FCA makes new proposals to assist mortgage prisoners

The Financial Conduct Authority (FCA) has announced it is considering introducing new procedures that could allow lenders to solve what has become known as the ‘mortgage prisoners’ problem.

The problem arises from rules which the FCA introduced in 2014 requiring lenders to carry out stricter affordability checks. This meant that many borrowers were unable to switch their mortgage deal as they would fail the affordability check, and instead the slightly perverse situation arose where these ‘prisoners’ were forced to continue with their existing mortgage arrangement, even though they would reduce their payments were they allowed to switch.

The regulator previously announced proposals that could assist 10,000 of these mortgage prisoners. These customers are now permitted to switch to cheaper deals with their existing lender provided they are not seeking to borrow additional funds, and have kept up to date with their repayments, and this switch can occur regardless of whether they would pass the lender’s normal affordability check.

However, this previous announcement did nothing to help the estimated 140,000 borrowers who have a mortgage either with an inactive lender – one that no longer offers new mortgages – or with a lender not regulated by the FCA. Some previous Northern Rock and Bradford & Bingley customers fall into these categories for example.

A letter from FCA chief executive Andrew Bailey to the chair of the Treasury Select Committee, Nicky Morgan MP, now reveals that the regulator is considering allowing these borrowers to switch to new mortgage deals with other lenders, and again the affordability test would be ‘relative’ rather than ‘absolute’, i.e. will the monthly repayments on the proposed new deal be lower than their present arrangement?

Ms Morgan commented:

“The regulator must now act swiftly to help these 140,000 mortgage prisoners and not use this consultation to kick the issue into the long grass.”

The FCA will commence a formal consultation on this issue in spring 2019.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FCA publishes latest Sector Views document

The Financial Conduct Authority (FCA) published its latest Sector Views report in January 2019. This publication encompasses an annual analysis of the changing financial landscape, the resulting impacts on consumers and market effectiveness.

Unsurprisingly, technology issues and the possible impact of Brexit feature prominently in the report, as the FCA looks at the position in seven different sectors:

  • retail banking
  • retail lending
  • general insurance and protection
  • pensions savings and retirement income
  • retail investments
  • investment management
  • wholesale financial markets

The regulator says it believes there are four main areas of focus that apply across all sectors:

  • technology led changes – do consumers trust new services and distribution channels, such as robo-advice? Can technological progress allow firms to carry out sophisticated analysis of data, and use the results to provide more tailored products and services that can better meet individual consumer needs?
  • societal changes and their impact on financial needs of different generations – millennials are struggling to get on the housing ladder and are often affected by the recent sluggish growth in wages; Generation X (born 1966 to 1980) are under pressure to plan for their own retirement while potentially supporting family across both sides of the generational divide; and while many retirees are relatively prosperous, some are struggling to make the right choices regarding their retirement income, especially as life expectancy rises
  • the potential impact of Brexit – what will happen here remains very uncertain, even with just two months to go to the UK’s departure date, and firms and the FCA alike may need to plan for a ‘no deal’ scenario
  • the macroeconomic environment – GDP growth remains modest, while the prolonged period of low interest rates may have led consumers to invest in riskier products, such as peer-to-peer lending, and they may not be aware of the heightened risks associated with them. Meanwhile inflation has grown faster than wages for much of the past few years, and households are feeling the squeeze, leading some to become more reliant on credit

In the retail lending sector, the FCA observes that the rate of growth of consumer credit lending remains high but has started to slow and there are signs that mainstream credit firms are starting to restrict lending. Steady growth in mortgage lending has been driven by first-time buyers and remortgagers, but the average mortgage term is increasing, with 34% of new mortgages set up for 30 years or more. 75% of all UK adults used a form of credit in the last 12 months. The average 25 to 34-year-old is spending as much as 19% of their pre-tax income on debt repayments. The FCA remains concerned about the advice standards in debt management firms.

