In this article we see how the regulatory regime for claims management companies (CMCs) is developing in the light of two consultative papers that the UK's Financial Conduct Authority has published.

We also detail the regulator’s findings from its work on complaint-handling processes in the mortgage industry and summarise the FCA’s annual public meeting.

The comparison of current accounts with each other

New rules are now in force to improve the information available to consumers (and to small-to-medium-sized enterprises) about the services that current account providers offer them, the better to help them compare accounts more effectively. Account providers are now required to publish information on their websites detailing:

• how and when services and helplines are available, including contact details;
• instances of major operational and security incidents; and
• the number of complaints.

Each account provider must publish this information in a standardised format on its website. Every large bank is also obliged to make it available through Application Programming Interfaces (APIs) that grant access to third parties (i.e. software/fintech firms acting on behalf of the account holders), along with information about how likely customers might be to recommend the bank to others.

This is the first of a series of measures that the FCA and the the Competition and Markets Authority have designed in tandem with each other to promote effective competition in the current account market and to allow customers to glean more information about the organisation that underlies the services they are receiving. From November onwards, account providers will also be required to publish information about the support they offer to customers who display any of the four characteristics of vulnerability.

• A lack of resilience, i.e. an inability to withstand financial shocks.
• Life-changing events such as bereavement, divorce or redundancy.
• Not having enough confidence in their ability to manage financial matters or low levels of financial literacy.
• Bad health, i.e. conditions or illnesses which interfere with their financial dealings.

From 15th February on, providers will be obliged to publish quarterly data about the average time they take to open an account and replace a lost, stolen or frozen debit card.

The handling of complaints in the mortgage market

The FCA has published the results of its investigation of the ways in which Non-Deposit-Taking Mortgage Lenders (NDTMLs) and Mortgage Third-Party Administrators (MTPAs) handle complaints.

It examined the ways in which these firms treated their customers and tried to work out whether those customers might suffer as a result of complaint-handling processes. It then looked for improvements that the firms might make. Its findings were as follows.

Management Information (MI) and Root-Cause Analysis (RCA)

The firms at which the FCA looked had a positive attitude towards the root-cause analysis of complaints, but they did not always record the details of complaints accurately, making it difficult for them to use management information to determine the underlying causes of those complaints, according to the FCA. Board reports, the FCA found, often concentrated on operational data rather than on the "root causes of complaints" and the actions that the firms took.

The regulator believes that firms ought to ensure that management information is accurate and suitable for root-cause analysis, with appropriate governance in place to prompt them to act upon their findings, especially when problems recur or are endemic in their administrative systems.

Complaint-handling policies and procedures

The tick-box approach that some firms take is making them inflexible when they handle complaints; when this happens they fail to take the suffering of customers into account. There is also evidence of an over-reliance on policies and processes, which can end up harming customers.

The FCA took this opportunity to remind firms of their obligations to maintain effective, 'transparent' procedures and to handle complaints in a fair, consistent and prompt manner.

Recordkeeping

A firm’s systems must enable its staff to identify and record complaints correctly. Weaknesses in this area can hurt customers and can impair a firm's fitness to resolve complaints.

The FCA believes that firms should learn lessons by looking at the decisions that the Financial Ombudsman Service (FOS) has made. In the last few weeks, however, it has realised that some of them are failing to act accordingly. The regulator also wants firms to look at its 'technical guidance' and a case study entitled "Understanding complaints root cause analysis," which it wrote to help firms distinguish between a 'symptom' of a complaint, if such a thing can be imagined, and its 'root cause.'

How is the regulatory regime for the claims management industry evolving?

In the last few weeks the FCA has published a number of consultative documents about various aspects of the regulatory regime for claims management companies (CMCs). The FCA will start to regulate the claims management industry on 1st April next year, with responsibility for considering claims against CMCs transferring from the Legal Ombudsman Service (LeO) to the FOS.

As the FCA said in its first consultative paper in June, it will require firms that wish to continue trading after 1st April to apply for temporary permissions between 1st January and 31st March next year. Applications for full authorisation will open once the regime is in place.

