers in life insurance, RDR post-implementation review. Q3/Q4 (Confirmation, scope and dates TBC) Effective due diligence for retail investment advice, Governance of with-profit funds. Mortgages and consumer lending Q1 Mortgage arrears and forbearance practices, High-cost short-term credit inc forbearance and treatment of customers in arrears, Governance over mortgage lending strategies, Fairness in changes to mortgage contract terms DP, MMR post-implementation review and testing, Maturity of interest-only mortgages. Q2 Regulated covered bonds 2nd line, Suitability of advice in debt management firms (Confirmation, scope and dates TBC). Q3/Q4 (Confirmation, scope and dates TBC) Consumer credit credit cards, Hybrid equity release products. General insurance and protection Q1 GI add-ons. Q2 (Confirmation, scope and dates TBC) Cover holders. Q3 MLEI. Q3 (Confirmation, scope and dates TBC) Premium finance, Commercial claims, Protection of client money by small firms. Q4 Mobile phone insurance. Wholesale banking and investment management Q1 Fund charges governance, Structured notes and associated conduct risk, Use of dealing commissions, LIBOR submitters, Wholesale sector competition review and market study, Best execution, Pension fund charges. Q2 Market abuse controls in asset managers. Q2/Q3/Q4 (Confirmation, scope and dates TBC) Controls over flows of information in investment banks, Agency responsibilities of asset managers, Conflicts of interest in investment banks, Trader controls around benchmarks. Other/cross-sector Q1 Financial incentives, Complaints handling, Sponsors conflict, Financial crime controls in C3 and C4 firms, Resilience against cyber attacks. Q2 Visibility of resilience and risks at board level, Managing the performance of staff. ADDLESHAW GODDARD LLP 3

5 David Heffron - Partner, Financial Regulation david.heffron@addleshawgoddard.com Brian McDonnell Partner, Financial Regulation brian.mcdonnell@addleshawgoddard.com Adam Bennett Partner, Financial Regulation adam.bennett@addleshawgoddard.com Amanda Hulme Partner, Financial Regulation amanda.hulme@addleshawgoddard.com Rosanna Bryant Partner, Financial Regulation rosanna.bryant@addleshawgoddard.com David Ellis Partner, Financial Regulation david.ellis@addleshawgoddard.com Nikki Worden Partner, Financial Regulation nikki.worden@addleshawgoddard.com Rebecca Rogers Professional Support Lawyer, Financial Regulation rebecca.rogers@addleshawgoddard.com

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