Client Briefing: Compliance, conduct and risk bulletin March 2015

1. The FCA reports vulnerable consumers are being failed by financial firms

The FCA has published an Occasional Paper examining Consumer Vulnerability with the aim of protecting those consumers who can be deemed to have vulnerable circumstances. The FCA research has illustrated that many consumer protection policies are only designed with ‘typical’ customers in mind and are not flexible enough to be extended to individual circumstances. 

Consumer organisations have advised the FCA that they are encountering people who are in difficult circumstances struggling with rigid policies used by firms which can exasperate matters further rather than mitigate stressful situations. The training of frontline staff was identified as a key development need in order for signs of vulnerability to be identified so customers could be easily referred to specialist support units. 

As a result of firms’ inaccurate or overzealous approach to the rules, such as those contained within data protection or affordability, many customers are not receiving fair treatment. Most of the problems identified related to poor interaction or systems with many firms lacking an overarching strategy for consumer vulnerability. 

The vulnerability exposed article gives an example of a cancer patient who contacted their bank to discuss their temporary lack of income was instructed to call back when their account was in arrears. This was instead of any attempt to resolve any future problems before they arose. 

With the number of vulnerable consumers expected to substantially increase in the coming years, chief executive of the FCA Martin Wheatley advised that solutions needed to be implemented. The FCA has put together a practitioners pack to help ensure they work collaboratively with firms to identify future policy and procedures.  

Find out more: The FCA's Occasional Paper No. 8: Consumer Vulnerability

2. The Financial Ombudsman (FOS) publish complaints data

The Financial Ombudsman Service (FOS) has recently published their complaints data for 1^st July to 31^st December 2014. The statistics published by FOS show the number of complaints referred to them and the proportion of those which were upheld.  

Find out more: The Financial Ombudsman Service Complaints data

3. A Recent FOS Decision

The Financial Ombudsman Service has recently published a decision relating to a complaint made by a borrower against Lloyds Bank. 

The borrower (referred to as ‘Mr D’) complained that Lloyds Bank had sent debt recovery letters to an incorrect address. This was acknowledged by Lloyds Bank. At first instance, the adjudicator found that the lender had made a fair and reasonable offer to resolve the complaint- it had apologised to the borrower, updated its records and offered £350 as compensation for distress and inconvenience. 

The borrower was not satisfied with this offer and sought more money by way of compensation to reflect the seriousness of the lender having made public his account details. The borrower also wanted the lender to suspend recovery activities against him. 

The Ombudsman decided however that the lender had done all it could reasonably do, by apologising and updating its records. The offer of compensation was also found to be a fair one. The Ombudsman confirmed that the lender was entitled to seek repayment of arrears from the borrower and so did not require suspension of recovery action. 

The final decision of the Ombudsman was that the lender should pay £350 to the borrower.

Find out more: The Financial Ombudsman decisions

4. FCA warns banks over complex retail products

The FCA has told banks they are failing to meet standards on selling complex investment products and may have to compensate some customers, signalling that enforcement action could be on the cards. 

A review was published of structured products which range from alternatives to cash deposits to complex investments linked to multiple financial assets or indices. This was in relation to guidance released in 2012 to improve standards. 

All the firms that were assessed will be asked to explain how they will ensure customers are treated fairly when offering them new products, the FCA has said. Some firms have been asked to determine if customers have been harmed by existing products. 

The FCA has warned the investigation will likely result in further remediation work by these firms, and could also lead to consideration of the use of other regulatory tools.

Find out more: Reuters March 15th, 2015 - FCA warns banks over complex retail products

5. FCA’s Mortgage Policy Manager comments on MMR 

Responding to a study which found that 74% of brokers think the market has become too conservative, and 84% were unable to source a mortgage for at least one client in the six months to January, the FCA’s mortgage policy manager addressed the Financial Services Expo in Glasgow. 

She makes the point that MMR came into play on 26 April 2014, although it is generally accepted that most lenders implemented the new rules long before that. Ms Blackwell added that she doesn’t think, for credit adverse borrowers, there has been any perceptible impact as a result of the MMR. 

