OAC Compliance News Roundup No.6 - Published October 2011
Welcome to the sixth edition of our monthly Compliance News Roundup, highlighting the regulatory developments which have occurred during the last month which we think will be of interest to our clients.
The FSA’s response to CP11/05, the Consultation Paper on with-profits, was due to be issued in Q3, but has not materialised. It is now expected to be published in December. The promised Consultation Paper on with-profits communications has still not appeared and may not now do so until next year.
Subscribe to email announcements when new editions of Compliance News Roundup become available.
- FSA pushes for tougher early warning powers
- Possible further powers to penalise Rule breaches
- FSA Handbook Notice 113 – including new rules on products described as guaranteed, protected or secure
- FSA finalised guidance on “Prominence” in financial promotions
FSA pushes for tougher early
warning powers
The FSA has called for the draft Financial Services Bill to be changed so that the FCA will not have to notify firms before publicising that they are the subject of ongoing enforcement investigations. FSA has published the memorandum it submitted to the Joint Committee on the drafting of the Financial Services Bill.
Last February the Treasury published a consultation document on the new regulatory framework which announced plans to legislate to allow the FCA to publicise warning notices against firms, mentioning the grounds on which action is being taken. The effect would be to allow the FCA to publicise any concerns before enforcement action is taken. Regulated firms are naturally concerned at the potential for inflicting reputational damage which, in the event, could turn out to be mis-placed. In its argument against the proposed measures in the draft Financial Services Bill, which require the FCA to consult the subject of a warning notice before issuing anything public on the investigation, the FSA has stated that this requirement will seriously undermine the effectiveness of the new power. It believes that most, if not all, such firms are likely to fight the publication of the warning notices, going to the extent of seeking Court injunctions to stop the nature of the investigation appearing in the public domain, which it believes is contrary to public interest.
FSA says “our strong preference would be for the requirement to consult the subject of the notice to be removed from the bill.” It argues that the effect would be to bring this provision into line with standard civil and criminal legal powers and would counter the suggestion that the regulatory process is disproportionately biased in favour of non-disclosure in the interests of the financial services industry and its practitioners. Why the Courts cannot be trusted to balance the weight of evidence of any wrongdoing with serving the public interest through early disclosure of regulatory suspicions is not explained.
We imagine that firms may be keen to lobby lawmakers for something closer to the existing proposals to ensure that actions that could inflict serious reputational damage can be subjected to independent scrutiny before being taken unilaterally by the FCA.
See point 35 in link below.
www.fsa.gov.uk/pubs/other/pls.pdf
Possible further powers to penalise Rule breaches
In its memo to the joint committee on the draft Financial Services Bill, the FSA invited Parliament to consider the law surrounding the liability of financial firms to provide consumer redress for all breaches of FSA Rules, irrespective of whether that breach caused loss. It said:
“Our experience is that members of the public and Parliamentarians have been of the view that – as a matter of public policy – the breach of the FSA’s rules should in all cases entail the consumer receiving 100 per cent redress. However, the FCA’s ability to ensure that consumers receive redress is constrained by the general law, in particular by questions of causation. If the breach of rules either did not cause the loss, or was merely a contributory factor, the FCA will not be able to require firms to pay full redress.
“If society expects as a matter of public policy that the regulator should be in a position to require greater levels of redress to be paid then the FCA needs to be given a clear mandate and powers to do so in the new legislation. This is a difficult issue that gives rise to real questions as to how far the regulator’s powers should extend and we would very much welcome the Committee debating this matter, in particular to achieve further clarity as to the FCA’s mandate in this area.”
At this stage, FSA is at pains to point out that the proposal included in the memo to the committee is only a suggestion to be considered by MPs and should not be taken as firm FSA policy. It might also have reminded the committee to consider how firms could operate in such an environment, whether it would be possible to insure against the costs of redress in such circumstances and, if not, whether there would be any prospect of firms being in a position to finance such penalties from their own resources.
See points 33 and 34 in link below.
www.fsa.gov.uk/pubs/other/pls.pdf
FSA Handbook Notice 113 – including new rules on products described as guaranteed, protected or secure
The following changes have been made to the Handbook following consultations in Chapter 5 of CP11/11, relating to guidance on the use of certain terms in financial promotions. Financial Promotions Guidance (Amendment) Instrument 2011 (FSA 2011/53) contains guidance that makes it clear to firms that they should not use a term such as “guaranteed”, “protected” or “secure”, or similar, unless that term is capable of being a fair, clear and not misleading description of the product, and the firm provides all the information necessary, in financial promotions or other literature, to explain what the term means for the consumer.
This instrument comes into force on 22 March 2012. Firms will need to review their promotional material to identify where such terms are used, decide whether or not they continue to be appropriate, and ensure that all material meets the required standard from that date.
www.fsa.gov.uk/pubs/handbook/hb_notice113.pdf
FSA finalised guidance on “Prominence” in financial promotions
FSA has now published finalised guidance on the issue of prominence in financial promotions. The guidance addresses such issues as when the rules on prominence apply, how to assess prominence, examples of good and poor practice, prominence of risk statements, and gives examples to illustrate its points.
FSA notes that prominence of relevant information is an important concept within its financial promotions regime, and it expects firms to demonstrate a clear understanding of its expectations. It further states that it can take action against firms who do not show due regard to the rules on prominence, picked up through its routine monitoring or thematic reviews.
www.fsa.gov.uk/pubs/final/fg-fin-proms-prominence.pdf