In the general insurance market, the FCA welcomes the fact that more customers are shopping around rather than automatically accepting their renewal quote. Many customers believe that their policy documentation is not ‘user friendly’.

In the pensions sector, the report comments that although many more people are now in workplace pensions – largely because most employers are obliged to provide one – overall contribution rates remain low, and that many people are not saving enough for a comfortable retirement. A large proportion of retirees withdrawing cash from pension pots are choosing to re-invest it in non-pensions vehicles, which is unlikely to be to their advantage. The FCA remains concerned about the threat posed by pension scams.

In the retail investment market, the report states that, excluding pensions, only a third of the UK population hold any form of investment product, whether regulated or unregulated. Knowledge of investment vehicles remains low amongst the general population, but only a third of UK adults trust financial advisers to work in the best interests of their clients. Unsuitable advice on workplace pension transfers is one of the areas of greatest potential concern with respect to advised sales, and indeed the FCA has made clear its concerns in this area over an extended period.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


TUC data reveals household debt at new high

The latest data published by the Trades Union Congress (TUC) shows that household debt in the UK is now at a record level when one looks at unsecured debt as a share of household income.

On this measure, unsecured debt as a share of household income is now 30.4%, the highest figure on record. The equivalent figure in 2008, as the financial crisis began to bite, was 27.5%.

Unsecured debt per household was £15,385 in the third quarter of 2018, an increase of £886 (around 6%) compared to 12 months earlier. Total unsecured debt rose to £428 billion in the third quarter, when prior to the financial crisis it was considerably lower at £286 billion.

In 1998, average unsecured debt per household was £5,456, and in 2008 it was £11,146.

Essentially all debts except mortgages are included in these figures, which encompass bank loans, payday loans, credit cards, store cards, purchase loans and student loans. Bank of England figures do not include student loans, and hence their reported debt total is only half of that in the TUC analysis.

The true figure may now be even higher, as the TUC analysis was conducted prior to the end of last year, and hence does not include debts accumulated over the Christmas period in 2018. Research by mobile app company Wagestream shows that the average UK worker put £252 of festive spending on credit in 2018, a figure that rises to £352 when we look solely at gig economy and shift workers.

The TUC blamed years of sluggish wage growth for the rise in debt – only in recent months have average wages increased faster than inflation. Adjusted for inflation, wages are still slightly lower than they were in 2008. The organisation also suggested that the rise of the gig economy, and the number of workers on zero-hours contracts, had contributed to the problem.

TUC General Secretary Frances O’Grady said:

“Household debt is at crisis level. Years of austerity and wage stagnation has pushed millions of families deep into the red.

“The government is skating on thin ice by relying on household debt to drive growth. A strong economy needs people spending wages, not credit cards and loans.

“Our economy is not working for workers. They need stronger rights and bargaining powers. Trade unions should be allowed the freedom to enter every workplace to negotiate higher wages.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


Single Financial Guidance Body launches

The start of 2019 has brought with it the advent of the Single Financial Guidance Body (SFGB), which will provide the services previously carried out by three providers of government-sponsored financial guidance:

  • The Money Advice Service (MAS), which provided guidance on debt matters and general financial issues
  • The Pensions Advisory Service (TPAS), which provided guidance on workplace pensions
  • Pension Wise, which provided guidance on the options over 55s had for accessing their pension savings

The five ‘core functions’ of the SFGB are:

  • Pensions guidance – providing information and guidance to consumers on pensions issues, relating to both workplace and personal pensions
  • Money guidance – enhancing consumers’ understanding and knowledge of general financial matters and improving their day-to-day money management skills
  • Debt advice – providing information and advice on debt matters. In this case the organisation provides a free-to-use alternative to that offered by commercial debt management firms that are authorised by the Financial Conduct Authority (FCA)
  • Consumer protection – here the SFGB says it will work with the Government and the FCA to enhance the protection that the financial system offers to consumers
  • Strategy – here the organisation says it will work with the financial services industry, devolved authorities and the public and voluntary sectors to develop a national strategy to improve financial capability, help people in managing debt and provide financial education for children and young people

The SFGB has its own website at https://singlefinancialguidancebody.org.uk/, however at time of writing this still consists of a single page, and much of the relevant information, including any media releases, is still contained on the websites of the three previous bodies.

