- CMC proposed Fee Cap Consultation CP21/1 paper: The FCA has released a consultation paper which proposes fee caps on claims management companies (CMC) who assist consumers whose claims fall within a statutory redress scheme (such as the Financial Ombudsman Service, Financial Services Compensation Scheme and Pension Ombudsman). Broadly, this means any CMC specialising in financial mis-selling (with the exception of PPI and Plevin) claims will have maximum fee caps to adhere to. The fee cap amount is dependent on the amount of compensation the complainant is awarded. For example, if a complainant is compensated between £1 to £1499 the CMC firm can only collect a maximum of 30% as a service fee, whereas, if a complainant receives more than £50,000 the service fee cap is at 15% to the limit of a maximum of £10,000. The FCA have sorted the fee caps into 5 redress bands which can be viewed within their consultation paper here. In addition, the FCA proposes further rule changes for CMCs, one notable change is CMCOB 4.2.2 R where firms must seek confirmation (rather than state as a disclosure) from complainants they do not wish to progress the claim individually themselves with the relevant redress scheme. The FCA is asking for responses to the consultation, then link can be found here Restricting CMC charges for financial products and services claims with the consultation period lasting until the 21st of April 2021.
- Dear CEO letter to Business Interruption Insurance providers: In the wake of the Supreme Court ruling on the Business Interruption Insurance (BII) test case, many parties now have clarity on whether businesses could rely on their BII for COVID related disruptions to their business. The FCA has circulated a dear CEO letter to Business Interruption Insurers outlining how they expect the insurers to respond. In essence, insurance policies with provisions for diseases or outbreak disruption should contact policyholders to provide cover. The Supreme Court ruled that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding. Valid claims should not be reduced because the loss would have occurred in any event from the pandemic. The letter offers guidance to insurers in providing cover and reminds these firms to treat customers fairly i.e. not include the period between the 17th of June 2020 to the date of the court ruling when relying on any time limits within which policyholders must make potentially affected claims or take any other step under the policy. The letter can be read here – Dear-ceo-letter-business-interruption-insurance-january-2021.pdf
- FCA ban on credit broker discretionary commission models: Discretionary commission models are now banned by the FCA for consumer credit brokers. This ban restricts commissions which provide brokers with financial considerations that are wholly or partly affected by the interest rate set or agreed between broker and consumer. The FCA considered the model, which was popular in the market, as leading to poor customer outcomes by incentivising sales of more expensive credit agreements to increase the amount of commission earnt by the broker. We have recently written a more in-depth article on the subject which can be found here – Ban on motor finance discretionary commission models. The FCA’s policy statement can be read – FCA Policy Statement.
- Dear portfolio letter for debt purchasers, collectors, and administrators: The FCA has sent a letter to debt firms reminding them of the key harms to consumers that the FCA has identified. The FCA notes that some firms in the debt sector are failing to treat customers fairly due to ‘weak operational oversight, ineffective systems and controls, and insufficient emphasis placed on Treating Customers Fairly (TCF) within a firms’ culture.’ Through its supervisory work, the regulator discovered poor practices with firms’ forbearance such as threatening legal action during periods where the firms should have suspended pursuit of debt. For more information, please see the FCA’s letter.
- Updated guidance for mortgage and consumer credit repossessions: Repossessions of property or products should not be enforced by regulated firms until the 1st of April 2021. Originally proposed to end by the 31st of January, the FCA has extended the deadline but allowed for repossessions as a method of last resort. The FCA notes halting repossessions entirely may not be in customer interests as it could lead to soaring interest rates alongside the depreciating value of the product causing further harm to the consumer. The FCA’s statement can be found here – FCA guidance on mortgages and consumer credit repossessions.
- FCA works to reduce consumer investment harm: In the first 10 months of 2020, the FCA has highlighted actions it has taken to reduce harm done to consumers seeking to invest. The pandemic has resulted in more financial pressures for consumers, therefore, the FCA has published the actions it has taken to alleviate the pressure by targeting investment firms suspected of being involved in scams or conducting regulated activity on an unauthorised basis. In addition, the FCA has called upon financial service firms to ‘use it or lose it’ with their granted permissions to prevent customers from potentially being misled. For the full breakdown of the FCA’s action click here.
- Proposed changes to the Debt Relief Order Eligibility Criteria: The government is consulting on whether to change the eligibility criteria for a Debt Relief Order (DRO). The change would be to expand eligibility for those suffering from debts and is estimated to enable access to DROs by an additional 15,500 individuals struggling with their debts. However, this change may impact on the debt advice sector and those companies currently recommending Individual Voluntary Arrangements and Debt Management Plans which may become less suitable when compared to the revised DROs.
- The last year of LIBOR: Firms are reminded that 2021 is the last year of the transition from the London Interchange Bank Offered Rate to alternative reference rates. By the end of 2021, LIBOR will not be relied on in the financial system and its publications will discontinue. The FCA, Bank of England, and The Working Group are recommending that firms offer interest rates based on SONIA (Sterling Overnight Index Average) as soon as possible to minimise disruption. SONIA is not the only available alternative reference rate to firms but SONIA will be relied on as the benchmark for the majority of sterling markets going forward. The FCA’s press release can be found here.
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