Figures from the Office for National Statistics (ONS) released last week indicate that the UK has avoided falling into a triple dip recession as figures show that the economy grew by 0.3% during the first quarter of 2013. The data represents the strongest year on year increase since the end of 2011, as GDP is has risen by 0.6% compared with the first quarter of 2012.
Described by Chancellor George Osborne as “an encouraging sign”, the growth in the economy has been widely received as positive news for the UK. The banking sector on the other hand has endured some significant setbacks over recent weeks.
The Co-op bank pulled out of a major deal to buy more than 600 bank branches from Lloyds TSB last week, a move that was anticipated to bring competition to commercial banking in the UK. In the same week HSBC announced plans to axe more than 3,000 jobs in a bid to cut costs while Santander and Barclays announced their first quarter profits both fell by more than 25%.
Likewise, the Payment Protection Insurance (PPI) scandal was under the spotlight this month as figures from the Financial Conduct Authority (FCA) revealed that pay-outs for mis-sold PPI have now topped £9.3 billion. In addition, earlier this month the regulatory body released complaints data, highlighting the continued customer detriment caused by the scandal. In the second half of 2012 more than 2.1 million PPI complaints were recorded by financial firms, accounting for 63% of all complaints made to financial firms during that period.
Taking into account the number of complaints recorded by the FCA, the Financial Ombudsman Service (FOS) also received 264,375 complaints between April 2011 and April 2012, of which 157,716 were regarding PPI. Notably the FOS overturned 82% of PPI complaints in favour of the customer during the 2011/2012 financial year, reinforcing the argument that banks are erroneously rejecting legitimate complaints, forcing customers to take their complaint to the FOS which ultimately results in a lengthy and frustrating claims process.
While analysts have proposed that the growth in the UK economy will bring consumer confidence and encourage spending, it seems that the practices of UK banks are still leaving customers sceptical. Research by consumer body Which? found that only one in ten consumers trust the banking industry, while nine out of ten believe there should be a compulsory bankers code of conduct, suggesting that the weight of the PPI and Libor scandals are still very much in the minds of UK consumers.
Although the research by Which? indicates that there is still much to do in terms of regaining customer trust in the UK’s financial industry, we should not lose sight of the positive news that the UK has avoided a triple dip recession, bringing optimism to UK consumers that the economy may well be on the road to recovery.
FCA Enters the Fray
Over on Money Marketing, Alan Hughes has written an interesting blog on the introduction of the FCA, which we would like to share with you:
1 April saw the introduction of the new regulatory structure comprising the FCA, PRA and Bank of England.
It has, thus far, passed off fairly quietly. Most of the rules in the FCA Handbook have remained the same or very similar and the new regulators have not yet had time to flex their muscles to exercise any new powers or even impose their regulatory stamp on the sectors for which they have assumed responsibility.
My consistent advice to my own regulated clients has been that the next year or so will be a particularly bad time to appear on the regulatory radar. Like any new broom, the new regulator will be keen to make its mark and possibly make an example of any miscreants to show that it means business. So a good time to keep your head down and your nose clean.
Shortly before 1 April the FCA, the most relevant regulator to the advice sector, published its Risk Outlook and its Business Plan for the coming year. This is always an opportunity to see what is taxing the mind of the regulator and what it is likely to be focussing on in the year ahead. In this case it is also an opportunity for the new regulator to set out it stall and how it may do things differently.
There is a lot for the FCA to improve upon. The FSA has lurched from one crisis to another with the latest blow being the Banking Commission report on HBOS which pointed out the obvious – that the FSA, with Sir James Crosby on its board, was hopelessly conflicted during the period when HBOS was setting itself up for later spectacular failure, as well as being asleep on the job.