She is also quick to point out that what happened to the market happened post-crisis, not post-MMR. That's when lenders' risk appetite changed dramatically and actually, lending to the credit impaired has remained pretty consistent. Blackwell states “It is hardly surprising that it's a struggle – it is high risk lending and lenders are wary of going there. It's wrong to point the finger at regulation and MMR when the pull back from this happened six years ago.” 

“In the interests of ensuring a sustainable market in future, the MMR rules are not going to allow lenders to go back to the lax standards we saw pre-crisis.” 

“That means, however, that many of today's borrowers' choices are going to remain constrained as there is a mismatch between their risk characteristics and what's actually available in terms of products.” 

“There's no doubt MMR has had an impact on the market, and the intermediary share of transactions grew to 62% by the end of last year.”

Find out more: Mortgage Introducer March 5th, 2015 - FCA's Mortgage Policy Manager comments on MMR

6. EBA/CP/2014/43 - Draft Guidelines on arrears and foreclosure – Response by the Council of Mortgage Lenders to the European Banking Authority

The Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive or MCD) was published on 28 February 2014. 

The MCD aims to develop a more transparent, efficient and competitive internal market, while promoting sustainable lending and borrowing, and hence providing a high level of consumer protection. Article 28 of the MCD sets out provisions in the area of arrears and foreclosure, and specifically requires that Member States shall adopt measures to encourage creditors to exercise reasonable forbearance before foreclosure proceedings are initiated. 

In order to ensure that these high-level provisions will be implemented and supervised consistently across the 28 EU Member States, and to support the transposition of the MCD, the European Banking Authority has issued and consulted on draft guidelines.

The CML response focuses on a limited number of issues specific to the UK mortgage market:

Mortgage lenders in the UK already have robust regulatory requirements which must be adhered to when managing arrears and possessions/foreclosure. These requirements are broadly aligned to the draft guidelines in the consultation and therefore the CML do not believethey will deliver any further benefit to UK consumers.

The CML would have preferred there were no further consultations on the MCD following the publication of the MCD.  The UK has already begun implementing the MCD.  The CML feel that European publications are not only disruptive to firms’ implementation projects, but they also create uncertainty about further supplementary considerations in addition to the MCD adopted on 4 February 2014.

Rather than guidelines the CML would prefer an approach of high-level principles, adopted across EU member states, which allow national regulators the flexibility to determine how best to apply them to their markets.

Many of the proposed guidelines are already regulated requirements within the UK mortgage market and therefore we are confident that the industry is already delivering most of the policy aims outlined within the consultation. 

Find out more: The European Commission Mortgage Credit Directive 

7. FCA confirms two consultations in 2015 on potential changes to the Consumer Credit Rule Book

The Financial Conduct Authority (FCA) has confirmed that there will be two consultations in 2015 on potential changes to the Consumer Credit Rule Book. 

The first of these consultations that got underway in February 2015 is expected to seek feedback on the FCA’s new broker rules published in December 2014, affordability assessments in the guarantor loan sector and the use of Continuous Payment Authorities in collections cases. 

The consultation paper will also identify other issues which may then be included in a second consultation paper in July 2015. These are likely to include how lenders assess affordability and credit worthiness, as well as broker remuneration. 

The FCA is now undertaking research looking at affordability assessments and broker remuneration, and good consumer outcomes are already under the spotlight in other FCA-regulated markets.

8. FCA publish guidance and advice on Whistleblowing

The Financial Conduct Authority (FCA) has updated their website offering guidance and advice on whistleblowing.  The webpage offers information on how to be a whistleblower and how whistleblower information is used. 

How to be a whistleblower offers advice to individuals on when the FCA should be contacted and what information they would require. 

How we use whistleblower information explains what response can and cannot be expected from the FCA and gives comfort to whistleblowers that their information will be treated anonymously and securely. 

The law and your rights gives details of the legislation covering whistleblowing (The Public Interest Disclosure Act 1998).  The article explains different types of disclosure and explains the rights of the individual making the disclosure.

Find out more: The FCA whistleblowing guidelines