FCA publishes update on the Citizens Advice supercomplaint on the loyalty penalty
In December 2018 Citizens Advice issued a supercomplaint to the Competition and Markets Authority (CMA) on the consumer harm arising from the so-called ‘loyalty penalty’ and made a number of recommendations of appropriate remedies, particularly within the mortgage, cash savings and home insurance markets.
The FCA has published an update on its work to improve customer outcomes and address the concerns within these areas. To date, its actions have included:
- Concluding its mortgage market study, with additional research into barriers to consumer switching.
- Announcing the next steps of its work on price discrimination. A feedback statement or consultation paper is expected before the end of 2019.
- Continuing its market study into pricing practices within the home and motor insurance industries. The interim report is due to be published this summer.
The FCA is also closely considering its role in addressing some of the cross-sector issues raised by the supercomplaint, including:
- Firms’ duty of care to customers
- Ensuring firms appropriately identify and treat vulnerable customers fairly
- Driving fair pricing strategies across the industry
- The ongoing role of Open Finance.
First report on the regulatory perimeter published
The FCA has published its first annual report into the regulatory perimeter, setting out:
- What comes under, and falls outside of, the regulatory perimeter
- Current challenges and how the FCA intends to address them
- The impact on consumers
- Any issues which may require legislative changes to ensure the perimeter is robust.
The report identifies three broad challenges:
- A lack of understanding about consumer protection: To address this the FCA is working with the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS) to develop an online disclosure system to improve consumer awareness of the protections in place. Other measures include engaging with firms during the supervisory process to clarify how their activities sit within the regulatory perimeter.
- The impact of activity outside of the perimeter: Non-regulated activity can result in consumer harm and damage trust in the market. The regulator discusses a number of markets where recent activity has resulted in harm, including pre-paid funeral plans and unregulated introducers. In some of these cases, the FCA believes the perimeter should be extended to increase consumer protection and has put these proposals to the Treasury.
- Rapidly evolving markets and business models: The significant impact of emerging technologies requires the FCA to be continually assessing and updating its Handbook and puts strain on the boundaries of the regulatory perimeter. The FCA continues to monitor the market and take appropriate actions to ensure the regulatory regime is appropriate for the digital age. To further its understanding, the regulator will publish a call for inputs on Open Finance later this year.
These challenges raise wider questions about the FCA’s role in the market and cover work the regulator is currently undertaking with the Treasury and wider stakeholders. In its 2020 perimeter report the regulator intends to focus on the following three areas:
- The extent to which it is able to exercise its duties in relation to all financial services activity undertaken by regulated firms, particularly where issues arise
- How closely the perimeter and the coverage provided by the FOS and FSCS are aligned
- Whether the boundary between what is covered by the regulatory perimeter and what isn’t is clear to firms and consumers.
Retail bank fined for failing to report suspicions of fraud
The FCA has fined a retail banking group £45,500,000 for failing to report suspicion of fraud within one of its teams. It also failed to deal with the FCA in an open and cooperative manner.
The bank first became suspicious in early 2007, when it became clear the team leader was authorising limit increases and additional lending facilities well beyond what he was authorised to sign off. There was no evidence of robust scrutiny or challenge around these actions and no-one within the bank considered the consequences of not reporting these actions to the police or the regulator. The bank’s suspicions weren’t disclosed until 2009, at which point the FSA informed the Serious Organised Crime Agency.
Police action in 2017 saw two employees sentenced for fraud, but this could have occurred much earlier had the bank disclosed its suspicions in a timely manner.
Independent reviewers appointed to examine Interest Rate Hedging Products
The FCA has appointed independent reviewers to undertake lessons learned reviews into the Interest Rate Hedging Products redress scheme and the regulation of firms involved in the activities of a fund currently under enforcement investigation. Both reviews will examine the approach, judgements and processes implemented by the FSA and, subsequently, the FCA and the findings will be published in full, subject to any legal constraints.
Joint UK and USA statement on opportunistic investment strategies in the credit derivatives markets
The heads of the FCA and the U.S. Commodity Futures Trading Commission (CFTC) have issued a joint statement on trading strategies within the credit derivatives market. “The continued pursuit of various opportunistic strategies in the credit derivatives markets, including but not limited to those that have been referred to as ‘manufactured credit events,’ may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally.
These opportunistic strategies raise various issues under securities, derivatives, conduct and antifraud laws, as well as public policy concerns. “As a result, today the Chairmen and Chief Executive of our respective agencies announce that the agencies will make collaborative efforts to prioritise the exploration of avenues, including industry input, which will address these concerns and foster transparency, accountability, integrity, good conduct and investor protection in these markets. These collaborative efforts would not, of course, preclude other appropriate actions by our respective agencies or authority.”