In time, a new name will be chosen for the organisation.

The levies to fund the new organisation will be paid by both authorised financial services firms, and by pension schemes.

There have been no job losses as a result of the changes, with all staff of the MAS, TPAS and Pension Wise transferring to the new body.

Former FCA head Sir Hector Sants is the chairman of the SFGB, and he commented:

“The new organisation has a clear mission to help everyone manage their personal finances as well as their circumstances allow across the nation. We are creating an organisation which is seen as transparent, accountable, effective and above all respected by all, working hand-in-hand with the industry, our staff and our partners.”

Chief executive John Govett described his organisation’s objectives as follows:

“A new single body provides an opportunity to deliver a more streamlined service to people, providing easier access to the information and guidance they need to help them make effective financial decisions throughout their lives.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FOS publishes its plans for 2019/20 and expects a massive increase in short-term loan complaints

The Financial Ombudsman Service (FOS) has issued its Strategic Plan and Budget document for the 2019/20 financial year, and responses are invited by January 31 2019 to 18 questions on areas such as: its complaints volume predictions, the planned move into handling SME complaints, the impending switch of claims management complaint jurisdiction and the way the Service is funded.

At the start of the document, Chief Ombudsman Caroline Wayman describes payment protection insurance (PPI) as “still necessarily a significant focus for us”, but also says that “if PPI was once the main story, that isn’t the case any longer.” As evidence of this she cites the fact that demand for the Ombudsman’s services is at the highest for five years, even though it has lately been receiving fewer PPI complaints than expected. This is largely due to increases in complaints about IT failures at authorised firms, and rises in the numbers of consumer credit cases, especially those concerning payday and instalment loans.

The document goes on to reveal that the FOS is now expecting only 200,000 new PPI complaints in the 2018/19 financial year, when it had budgeted for 220,000.  The FOS also cautions that there may yet be a ‘spike’ in PPI complaint volumes as the August 29 claims deadline approaches and adds that only around one seventh of the PPI complaints it will resolve this financial year will concern the Plevin judgement and undisclosed high commissions.

Regarding short-term lending complaints, the document says that around 50% of these cases are being decided in the customer’s favour, and that the FOS regularly sees cases where lenders have:

  • Granted multiple loans to the same borrower
  • Failed to ask sufficient questions before agreeing to lend to an individual
  • Failed to manage the ongoing client relationship to ensure the loan remains sustainable

It adds that around 80% of short-term lending complaints are now made via claims management companies, and highlights that it has passed on its concerns about the way some CMCs conduct their affairs to the Claims Management Regulator at the Ministry of Justice.

The FOS is currently expecting to receive 382,000 complaints in the 2018/19 financial year, of which 230,000 will concern PPI and 20,000 short-term lending. However, for the 2019/20 annual cycle, which commences on April 1, it expects 460,000 new complaints, an increase of 20%. PPI complaints for the year are predicted at 250,000 and short-term lending complaints at 50,000, a massive increase of 150%.

The Service will be able to receive complaints from SMEs for the first time in 2019/20 and expects 1,300 such complaints. It will also take over from the Legal Ombudsman in handling complaints about CMCs and expects 1,600 such cases.

The case fee will remain frozen at £550, and firms will still have 25 ‘free’ cases per year before any case fees are charged. 56% of firms, mostly smaller firms, should see no change in the amount they have to contribute to the FOS annual levy.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article




How will the FCA supervise CMCs?