The FCA Risk Outlook and Business Plan do throw up a few interesting items indicating its priorities and approach in the year ahead:
Product Intervention. This features heavily in both documents. The FCA is talking a good game on early intervention where they see “toxic” products being launched by firms. The plans are, however, a little short on detail. Leading up to 1 April the message on product intervention has been confused and it remains to be seen whether the FCA can make this work. If it can then early intervention may be a largely positive development for the advice sector which too often seems to be left carrying the can for the failures of others
Supervision. The FCA is promising to be a “…more proactive regulator, acting earlier and decisively….allowing us to address them [risks] before they cause harm”. It refers to the “Firm Systematic Framework” that it will use to focus supervision on the key conduct risks in firms. At the heart of the FSF is the question of whether the interests of customers and market integrity are central to how the firm is run.
Does this sound familiar to anyone? It appears to be TCF repackaged. The FCA also states that business model and strategy analysis will be included within the FSF. As the FSA never demonstrated a clear understanding of financial adviser business models, let us hope that the FCA gets a firmer grasp of those issues before implementing the FSF
Consumer Protection. As ever this will be a key priority. An issue taxing the FCA is that in a low interest rate environment consumers can have a “Poor understanding of risk and return” and be tempted to “take on more risk than is appropriate”.
This should sound a clear warning to advisory firms that the FCA is likely to continue to expect firms to put a lot of effort into ensuring that the recommendations made to clients are suitable.
A low yield environment can provide a great opportunity for firms to show clients the value of taking proper financial planning and investment advice but firms must remain vigilant, ensuring that clients have a proper understanding of any risk assumed and that the client’s capacity for loss has been properly considered by the firm (and indeed understood by the client themselves).
As ever, when it comes to mitigating the risk of giving advice a focus on suitability will remain key.
One danger if the FCA go in too hard on this issue (and indeed on product intervention) is that innovation in the market is stifled and firms are continually pushed towards a narrow band of advice that they fell able to give safely (and which is insurable) which overall would not be a desirable market outcome.
Enforcement. There doesn't appear to be much that is genuinely new in the FCA’s enforcement priorities. It does, however, state that “removing from the industry the firms or individuals who do not meet our standards” will be one of those priorities.
Again the FCA will have to match its tough talk with similarly tough actions. The multi billion pound industry-wide PPI misselling scandal did not result in the FSA pursuing any individual executives at the firms concerned whilst the FSA was always prepared to take on small IFA firms and their principals.
The FCA will have to show that it is capable of taking a more balanced approach and be prepared to take on individuals at the highest level in the biggest firms when the conduct of those firms falls so far short of what is expected that the executives must take responsibility.
In summary, the FCA is talking a good game but the acid test will be whether it can match that talk with the appropriate actions. A more effective and accountable regulator would be a positive thing for the financial services sector.
Whether some structural tweaking resulting in largely the same staff implementing much of the same rules and legislation through several new and different bodies can achieve the real cultural change required at the regulatory level remains to be seen. We will all be watching closely over the months and years to come.
Alan Hughes is a partner at Foot Anstey.
1 April saw the introduction of the new regulatory structure comprising the FCA, PRA and Bank of England.
It has, thus far, passed off fairly quietly. Most of the rules in the FCA Handbook have remained the same or very similar and the new regulators have not yet had time to flex their muscles to exercise any new powers or even impose their regulatory stamp on the sectors for which they have assumed responsibility.
My consistent advice to my own regulated clients has been that the next year or so will be a particularly bad time to appear on the regulatory radar. Like any new broom, the new regulator will be keen to make its mark and possibly make an example of any miscreants to show that it means business. So a good time to keep your head down and your nose clean.
Shortly before 1 April the FCA, the most relevant regulator to the advice sector, published its Risk Outlook and its Business Plan for the coming year. This is always an opportunity to see what is taxing the mind of the regulator and what it is likely to be focussing on in the year ahead. In this case it is also an opportunity for the new regulator to set out it stall and how it may do things differently.
There is a lot for the FCA to improve upon. The FSA has lurched from one crisis to another with the latest blow being the Banking Commission report on HBOS which pointed out the obvious – that the FSA, with Sir James Crosby on its board, was hopelessly conflicted during the period when HBOS was setting itself up for later spectacular failure, as well as being asleep on the job.
