FSA Annual Report 2006/07 - Better Regulation Ltd

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Section two – Helping retail consumers achieve a fair deal FSA Annual Report 2006/07 33 We continued to work closely with the FOS to ensure that emerging consumer protection issues are identified quickly and that issues and queries are resolved promptly. In May 2006 we published a joint Discussion Paper on its future funding structure. We found broad support for increasing the importance of case fees in financing the FOS and for increasing the number of cases the FOS will consider before a firm starts paying case fees. We will consider what scope exists for moving in this direction when agreeing the FOS’s budget for 2008/09, taking into account its current budget and caseload projections. Financial Services Compensation Scheme (FSCS) In March 2007 we published a Consultation Paper proposing new funding arrangements for the FSCS. The proposals followed a rigorous review and were developed in consultation with an industry advisory group, which included representatives from trade associations, the Financial Services Practitioner Panel, the Smaller Businesses Practitioner Panel and the Financial Services Consumer Panel. Finding a solution has been difficult, and it has not been possible to devise funding arrangements which have universal support from the industry. However, there was general acceptance that the present arrangements were no longer fit for purpose. We believe the proposed model is more rational, fairer to the various players in the market and is more robust. It will also enable the FSCS to provide an enhanced level of compensation for unforeseeable events. We also announced our intention to consult on a final level of compensation funding to be made available based on wholesale business, which would involve contributions from firms who are not currently required to fund FSCS compensation payments. Reviewing the effectiveness of our policy We have made substantial progress in our review of the general insurance conduct of business regime. We published consumer research highlighting how consumer experiences and risk of detriment differ across different general insurance products. At the end of March 2007 we published an interim report proposing a differentiated regime, removing detailed rules for the sale of all general insurance products and introducing additional consumer protections for certain products, including payment protection products. In September 2006 we published the results of the first stage of our review of the effectiveness of our mortgage rules. We found that consumers are actively shopping around for their mortgages, and are using the Key Facts documents to compare mortgages, consider the risks of mortgage products and to decide if a mortgage is right for them. This shows that our rules are beginning to deliver the right outcomes for consumers. We have completed the first stage of our review of the basic advice regime. This regime is designed to provide a simpler, quicker and lowercost form of advice for consumers buying the government’s suite of ‘stakeholder’ savings and investment products. The results suggest that the basic advice market has not developed as expected and we recently announced a further review to find out why. We have continued to review the effectiveness of depolarisation, focusing on the disclosure requirements – the Menu and the Initial Disclosure Document. Following consultation with the industry we decided to focus on these requirements because they go beyond what is required under MiFID (see Section one). Any changes we propose as a result of this review will take into account the extent to which the information disclosed results in real benefits for consumers and be compatible with our move to more principles-based regulation. The RU64 rule requires advisers who sell personal pensions to explain to customers why they consider the product to be at least as suitable as a stakeholder pension. Following developments in the government’s pension reforms and careful consideration of the responses to our 2005 consultation, in February 2007 we announced our decision to retain this rule. We concluded that retaining this rule is necessary to secure the appropriate degree of protection for consumers.
34 Section two – Helping retail consumers achieve a fair deal FSA Annual Report 2006/07 New rules following changes to our regulatory scope We published our final rules for the regulation of Home Reversions and Islamic law-compliant Home Purchase Plans in October 2006. They help older consumers looking to release equity from their homes by extending protection over the whole equity release market and provide fairer treatment for consumers wanting to buy their homes in way that is compliant with Islamic law. We worked closely with the industry, consumer groups and representatives from Muslim communities in designing the rules and preparing for implementation on 6 April 2007. We have also published new consumer education materials to raise consumer awareness of the new rules. We received 437 applications from new and existing firms to carry out these types of business. From April 2007 all personal pension schemes, including selfinvested personal pension schemes (SIPPs), are within our regulatory scope. Following consultation with industry and consumer groups we published new rules in September 2006, giving firms six months to prepare for implementation. Bringing all personal pensions into our scope will ensure that all personal pension policyholders benefit from the same level of protection. We also expect that broadening the range of personal pension providers will increase competition and lead to innovation. We received 143 applications to operate personal pension schemes, including SIPPs, and increased the regulatory permissions of 45 operators of stakeholder pension schemes to cover personal pensions. We also changed the permissions of over 7,000 regulated firms to bring their personal pension schemes business within our scope. Working with other domestic regulators The government’s proposals on pension reform include a national pension scheme which will be treated as an occupational pension scheme. We worked closely with the Department for Work and Pensions (DWP), the Treasury and the Pensions Regulator to advise the government on the regulatory impact of their proposals. We are also working with the DWP on its review of the institutions involved in the regulation of pensions, the scope of which includes the boundaries between us and the Pensions Regulator. In April 2006 we published a Joint Action Plan with the OFT which sets out how we will work together more on matters of shared interest. The Plan aims to reduce the administrative burden on firms, improve the way in which we make information available to consumers and help deliver risk-based regulation. During the year we have worked together in areas such as unfair contract terms and payment protection insurance. We have also taken steps to strengthen our overall liaison and consumer communications arrangements. We are committed to exploiting further opportunities for better joint working, for example in our review of the retail distribution system, and to build on the enhanced communications between the two organisations. Influencing European policymaking The European Commission is currently reviewing the effectiveness of the Simplified Prospectus, which is widely considered to have failed to meet its objective of providing information to enable consumers to make informed decisions about investing in collective investment schemes. We have been working with the Commission, other Member States and trade bodies to identify the issues and we co-chair a CESR sub-group responsible for recommending improvements. We have worked closely with stakeholders to influence developing policy on mortgage regulation in Europe. A more integrated European mortgage market may offer significant advantages, but evidence suggests that introducing legislation may not lead to greater integration, and could risk both competition and product diversity. We are encouraged by the Commission’s decision to delay the White Paper to allow for further analysis, including a report by mortgage funding experts. We agree with the conclusion of these experts, that market-led mortgage funding improvements can deliver significant benefits. Through our role in CESR we have contributed to a variety of European work to improve the operation of the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. We made substantial progress in influencing the European debate on the proposals to revise the Directive, and the European Commission’s White Paper, published in November 2006, reflects the UK’s priorities for change. During the year we also contributed to CESR’s work on the rationalisation of the notification procedure for EU cross-border fund sales and jointly chaired CESR’s working group on the definition of the eligible assets for UCITS.
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