22 Jul 2015

Client Briefing: Compliance, Conduct and Risk Bulletin July 2015

Client Briefing: Compliance, Conduct and Risk Bulletin July 2015


1. Buy-to-let mortgages

The Financial Conduct Authority (FCA) have issued a Policy Statement in response to their February 2015 consultation paper – CP15/3 – on their proposals for implementing the Government’s framework for buy-to-let mortgages under Part 3 of the Mortgage Credit Directive Order 2015.

In their paper, the FCA set out four areas which they wished to target to implement the legislative framework; the registration process, collection of aggregated data, widening of the Financial Ombudsman Service's (FOS) compulsory jurisdiction to cover complaints handling for buy-to-let mortgages; and modifications to other handbook modules to incorporate buy-to-let mortgages.

The FCA report ‘broad support’ for the proposals made by them in CP15/3 and that respondents recognised that the scope of the consultation was in line with the powers conferred on the FCA by legislation.

However, the Council of Mortgage Lenders (CML) was critical of the drafting of the proposals; citing four areas of concern. CML director general Paul Smee stated: "The Directive provides little if any benefit to UK consumers or the operation of the market. We believe that both the government and the regulator share this view. So, while we naturally recognise the need to comply, we believe that the UK should do so in a pragmatic way that disrupts the existing robust regulatory regime as little as possible."

Under the new legislation, lenders who wish to engage under the buy-to-let scheme will need to be registered by the FCA to do so. There will be an application form and a fees relating to this. In relation to this, the FCA will be conducting a March 2016 consultation paper on the periodic fees and FOS general levy.

2. FCA carries out review on quality of debt-management advice

The FCA has recently published a thematic review focusing on the level of compliance with existing Consumer Credit Sourcebook rules as based on the Office of Fair Trading’s former Debt Management Guidance.

The aim was to learn whether debt-management firms, particularly those charging fees, are providing advice that is in a customer’s best interests and whether they are actually reducing the risk of further indebtedness.

The FCA reviewed a combination of fee-charging and free-to-customer debt management firms operating in the UK.

Some significant findings on the quality of debt-management advice include:
  • Failure by debt management firms to assess a customer’s personal circumstances and potential vulnerability
  • Failure to assess a customer’s financial position specifically and the inadequacy of income and expenditure assessments
  • Recommendation of debt solutions which are not in a customer’s best interests e.g. those which reduce the amount of income available to repay creditors
  • Inadequate client money arrangements
The FCA’s expectations of firms in this area have also been listed:
  • Firms should accurately advertise the potential benefits of debt solutions and the firm’s ability to freeze interest and charges imposed by creditors
  • Firms should request evidence to support customer income and outgoings rather than simply rely on self-declaration
  • Firms should refer cases to not-for-profit debt advice firms where a customer does not have sufficient disposable income to pay the firm’s fees
  • Firms should use plain, intelligible language and avoid unfair terms so that contracts provide a clear picture of what is being entered into, potential changes to this and the charges imposed by the firm

3. The Alternative Dispute Resolution Directive

New Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) rules came into effect from the 9th July 2015. 

Key changes to FCA rules are as follows:
  • You will need to provide additional information, including providing a link to the FOS website on your website and in your client agreement
  • You will also have to confirm in your final response letters or other written responses on whether you intend to consent to the FOS reviewing a case where you are not required to do so, e.g. outside of prescribed time limits

The FOS will be able to consider complaints made directly by a client, where your firm has not investigated the complaint. However, this will only be permitted if both you and the client consent. If you do consent to the FOS handling a complaint directly, you must still comply with your existing obligations under the dispute resolution rules. For example, you must still notify the client of a final response or explanation of the current position if the FOS fails to resolve the complaint by the end of the 8 week period.

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