The FCA Risk Outlook and Business Plan do throw up a few interesting items indicating its priorities and approach in the year ahead:
Product Intervention. This features heavily in both documents. The FCA is talking a good game on early intervention where they see “toxic” products being launched by firms. The plans are, however, a little short on detail. Leading up to 1 April the message on product intervention has been confused and it remains to be seen whether the FCA can make this work. If it can then early intervention may be a largely positive development for the advice sector which too often seems to be left carrying the can for the failures of others
Supervision. The FCA is promising to be a “…more proactive regulator, acting earlier and decisively….allowing us to address them [risks] before they cause harm”. It refers to the “Firm Systematic Framework” that it will use to focus supervision on the key conduct risks in firms. At the heart of the FSF is the question of whether the interests of customers and market integrity are central to how the firm is run.
Does this sound familiar to anyone? It appears to be TCF repackaged. The FCA also states that business model and strategy analysis will be included within the FSF. As the FSA never demonstrated a clear understanding of financial adviser business models, let us hope that the FCA gets a firmer grasp of those issues before implementing the FSF
Consumer Protection. As ever this will be a key priority. An issue taxing the FCA is that in a low interest rate environment consumers can have a “Poor understanding of risk and return” and be tempted to “take on more risk than is appropriate”.
This should sound a clear warning to advisory firms that the FCA is likely to continue to expect firms to put a lot of effort into ensuring that the recommendations made to clients are suitable.
A low yield environment can provide a great opportunity for firms to show clients the value of taking proper financial planning and investment advice but firms must remain vigilant, ensuring that clients have a proper understanding of any risk assumed and that the client’s capacity for loss has been properly considered by the firm (and indeed understood by the client themselves).
As ever, when it comes to mitigating the risk of giving advice a focus on suitability will remain key.
One danger if the FCA go in too hard on this issue (and indeed on product intervention) is that innovation in the market is stifled and firms are continually pushed towards a narrow band of advice that they fell able to give safely (and which is insurable) which overall would not be a desirable market outcome.
Enforcement. There doesn't appear to be much that is genuinely new in the FCA’s enforcement priorities. It does, however, state that “removing from the industry the firms or individuals who do not meet our standards” will be one of those priorities.
Again the FCA will have to match its tough talk with similarly tough actions. The multi billion pound industry-wide PPI misselling scandal did not result in the FSA pursuing any individual executives at the firms concerned whilst the FSA was always prepared to take on small IFA firms and their principals.
The FCA will have to show that it is capable of taking a more balanced approach and be prepared to take on individuals at the highest level in the biggest firms when the conduct of those firms falls so far short of what is expected that the executives must take responsibility.
In summary, the FCA is talking a good game but the acid test will be whether it can match that talk with the appropriate actions. A more effective and accountable regulator would be a positive thing for the financial services sector.
Whether some structural tweaking resulting in largely the same staff implementing much of the same rules and legislation through several new and different bodies can achieve the real cultural change required at the regulatory level remains to be seen. We will all be watching closely over the months and years to come.
Alan Hughes is a partner at Foot Anstey.
Complaints over PPI still at a High
The Financial Conduct Authority (FCA) last week released the latest complaints data, outlining complaints figures from financial services firms during the second half of 2012. Complaints to financial services firms between July and December last year reached 3.4 million, a 1% increase in comparison to the first half of 2012.
On the 1st April this year, the FCA, took over the role of regulating the financial services industry from the Financial Services Authority (FSA). The complaints data released last week, is the first set of figures to be released by the new authority since it took over the role earlier this month. The figures represent complaints made directly to financial services firms.
Barclays bank was flagged as the most complained about bank with more than 400,000 complaints recorded by the bank during the latter half of 2012. Lloyds TSB, Bank of Scotland, MBNA and Santander also ranked in the top 5 most complained about banks.
