29 Mar 2016
The FCA has recently made a number of changes to its Handbook. These include:
Find out more: UK Financial Regulatory Developments - March 2016
Chancellor George Osborne announced the closure of the Money Advice Service (MAS) as part of the Budget. The Chancellor’s decision comes as part of the review of Government-backed guidance services, launched alongside the Financial Advice Market Review last year.
The MAS is set to be replaced by a much smaller body with a focus on providing “frontline” services to those in financial difficulty.
While the guidance review was explicitly designed to cut down on duplication between services, the final FAMR report, published this week, called on the FCA to provide more support to firms who wish to offer their own guidance and information to customers, without crossing over into full advice.
A Treasury spokesman declined to comment on how the decision will affect other Government-backed services currently being offered by Citizens Advice and The Pensions Advisory Service (TPAS).
TPAS and Citizens Advice are responsible for the phone-based and face-to-face elements of the Government’s Pension Wise guidance service, with the MAS providing additional online information.
The move comes almost exactly a year after an independent review of the MAS recommended that its budget be dramatically slashed, with the service refocused on primarily offering debt advice.
Find out more: Mortgage Strategy
The MCD came into force on 21 March 2016 and introduced an EU-wide framework of conduct rules for mortgage firms. It is closely aligned with the UK’s existing mortgage regulation.
The MCD seeks to cover all lending where the purpose is to buy or retain rights on a residential property. This means that second charge lending will also be regulated. This means that any firm electing to advise on second charge mortgages will need to adopt the new Rules. Additionally, where the customer is increasing their borrowing, brokers will need to consider whether this is a more suitable option.
The MCD requires lenders to issue ‘binding’ offers, which means that unless a material change occurs post-offer, or the customer has provided inaccurate information, the lender cannot re-underwrite the case. Binding Offers will only apply to MCD regulated mortgages this will not include Business BTL or MCD exempt Lifetime Mortgages.
The MCD introduces a reflection period of at least seven days, which is to give the consumer time to compare offers and assess their implications. The reflection period will need to be incorporated into the conveyancing process.
This is being implemented through the FCA.
Find out more: Mortgage Credit Directive
As part of the Mortgage Credit Directive the brokering of buy-to-let mortgages will no longer be a regulated credit activity from 21 March 2016.
It is important to note that buy-to-let mortgages will now be split into two categories: business buy-to-let and Consumer Buy-To-Let (CBTL).
CBTL means a buy-to-let mortgage contract which is not entered into by the customer wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the customer.
A customer is out with the scope of the legislation where they buy a property for business purposes with the intention of renting, or where the customer has never live in the property and has a portfolio of properties.
CBTL mortgages will be subject to the standards set out in the Mortgage Credit Directive Order 2015, which include the requirement for pre-contractual illustrations, assessing creditworthiness and arrears management.
CBTL firms will now be subject to the jurisdiction of the Financial Ombudsman Service for complaints in relation to CBTL activity.
Find out more: Financial Conduct Authority
The financial sector has been given a strong indication of what the enforcement priorities of the Financial Conduct Authority (‘FCA’) will be in 2016 through a series of recent publications, speeches and announcements made by the Regulator.
Despite stepping back from a formal review of banking culture, the FCA made clear in November 2015 through their Enforcement and Markets Division that it would continue its focus on culture and related regulatory sanctions.
One of the regulator's priority areas of focus for the first time as announced in the FCA’s 2015 Business Plan is financial crime, including anti-money laundering (AML), bribery, corruption and fraud. The FCA’s ‘Financial Crime Guide’ has also highlighted their commitment to taking enforcement actions against both firms and individuals that fail to meet the FCA’s regulatory standards in these areas, including imposing high level financial penalties and other sanctions.
Cyber security has also been identified as a key focus for the FCA in their 2015 Business Plan. The FCA has identified the need to be stringent in this area following a wave of cyber attacks and data theft over the last 12 months. Firms are being called upon by the FCA to consider specific risks, and to identify how they would deal with such attacks and the potential ransoming of data.
A new regime known as the ‘Senior Managers Regime’ (‘SMR’) has recently been implemented, which brings along with it a change in the financial industry where if the FCA considers there to be a failing within a firm, senior management are to be held accountable. For example, if a regulatory requirement has been breached, the senior manager responsible for that area will be accountable to the FCA.
In terms of financial sanctions, the FCA is to increase the penalties imposed on firms to become more aligned with those imposed by the FCA's US counterparts.
The FCA has also highlighted its intention to reduce the number of firms authorised to undertake consumer credit activities, as evidenced by the recent action taken against payday lenders. New rules have been imposed on this industry to ensure it is fairly and effectively managed, and there is no room for ‘rogue operators’.
It is anticipated that these changes brought in by the FCA will help the industry flourish again following the financial crisis.