FCA Regulation Roundup August – Highlights

Complaints Handling

The FCA has published final rules on complaints handling.

In summary the changes are:

  • An extension of the ‘next business day rule’, where firms can handle complaints less formally without sending a final response letter, to the close of three business days
  • A requirement to report all complaints
  • A push to raise consumer awareness of the ombudsman service, by requiring firms to send a ‘summary resolution communication’
  • A prohibition on charging existing customers premium telephone rates

Firms using premium rate numbers should review systems now (the prohibition taking effect on 26th October) while all firms will need to take steps to review policies and reporting by June 2016.

Improving Conduct

In July Tracey McDermott, director of supervision, at the FCA, delivered a speech at the British Bankers’ Association Conference. Aimed at the wholesale market the speech gives clues to the questions all firms should expect to be asked in the context of conduct risk.

First, how do you identify the conduct risks inherent within your business? As with any risk, you cannot hope to mitigate something you don’t know exists.

Second, who is responsible for managing the conduct of your business? The FCA expects firms to be asking themselves how they are encouraging their employees to be and feel responsible for actually managing the conduct of their business.

Third, what support mechanisms do you have to enable people to improve the conduct of their business or function?

The fourth question is about how the board and executive committees gain oversight of the conduct of the organisation. At a basic level, this is about what information the board and executive see, and how they take it into account in their decision-making.

The fifth and final ‘catch-all’ question is, do firms have any perverse incentives or other activities that may undermine any strategies put in place to answer the first four questions?

To see the whole speech click here. Conduct risk is becoming central to reviews of governance, compliance and risk controls. For support call us on +44 (0)20 7399 4980.

Financial Advice Market Review

The government recently announced the Financial Advice Market Review. The review will examine how financial advice could work better for consumers. The review will consult in Autumn 2015 and report ahead of the 2016 Budget

The review will examine

  • the advice gap for those people who want to work hard, do the right thing and get on in life but do not have significant wealth;
  • the regulatory or other barriers firms may face in giving advice and how to overcome them;
  • how to give firms the regulatory clarity and create the right environment for them to innovate and grow;
  • the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient and user friendly advice services; and
  • how to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice.

More reforms will be on the way. Leaving aside the cost of regulation, the advice process takes time. The old fashioned way is unlikely to work for those in scope.

Consumer Credit Pay and Incentives

FCA supervisory work has suggested many consumer credit firms may be operating high-risk incentive schemes, which can often lead to poor consumer outcomes if not managed effectively.

Additionally, work carried out by the FSA/FCA between 2012 and 2014 found a number of firms (including banks and insurers) had schemes that were likely to drive mis-selling. High level findings from this previous work were:

  • few firms had fully considered risks in their incentive schemes (and therefore had not considered mitigating those risks – back to the conduct risk speech above)
  • schemes were so complex management and other staff did not understand them
  • where risks had been recognised, the controls firms had implemented to manage risks in incentive schemes were often lacking and / or ineffective
  • a number of managers received a bonus based on the sales made by the staff they supervised, creating a possible conflict of interest

Consumer Credit firms can now expect a similar level of scrutiny. Complyport has observed both good and poor practice and can advise on specific issues.