Payment Protection Insurance (PPI), once again proved to be a sore spot for customers, with 2.1 million PPI complaints recorded between July and December last year, accounting for 63% of all complaints to financial services firms during that time period.
Martin Wheatley, chief executive at the FCA has explained the importance and relevance of complaints data:
“Greater transparency drives greater competition, and the publication of the complaints data lays bare the track record of the UK’s financial institutions when it comes to resolving customer conflict.
“Not only does our data help consumers compare and contrast their current bank or lender, but it also boosts competition among firms too”.
Echoing Martin Wheatley’s comments, while the data points towards continued customer upset caused by banks and the industry as a whole, the FCA’s release of complaints data lays bare the poor performance of select firms which we hope will encourage competition amongst banks, effectively improving industry standards, and importantly the service provided to customers.
Further to this, the FCA also released papers earlier in April, outlining proposals which aim to improve banks’ treatment of consumers, through better regulation and the application of behavioural economics.
Banks will no longer be able to rely on the ‘buyer beware’ defence, as behavioural economics will help the FCA establish how consumers make important financial decisions, as well as banks’ sales practices leaving the onus of the mis-selling of products on the firm who sold the product.
Reflecting on the figures announced last week, as well as the proposed changes to the regulation of the industry; we are hopeful that the new regulatory body will work to bring a firmer watch over the UK financial services industry as a whole. Those banks which scored highly on complaints we also hope will endeavour to improve their service, to not only salvage their reputation but also better serve their customers.
On the 1st April this year, the FCA, took over the role of regulating the financial services industry from the Financial Services Authority (FSA). The complaints data released last week, is the first set of figures to be released by the new authority since it took over the role earlier this month. The figures represent complaints made directly to financial services firms.
Barclays bank was flagged as the most complained about bank with more than 400,000 complaints recorded by the bank during the latter half of 2012. Lloyds TSB, Bank of Scotland, MBNA and Santander also ranked in the top 5 most complained about banks.
Payment Protection Insurance (PPI), once again proved to be a sore spot for customers, with 2.1 million PPI complaints recorded between July and December last year, accounting for 63% of all complaints to financial services firms during that time period.
Martin Wheatley, chief executive at the FCA has explained the importance and relevance of complaints data:
“Greater transparency drives greater competition, and the publication of the complaints data lays bare the track record of the UK’s financial institutions when it comes to resolving customer conflict.
“Not only does our data help consumers compare and contrast their current bank or lender, but it also boosts competition among firms too”.
Echoing Martin Wheatley’s comments, while the data points towards continued customer upset caused by banks and the industry as a whole, the FCA’s release of complaints data lays bare the poor performance of select firms which we hope will encourage competition amongst banks, effectively improving industry standards, and importantly the service provided to customers.
Further to this, the FCA also released papers earlier in April, outlining proposals which aim to improve banks’ treatment of consumers, through better regulation and the application of behavioural economics.
Banks will no longer be able to rely on the ‘buyer beware’ defence, as behavioural economics will help the FCA establish how consumers make important financial decisions, as well as banks’ sales practices leaving the onus of the mis-selling of products on the firm who sold the product.
Reflecting on the figures announced last week, as well as the proposed changes to the regulation of the industry; we are hopeful that the new regulatory body will work to bring a firmer watch over the UK financial services industry as a whole. Those banks which scored highly on complaints we also hope will endeavour to improve their service, to not only salvage their reputation but also better serve their customers.
All Change for Financial Regulation
Under the biggest overhaul of the UK’s financial services regulation in sixteen years, this week saw the industry say farewell to the Financial Services Authority (FSA) and welcome a new system of regulation. But what does this change mean for the UK’s financial services and importantly to you the consumer?
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) replaced the FSA on 1st April 2013 to regulate the UK’s financial industry in a bid to improve the regulation and conduct of the banks and financial services.