Charging firms for the establishment and and maintainance of the regime

The FCA estimates the total cost of establishing and running the regime to the end of 2020/21 to be £16.8 million, to be recovered directly from CMCs.

There is a risk that this cost will be applied disproportionately to those firms that obtain authorisation and become fee payers in 2020/21. To offset this, the FCA is proposing to collect 42% of the total cost in 2019/20 (£7.1 million) at the point when firms register for temporary permission.

There will be a tiered approach to application fees, based on turnover. Turnover of less than £1 million will attract a fee of £1,200; turnover of more than £1 million will attract a fee of £10,000.

Authorised firms with 'Part 4A permission' usually receive 50% discounts on application fees when applying for a variation of permissions (VoP) and this will be applied for any qualifying firm applying to become a CMC.

CMCs will be allocated to a new fee block to allow the FCA to collect periodic fees in a fair and effective manner. At the moment, CMC fees are based on turnover and the FCA will continue this approach in the interests of consistency, while also maintaining the Claims Management Regulator’s reporting period.

CMCs will also be subject to the Financial Ombudsman general levy, with a new fee block to be created for all firms with one or more of the CMCs’ permits. The ombudsman has guessed that it will require between £1.5 and £2.5 million to cover the transfer and claims costs for 2019/20. This will be divided between relevant firms according to turnover.

Raising standards of conduct

The FCA has also announced that CMCs will be subject to the Senior Managers & Certification Regime (SM&CR) in December 2019. This is to reduce the likelihood of consumers being harmed and to improve 'governance standards.'

In the Senior Managers' Regime, a small number of senior jobs at CMCs will be counted as Senior Manager Functions (SMFs) and will be subject to the FCA's approval. Each CMC will be required to make a "statement of responsibility" for each SMF.

Meanwhile, people outside the SMR, but whose actions could still have a significant effect on the fate of customers, will be subject to the certification regime. Firms will be required to identify relevant employees and work out whether they are 'fit and proper' enough to do their jobs. The FCA is also proposing to include CMC staff in its directory of all SMFs, certified staff and directors who are not senior managers.

The Fit and Proper Rules come into play here as well. CMCs will be required to find out whether people performing SMFs and certified jobs are fit and proper enough to do those jobs. They must keep records of their conclusions at least once a year.

Nearly all CMC employees will be subject to the FCA’s conduct rules.

FCA announces changes in leadership

The FCA has appointed Sheldon Mills as its new director of competition from November onwards. Mr Mills is currently the Senior Director of Mergers and State Aid at the Competition and Markets Authority (CMA) where he is responsible for merger control in the UK and the strategic design and implementation of the new British 'state aid' regime.

Mr Mills will be integral to the advancement of the FCA’s promotion of competition in the interests of consumers, also taking responsibility for the regulator’s enforcement of prohibitions against anti-competitive behaviour.

Also announced was the news that Jo Hill, the FCA's Director of Market Intelligence, Data and Analysis, will take up the position of Executive Director of Strategy and Risk at The Pensions Regulatory (TPR) when she departs the FCA in November.

FCA and CII re-evaluate test for regulated retail advisers

In conjunction with the Chartered Investment Institute (CII), the FCA has reassessed the Level 4 diploma in financial planning as part of its drive to improve standards among financial advisors.

The test will be available on 1st October and contains 100 questions drawn from the CII’s R01-5 exams, involving topics to do with the suitability of advice. Firms are encouraged to use the test to assess their advisors’ knowledge. The regulator has said that it will use it as a 'supervisory tool' if it feels the need to verify the competence of any advisors.

FCA data reveals the latest trends in the retirement income market

The latest edition of the FCA’s data bulletin drew on data from the regulator’s Retirement Income Data Request (RIDR) to identify trends in the retirement income market for H2 2017/18. A representative sample of pension providers has been providing data as part of the RIDR since the introduction of the UK's 'pension freedoms' in April 2015. Several trends emerged.