From April 1, the UK’s claims management companies (CMCs) will be subject to a new regulatory environment. Some aspects of Financial Conduct Authority (FCA) regulation will be similar to the way the Ministry of Justice (MoJ) has regulated claims companies, and some aspects will be different. However, even where the nature of the regulator’s supervision will be similar, CMCs should note that the FCA will have much greater resources than the MoJ.

The following are all tools the FCA could use to supervise CMCs:

  • Regular programme of supervision – Despite its additional resources, CMCs should not expect a full-scale annual audit visit – it doesn’t quite have that level of resources, and it does supervise around 80,000 firms. However, the usual rule of thumb is that the larger a firm is, and the higher the risk its business activities are deemed to pose, the more likely they are to attract the regulator’s attention. Sometimes, rather than visiting a firm, the FCA will simply ask the firm to complete a questionnaire, which may for example test their understanding of certain regulatory concepts
  • Issues-based supervision – The FCA may decide to supervise a particular firm more closely if it becomes aware of issues of concern, or other bodies highlight their concerns to the regulator. An example might be if a firm suddenly received a large number of complaints
  • Thematic reviews – A thematic review involves the FCA examining a sample of firms from a particular business sector regarding their practices in one specific area. It is almost certain that there will be some form of thematic review of the claims management sector at an early stage, for example it might look at whether CMCs are meeting disclosure rules on client fees. Once the review is complete, the FCA publishes its findings and all firms, whether or not they were included in the review, are expected to read and consider the report and make any necessary changes to their own practices
  • Data analysis – All regulated firms are required to submit data returns to the FCA at regular intervals. Sometimes the regulator will ask for additional data from firms, and all such requests must be complied with under FCA Principle 11. If anything in a firm’s data gives the FCA cause for concern, it may choose to investigate the firm further
  • Compliance guidance – Sometimes the FCA will issue guidance to firms on specific issue (s), and the regulator naturally expects firms to act on this. This guidance can also take the form of a Dear CEO letter, where the FCA writes to the CEO or equivalent of all firms in a particular sector, highlighting their concerns over a specific issue. Sometimes the Dear CEO letter will ask the CEO to make the necessary changes to their company procedures to address the FCA’s concerns, and sometimes the letter will ask the CEO to reply to the regulator to give details of how their firm will ensure compliance with FCA requirements

Regardless of how the issues were identified, the FCA can then take enforcement action against any firm failing to comply with its rules and/or principles.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article




What should CMCs prepare ahead of their full authorisation application?

Claims management companies (CMCs) have until March 31 to submit their application to the Financial Conduct Authority (FCA) for the temporary permission they will require to continue operating under the new regulatory regime from April 1 onwards.

However, whilst it is vital that CMCs do not miss this deadline, they also need to be turning their attention to the application for full authorisation they will need to submit once their temporary permission is active. The information required in a temporary permission application will be fairly basic, but in the full authorisation application much more information will be required.

The FCA expects CMCs to submit an application for full authorisation in one of two application periods:

  • April 1 to May 31 2019 for:
  • All CMCs whose entire activity is connected to financial products and services, except for companies who only carry out lead generation activities, and
  • All CMCs who are new to regulation, such as those based in Scotland
  • June 1 to July 31 2019 for all other CMCs

Given that all CMCs will need to have submitted this application by the end of July, and many will need to have completed it by the end of May, companies are strongly recommended to start preparing now. These deadlines will only be extended where the FCA agrees there were ‘exceptional circumstances’ that prevented a CMC from meeting their deadline. If companies miss these May 31 or July 31 application deadlines, they will lose their permission to conduct claims management activity.

Essentially what the FCA wants to see in a full authorisation application is a ‘regulatory business plan’. In some ways, the content of these will differ from the sort of business plan that might be compiled, for example, to attract potential investment.