Since its introduction as a regulatory body by Gordon Brown in 1997, the FSA has been responsible for overseeing the regulation of the UK’s entire financial services industry. Criticised by current Chancellor George Osborne as ‘incoherent’, the FSA came under fire for failing to rein in banks during the banking crisis, as well as its shortcomings in preventing major banking scandals- notably the mis-selling of PPI and Libor rigging scandals, both of which surfaced under the watch of the FSA.
As part of the new system, the FCA and PRA, anchored by the Bank of England’s Financial Policy Committee (FPC), will replace the FSA’s former role in regulating the whole industry. With the replacement of the FSA by two new regulatory bodies, each will focus on regulating individual elements of the industry in attempts to better improve the management of the sector, improve standards and protect consumers.
Importantly for consumers, the FCA will aim to promote competition amongst banks and will have increased powers to ban products deemed dangerous for consumers. There are expectations that the changes will help to extinguish the irresponsible bank culture which has weakened consumer trust in banks and contributed towards the 2008 banking crisis. The PRA will govern banks building societies and credit unions, insurers and investment firms.
As part of the reform, the Bank of England will now be at the heart of the new regulatory system, as the FPC and PRA will both sit within the bank giving the Bank of England regulatory powers which had previously been removed under Gordon Brown’s implementation of the FSA. The FCA will remain outside of the bank, but will still maintain the authority to impose fines.
While the breakdown of the FSA into two new regulatory bodies has widely been accepted as a step in the right direction in effectively regulating the financial industry, the strategy hasn't been received without criticism. Critics have argued that the Bank of England will have excessive powers under the changes while others have suggested that the new structure will bring little change to the condemned FSA structure.
We can only hope that for consumers, the breakup of the FSA will prove beneficial in not only safeguarding customers and policing the banking and insurance sector as a whole, but it will also work to rebuild trust amongst British consumers who over recent years have been let down by the UK’s widely criticised banking industry and culture.
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) replaced the FSA on 1st April 2013 to regulate the UK’s financial industry in a bid to improve the regulation and conduct of the banks and financial services.
Since its introduction as a regulatory body by Gordon Brown in 1997, the FSA has been responsible for overseeing the regulation of the UK’s entire financial services industry. Criticised by current Chancellor George Osborne as ‘incoherent’, the FSA came under fire for failing to rein in banks during the banking crisis, as well as its shortcomings in preventing major banking scandals- notably the mis-selling of PPI and Libor rigging scandals, both of which surfaced under the watch of the FSA.
As part of the new system, the FCA and PRA, anchored by the Bank of England’s Financial Policy Committee (FPC), will replace the FSA’s former role in regulating the whole industry. With the replacement of the FSA by two new regulatory bodies, each will focus on regulating individual elements of the industry in attempts to better improve the management of the sector, improve standards and protect consumers.
Importantly for consumers, the FCA will aim to promote competition amongst banks and will have increased powers to ban products deemed dangerous for consumers. There are expectations that the changes will help to extinguish the irresponsible bank culture which has weakened consumer trust in banks and contributed towards the 2008 banking crisis. The PRA will govern banks building societies and credit unions, insurers and investment firms.
As part of the reform, the Bank of England will now be at the heart of the new regulatory system, as the FPC and PRA will both sit within the bank giving the Bank of England regulatory powers which had previously been removed under Gordon Brown’s implementation of the FSA. The FCA will remain outside of the bank, but will still maintain the authority to impose fines.
While the breakdown of the FSA into two new regulatory bodies has widely been accepted as a step in the right direction in effectively regulating the financial industry, the strategy hasn't been received without criticism. Critics have argued that the Bank of England will have excessive powers under the changes while others have suggested that the new structure will bring little change to the condemned FSA structure.
We can only hope that for consumers, the breakup of the FSA will prove beneficial in not only safeguarding customers and policing the banking and insurance sector as a whole, but it will also work to rebuild trust amongst British consumers who over recent years have been let down by the UK’s widely criticised banking industry and culture.
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