Brexit and contractual continuity
Following the publication of CP18/29, which outlined the key features of the proposed financial services contracts regime (FSCR), the FCA has published a further consultation setting out additional details of the regime and proposals for the rules that will apply to firms within the FSCR. The aim of the FSCR is to allow firms which have not entered the temporary permissions regime (TPR) to run-off their existing contracts with UK customers and exit the UK market in an orderly fashion.
The actions covered by the FSCR will be limited to regulated activities which are necessary for the execution of a contract entered into prior to the exit day, to manage financial risk or to transfer property, rights or liabilities under a pre-existing contract. The regime will include a period of supervised run-off (SRO), which the following firms will automatically be entered into if they have outstanding contractual obligations to service:
- An EEA or Treaty firm which qualifies for authorisation as an EEA branch firm or with a top-up permission which does not notify the FCA of its intention to enter the TPR
- An EEA or Treaty firm which qualifies for authorisation as an EEA branch firm or with a top-up permission which does not successfully gain full FCA authorisation through the TPR
- An EEA authorised e-money institution (EMI) which provides services through a branch or UK agent and does not notify the FCA of its intentions to enter the TPR
- An EMI which was providing payment and e-money services under the TPR, and at the end of the TPR is not an authorised EMI
- An EEA authorised payment institution (PI) or EEA registered account information service provider (RAISP) which does not notify the FCA of its intention to enter the TPR
- A PI or RAISP which, at the end of the TPR, does not have the necessary authorisation to continue operating within the UK.
Firms do not need to notify the FCA in advance for the SRO period to apply. Firms under the SRO will be subject to all existing and future product intervention rules made by the FCA, however, the protection of the Financial Services Compensation Scheme will not apply.
Improving switching options for ‘mortgage prisoners’
The FCA has published a copy of a letter sent to The Rt Hon Nicky Morgan MP, Chair of the Treasury Committee, by Chief Executive Andrew Bailey which outlines the work the regulator is doing to improve mortgage switching options for customers who are currently unable to do so. The FCA defines a ‘mortgage prisoner’ as a customer on a reversion interest rate who is prevented from being able to switch, despite being up to date with their payments. Analysis suggests that of the population of mortgage prisoners:
- 10,000 are with active, authorised lenders
- 20,000 are with inactive lenders, who still retain their authorisation but have ceased lending commercially
- 120,000 are customers of unregulated firms.
As part of its Mortgage Market Study Interim Report, the regulator has proposed measures to help customers of active firms switch to a better deal and welcomes the agreement between members of UK Finance, the Building Societies’ Association and the Intermediary Mortgage Lenders’ Association to enable these customers to switch, subject to certain criteria. Now it is looking to take immediate action to help customers of inactive and unregulated firms. One of the key issues for this customer segment is that internal switches are typically unavailable because the lender either does not, or cannot, offer new loans.
In the regulator’s view, the solution is to enable them to switch to an active lender. However, the rules state that an affordability assessment must be carried out for each new customer, even if they are not borrowing a large amount. The regulator plans to consult on changes to its responsible lending rules by changing the affordability test from an absolute test to a relative test. This would change the focus to whether the new mortgage costs are more affordable than the current arrangement. Once these regulatory barriers are removed, the industry needs to be willing to offer remortgaging options to consumers. A recent industry round-table indicates that there is a willingness to consider remortgage options, if it is commercially viable to do so.
New online portal for mutual societies launched
The FCA has launched a new online portal designed to make it easier for mutual societies to manage their information, submissions and applications, as well as providing a gateway to the regulator’s Mutuals Team. The portal will enable mutual societies to:
- Submit annual returns and accounts
- Submit applications for rule amendments
- Record charges
- Register changes of address
- Store and retrieve recent society documentation.
Prior to their annual return submission deadline, all mutual societies will receive details of the portal via post.
FCA publishes data on fines issued so far this year
The regulator has published consolidated data on the fines issued so far this year. Two fines have been imposed on individuals in January 2019, totalling £79,240,787, compared to 15 fines imposed against both firms and individuals, totalling £60,467,212, during the whole of 2018.