The FCA asks CMCs to provide details of:

  • The legal structure of the company
  • The sectors the company will operate in, e.g. financial claims, personal injury, housing disrepair
  • The company’s aims and objectives, e.g. desired market share, expansion plans, general business strategy in the next few years
  • Its governance framework and key personnel – it is recommended that a full organisational chart is included here
  • How the key personnel can demonstrate the skills and experience required to carry out their roles competently
  • The key conduct risks facing the company, and how these risks will be managed
  • Whether the company has any plans to outsource activities
  • Financial projections for the next three years
  • How customers will be sourced – this must include details of any lead generators the company intends to use
  • Any unregulated activities the company will carry out in addition to its FCA-regulated business
  • Promotions and client communication materials the company intends to use – this would include any websites

Once a full authorisation application has been submitted, it is commonplace for the FCA to contact the company to seek clarification on certain points, and the regulator may also request additional information in certain areas.

CMCs should also expect to have to submit a third application to the FCA later in the year. The Senior Managers & Certification Regime will apply to all claims companies from December 9 2019, and by September 9, CMCs will need to have submitted an application to the FCA detailing which individuals they wish to be approved to carry out Senior Management Functions. All CMCs will need at least one individual to be approved, and those with annual turnover of more than £1 million will need at least two individuals to be approved.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article



FCA warns every firm’s CEO over promotion of unregulated activities

The ‘Dear CEO’ letters issued by the Financial Conduct Authority (FCA) are often sent to firms in specific sectors, highlighting the regulator’s concerns over specific issues in that sector. However, on January 9, the letter that the FCA placed on its website is actually intended to be read by the CEO or equivalent of every authorised firm. This latest Dear CEO letter explains the FCA’s concerns over financial promotions issued by firms which incorrectly suggest that all of the activities which they undertake are regulated by the FCA, when this may not be the case.

Firms for whom 100% of their business activities are FCA-regulated need not worry too much about the content of the letter. However, CEOs of firms that carry out a mixture of FCA-regulated and non-FCA-regulated business need to urgently review their promotional material and make sure that these promotions do not in any way imply that all of their business activities are regulated by the FCA. Most financial promotions from authorised firms state that the firm is ‘authorised and regulated by the Financial Conduct Authority’, or similar, but an additional clear and unambiguous statement on the promotion of which activities are not regulated should be enough to make things clear.

The letter reads:

“Some of the firms that we regulate undertake both regulated and unregulated business. We have recently become aware of firms issuing financial promotions which suggest or imply that all of the activities which they undertake are regulated by us and/or the PRA when, in fact, they are not. These financial promotions are unlikely to provide consumers with the clarity that our rules require and could leave consumers unable to understand whether the products or services which are promoted are regulated by us and/or the PRA. We make clear in our Handbook that if a firm names the FCA and/or the PRA as its regulator in a financial promotion that refers to aspects of its business (e.g., products or services) which are not regulated by the FCA and/or the PRA, then the promotion should make clear those aspects which are not regulated.”

Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said:

“It is completely unacceptable for firms, which are regulated for some of their business, to market unregulated investments by implying to customers that all their business is regulated. We are committed to stamping out this misleading practice and recommend that customers should ask firms whether what they are buying is really regulated by the FCA.”

The FCA monitors firms’ financial promotions as part of its ongoing supervision activities and can take enforcement action where its financial promotions rules are breached. This includes the power to ban promotions from being used.

Firms are also reminded that communications via websites and social media are likely to fall under the FCA’s definition of a financial promotion.

Examples of unregulated activities that may be carried out by authorised firms include:

Consumer buy-to-let mortgages

Some forms of specialist or niche investment

The sale of certain products for which credit agreements are offered

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article



Adviser jailed for eight years for serious misappropriation of client money

One of the longest prison sentences imposed against a UK financial services professional in recent years is the eight-year term handed to a Merseyside-based financial adviser just before Christmas 2018.

Liverpool Crown Court heard that the individual was supposedly investing monies in pension funds and other vehicles on behalf of 24 clients, which included his immediate family and close friends. However, the monies had in fact gone into his personal sole trader account, where they were used to fund a lifestyle that included stock market gambling, luxury hotels, jet-setting and sex workers.

