Consumer and Retail Finance – May/June 2017

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The new Money Laundering Regulations, latest from the FCA, FinTech, the Queen’s Speech and more.

Financial Conduct Authority (FCA)

The new Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force on 26 June 2017.  HM Treasury consulted on the draft regulations in March 2017.  The final version was only laid before Parliament on the afternoon of 22 June 2017.  See the press release from HM Treasury and the Economic Secretary to the Treasury here.  The new regime places added responsibilities on lenders and other businesses in the regulated sector regarding record keeping and tracing beneficial owners.  Watch out for our separate upcoming briefing on the new regulations and what they mean for businesses.

The FCA has updated its webpage on money laundering and terrorist financing.  It is consulting on proposed amendments to the Decision Procedure and Penalties Manual and Enforcement Guide in light of the new regulations.  Comments are requested by 7 July 2017, after which the FCA will publish its final rules.  The FCA’s new guidance on how financial services firms should treat customers who are politically exposed persons when meeting their anti-money laundering obligations is also awaited.

The Joint Money Laundering Steering Group (JMLSG) published in May 2017 proposed revisions to Parts II and III of its risk-based guidance in line with the draft regulations.  Proposed revisions to Part I were published in March 2017.  It also recently consulted on proposed revisions to its guidance on electronic money.

The FCA is reviewing the business models used in the retail banking sector, to assess their impact on competition and conduct.  The review will inform and be informed by other relevant work in the sector, including the FCA’s review of high-cost short-term credit.  A project update is expected in Q2 2018.  See our recent briefing for further details.

In the wake of the cyber attacks on the NHS and other organisations worldwide, the FCA published a webpage on cyber resilience, including information on how to report a cyber incident (material cyber incidents must be reported under Principle 11).  The webpage contains links to guidance from the National Cyber Security Centre and other resources on this highly topical issue, including a new FCA guide for firms on the foundations of good cyber security.

The FCA’s Executive Director of Strategy and Competition gave a speech on “Competition and innovation in financial services: the regulator’s perspective”, in which he discussed how the FCA thinks about competition and regulation, how it approaches its competition duties and powers, and how it promotes innovation.  The FCA published an update on its regulatory sandbox – part of “Project Innovate” – which allows businesses to test innovative products, services, business models and delivery mechanisms in a live environment while ensuring that consumers are appropriately protected.  It recently entered into a co-operation agreement with the Securities and Futures Commission in Hong Kong to foster collaboration in support of FinTech innovation.

The Financial Stability Board and Committee on the Global Financial System published a report on FinTech credit, looking at the functioning of FinTech credit markets, the potential benefits and risks, and the possible implications for financial stability in the event that FinTech credit grows to account for a significant share of overall credit.

The European Banking Authority has responded to the European Commission’s public consultation on FinTech.  It is carrying out its own assessment of FinTech activities and aims to publish a discussion paper in the coming months.  The BBA and Payments UK provided a joint response to the consultation.  An executive summary can be found on pages 6 to 8.

Coming up…
  • A policy statement is expected to be published in July 2017, following the FCA’s consultation on “FCA-regulated fees and levies: rates proposals for 2017/18”, aimed at fee-payers paying FCA fees, Financial Ombudsman Service, Money Advice Service, Pensions Guidance and Illegal Money Lending levies. In its June round-up newsletter, the FCA referred to the consultation and said that firms with consumer credit permission will see the illegal money lending levy on their 2017/18 annual invoice.  The FCA’s recently published Handbook Notice 45 sets out that the changes to fees and levies take effect on 3 July 2017.  Consultation feedback will be published in the separate policy statement.  Other Handbook changes include amendments to Notes for completion of the Mortgage Lenders & Administrators Return and changes to reporting requirements in the Supervision Manual which will be of interest to, among others, consumer credit firms and those undertaking home finance activity.  The majority of the changes come into force on 1 July 2017.
  • A two-month consultation on “Regulatory fees and levies: policy proposals for 2018/19” is expected in October 2017, with a feedback date of February 2018.
  • Following the FCA’s recent consultation on the funding of the Financial Services Compensation Scheme, a policy statement and further consultation are expected in Q4 2017.  There will be a three-month consultation period with feedback expected in June 2018.

Other news

The recent Queen’s Speech included plans for a Financial Guidance & Claims Bill, to establish a new arm’s-length Single Financial Guidance Body with responsibility for coordinating the provision of debt advice, money guidance, and pension guidance.  Its activities would be funded through existing levies on pension schemes and the financial services industry.

The government also intends to repeal the Victorian legislation on bills of sale and replace it with a Goods Mortgage Act enabling individuals to use their existing goods (for example, their car) as security for a loan, while retaining possession. The new legislation would remove unnecessary burdens on firms that raise the cost of such “logbook lending”.

The Financial Ombudsman Service published its annual review report for 2016/17.  It has seen a discernible rise in the number of complaints about payday lending and other types of consumer credit.

The Finance & Leasing Association and the UK Cards Association published a guide to help lenders better identify and support customers in vulnerable situations during applications for credit.  Vulnerability: a guide for lending follows on from the previous publication, Vulnerability: a guide for debt collection.  The new guide primarily focuses on customers with mental capacity limitations and provides practical tools and recommendations for lenders.  It is intended to complement the FCA’s Consumer Credit Sourcebook.

On the subject of vulnerability, the BBA announced that eight of the UK’s biggest high street banks and building societies have agreed to implement a new set of Principles to improve access to banking services for customers in vulnerable circumstances and approved third parties.

A new report from the UK Cards Association shows that the number of purchases using debit and credit cards has more than doubled in the past ten years, as contactless payments and online retail have driven a change in the way consumers pay. See the press release for more details.

The Lending Standards Board published a report setting out the outcome of its review into whether the Standards and Information for Practitioners need to be amended in light of digital developments in the financial sector.  The report identifies examples of good practice, which firms may wish to take into consideration when developing their digital capabilities.

In March 2017, the European Commission published an action plan setting out a strategy to strengthen the EU single market for retail financial services.  The European Parliament’s Committee on Economic and Monetary Affairs published a draft report on the action plan.  Among other things, the Parliament considers a high level of consumer protection and transparency is key to the development of a single market in retail financial services, and believes the enforcement of EU and national financial consumer legislation needs to be strengthened across all Member States.  It also stresses that addressing consumer over-indebtedness linked to credit activities must be given priority if the Commission aims to explore ways of facilitating cross-border access to loans.