• The number of pension pots accessed during this period remains consistent with previous reporting periods.
• There has been a 9% decrease in the number of full cash withdrawals, with 87% of full withdrawals being from pots with a value of less than £30,000.
• The average size of a pot entering drawdown for the first time increased by 18% and the average size of a pot from which a partial lump sum (UFPLS) was withdrawn increased by almost 50%.
• Advised sales of annuities and full cash withdrawals are at their lowest levels since the second half of 2015/16, meaning that an increasing number of sales are 'non-advised.'
• There has been an increase in the take-up of the Government’s free guidance service, Pension Wise.
• There is evidence to suggest that almost 6 in 10 pensions with guaranteed income are not taken up.

The year in review: The FCA’s Annual Public Meeting

The FCA held its Annual Public Meeting on 11 September. Some of its senior figures reflected on the activities of the past 12 months. We bring you the highlights of the speeches from both Charles Randell and Andrew Bailey.

Charles Randell, the FCA chairman, opened with a few observations from his first five months in office, mentioning the FCA's 'mission.' Randell said that it was imperative for the FCA to remain adaptable and react to external developments, particularly international affairs and the development of new and emerging technology. He believed that the FCA needed an "EU withdrawal budget" of £30 million to make itself ready for Brexit.

Randell also mentioned the FCA’s 'technology-neutral' approach. He thought of technology as a double-edged sword, able to bring about benefits but also to expose firms and consumers to risk, praising his own outfit for Project Innovate and the Regulatory Sandbox.

In his closing remarks, Randell warned against the increasing threat of financial crime, saying that it was more important than ever for the FCA to maintain and strengthen its partnerships with foreign regulators. Data sharing forms an integral part of this.

Andrew Bailey, the FCA's chief executive, opened his speech by describing the breadth of work that his organisation has done over the past 12 months.

Brexit cuts across all areas and requires a significant investment of both budget and resources. As it prepares for the UK’s exit from the governmental club, the regulator will try to do the following things.

• Preserve cross-border market access.
• Support consistent global standards.
• Co-operate with other regulatory authorities.
• Build on existing relationships, the bettter to play a part in the shaping of international standards.
• Recruit and keep a skilled workforce.

Operational risk, particularly resilience, technology, financial crime and the effects of data, are new sources of risk for the FCA and these are to become more ominous as the market relies increasingly on machines to execute financial transactions.

Firms’ plans for life after LIBOR

The FCA and the Prudential Regulation Authority have issued a joint ‘Dear CEO’ letter to major banks and insurers in which they ask the firms for details of their plans to move away from LIBOR to alternative rate benchmarks.

The regulators are seeking assurance that firms’ senior managers know all about the risks that this transition entails and have plans in place to offset them.

This initial wave of letters has been sent to the largest British banks and insurers, asking in each case for a board-approved assessment of the risks associated with discontinuing the use of LIBOR, the plans to mitigate these risks and the name of the senior manager responsible for the transition. The FCA and PRA have also encouraged firms that rely on LIBOR, but have not received direct communications from the FCA’s supervision team, to review their plans in the light of the letter.

The FCA's approach to final Regulatory Technical Standards under PSD2

In a recently published consultative paper, CP18/25, the FCA outlined its proposals for rules and guidelines to give force to the revised Payment Services Directive (PSD2) and promote the new final Regulatory Technical Standards to do with security and fraud reporting.

The majority of PSD2 requirements came into force on 13th January. Additional rules will alsocome into force on 14th September 2019 and will include rules to increase the security of payments, customer authentication and common and secure communication (SCA-RTS).

The outlined changes will enable the FCA to:

• exempt account servicing payment service providers (ASPSPs) from being required to build in a contingency mechanism;
• receive data from payment service providers (PSPs) in a standardised, consistent format;
• ensure that the 'approach document' is aligned with the European Banking Authority's exemption guidelines and the latest PSD2 guidance; and
• ensure that complaints reporting rules are extended to cover authorised 'push payment' fraud.

In response to comments from the public, the FCA is consulting interested parties about these changes for a four-week period, with the final response expected to be published in early 2019.