The adviser pleaded guilty to 14 counts of fraud and asked for a further 14 offences to be considered. In total, he stole £4.5 million, with one client losing as much as £600,000, equivalent to her entire retirement fund. A company lost £1.5 million at the hands of this individual. In at least one case, he held Power of Attorney for an elderly victim of his conduct.

Merseyside Police commenced investigating the adviser after receiving numerous reports from Action Fraud.

Passing sentence, Judge Alan Conrad QC said:

“You were gambling away a large part of the money entrusted to you, while maintaining a playboy lifestyle with expensive prostitutes and luxury foreign travel. You even boasted in messages to people of the debauched life that you were living.”

Detective Sergeant Christopher Hawitt of Merseyside Police said:

“We welcome the sentencing of [name of individual] and hope that he will now spend the considerable future thinking about the consequences of his actions.

“It is never nice for anyone to fall victim to fraud but this was a particularly unpleasant case for [name of individual]’s victims as some of them had known him for over 50 years and so trusted him with, in some cases, their life savings.

“They are now forced to pick up the pieces of their lives but many have been left without the financial nest egg which was rightfully theirs and which they worked for many years to earn. In fact some of his victims, who have worked all their lives, are faced with the prospect of having to return to work.”

Clearly this is a serious case of fraud and mis-appropriation of client money. However, all firms that handle client money need to make sure they have appropriate safeguards in place. Client money must be held in dedicated bank accounts and not used for any other purpose, even if the firm is at risk of failure.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


CMC fined for submitting misleading claims information

The Claims Management Regulator at the Ministry of Justice (MoJ) has imposed a fine of £70,000 on a Southend-based claims company. The reasons for the action include a failure to ensure the accuracy of information supplied to third parties.

In total, the specialist payment protection insurance (PPI) claims company was in breach of three sections of the MoJ rulebook:

  • General Rule 2b – when making representations to a third party to substantiate and evidence the basis of the claim, these representations must be are specific to each claim and must not be fraudulent, false or misleading
  • Client Specific Rule 1c – when information is given to a client this information must be clear, transparent, fair and not misleading
  • Client Specific Rule 2 – all advertising, marketing and other soliciting of business must conform to the relevant code

In General Rule 2b, the ‘third party’ in question could be either the firm to which the original complaint was made, or the Financial Ombudsman Service (FOS). Whoever the third party is, all the information submitted should be accurate and not misleading and should be specific to the circumstances of the individual client and the circumstances of their claim. This means, for example, that it is not acceptable to issue the same generic information for every single PPI claim that a claims management company (CMC) might handle.

From April 1, CMCs will be dealing with the FOS in two ways. The FOS will continue to adjudicate on complaints about financial services firms where a client believes that the firm did not handle the complaint appropriately.

The FOS will also be able to investigate complaints made against CMCs by their clients. In this respect, the FOS will be taking over the role currently undertaken by the Legal Ombudsman. Complaints about CMCs handled by the Ombudsman might for example concern:

  • Issues over costs and charges
  • Whether the promised service has been delivered
  • Delays in the claims process that could be the fault of the CMC
  • Giving inappropriate or incorrect advice to customers
  • Failing to keep the customer informed as to the progress of the claim

When the Financial Conduct Authority (FCA) takes over regulation of claims companies on April 1, the information published on enforcement notices will be much more detailed. Whereas the MoJ often simply lists the sections of its rulebook which the company has breached, FCA enforcement notices contain specific detail of the company’s wrongdoing. In the most serious cases, the FCA also issues a press release summarising the action it has taken. This means that other companies can In a sense use FCA notices as a compliance checklist, asking themselves if any of the same failings could conceivably apply to them as well.

The fine is at present a provisional penalty, as the company has announced it intends to appeal against the MoJ’s action.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

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