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The year in regulation

A terrible year for the FSA began nicely enough with former chief executive John Tiner being awarded a CBE in the Queen’s New Year’s honours list.

Northern Rock continued to dominate 2008 as Chancellor Alistair Darling announced the FSA would be given powers to intervene in failing banks, meaning the regulator would be able to seize and protect depositors’ cash in the event of a crisis.

But shadow Chancellor George Osborne said these powers should be handed to the Bank of England instead.
Darling was also vocal in blaming the regulator for the Northern Rock crisis, saying it should have taken more action when it saw how exposed the bank’s business model was.

The payment protection insurance crackdown continued in January with the FSA fining HFC Bank £1m for failing to give suitable advice to customers buying PPI. This was the biggest fine related to PPI to date.
The Treasury advertised for a successor to FSA chairman Sir Callum McCarthy in the Financial Times who retired in September.

Following pressure from the British Insurance Brokers’ Association, the FSA confirmed it would be undertaking a review of the rules that govern insurance comparison websites to ensure that consumers are being offered suitable protection.

Meanwhile, Societe Generale uncovered a massive fraud by trader Jerome Kerviel resulting in a loss of £3.7bn.
In late January, the Treasury Select Committee’s report on the Northern Rock fiasco attacked the FSA for failing in its duty as a regulator.

It laid blame on the regulator’s door for failing to supervise Northern Rock properly. It said: “It did not allocate sufficient resources or time to monitoring a bank whose business model was so clearly an outlier; its procedures were inadequate to supervise a bank whose business grew so rapidly.”

Aifa then launched its manifesto for advice at a parliamentary event with pensions minister Mike O’Brien.
The manifesto set out guiding principles which Aifa said would deliver a more skilled, professional and ethical adviser community and was warmly welcomed by the minister.

In February, the Tories commissioned an independent review body to look into the burden of regulation and whether the current system could be improved. Members of the body included former FSA chief executive John Tiner.

The FSA’s financial crime and intelligence division director Philip Robinson warned the industry that over 60 mortgage brokers had gone forward for enforcement action.

A County Court judge upset the Financial Ombudsman Service in mid-February when he ruled that it is wrong to charge an adviser a case fee when the case is rejected by the FOS.

The regulator ended the month by firing out two warnings to advisers. The first was over its Treating Customers Fairly deadline for March which suggested that over a third of firms had not got the correct systems in place to test TCF.

It also raised strong concerns about advisers white-labelling their own funds, warning it would not tolerate any return to the worst practices of broker funds.

The regulator received yet another battering from the Treasury Select Committee which blamed the market turbulence on the reckless behaviour by UK financial institutions and deficient warnings from the Bank of England and the FSA.

The Thoresen Review final report kicked off March by saying that the FSA should govern generic advice – or money guidance as it would now be known. Thoresen proposed a national money guidance service that would see accredited partner organisations give advice on retirement planning, tax, savings and borrowing. The cost was estimated to be around £49m per year and Thoresen suggested it be split equally between the Government and the financial services industry.

Later in the month, it was revealed that five FSA officials who worked in the seven-strong team tasked with directly supervising Northern Rock had quit. Further to this, the FSA’s internal report on its handling of the stricken bank found that there was a lack of sufficient supervision of the bank and found four key failings which led to the failure of the FSA to prevent the crisis.

A couple of key movers and shakers left their roles with the Chartered Insurance Institute deputy director general Bob Bullivant moving to Annuity Direct as its new chief executive.

Meanwhile, FSA managing director of the UK retail business unit Clive Briault left the regulator by mutual agreement. He was the head of the seven-strong team tasked with overseeing Northern Rock.

Unfounded rumours about UK financial institutions circled the market in mid-March which led to the FSA issuing a warning that it would be investigating trading in financial shares and any dealing that had been taking place on the back of them.

The month ended with the publication of the FSA’s feedback to its discussion paper on platforms which highlighted concerns it had over the complexity and cost to consumers.
At the start of April four professional bodies, including the Chartered Insurance Institute and the Institute of Financial Planning signed a joint ‘Edinburgh Declaration’ of principles for how they would supervise advisers in a post-RDR world.

It was all about RDR in April as the FSA published its interim report which left the door open for front-ended remuneration, quashed advisers’ calls for a 15-year long-stop and suggested that all advisers would have to operate on a whole of market basis. The paper called for a clear separation between sales and advice and a raising of the standards for those who wanted to stay part of the advice category.

Away from the RDR, the Treasury appointed former HBOS chief executive Sir James Crosby to chair a Treasury credit crunch working group to look at ways to encourage people to invest in the mortgage-backed securities market again.

It was a busy month in regulation as the Hunt Review of the FOS was released, which recommended it introduce a case fee for vexatious claims put forward by claims chasers. Lord Hunt also called for the FOS to name and shame the worst performing firms.

Good news for consumers as the Office of Fair Trading won the first stage of its test case against bank charges in late April.

Meanwhile, the FOS was facing a court battle of its own over whether it had to hold public hearings and publicise judgements. The FOS was contesting a County Court ruling that found in favour of an IFA firm stating that the FOS is unfair to force firms to pay a case fee when a complaint is rejected.

In May, the FSA issued a call for insurance comparison sites to ensure they were treating users fairly after uncovering a mixed bag of good and bad practice in the market.

Many people were sad to hear that Aifa deputy director general Fay Goddard would be leaving after 10 years at the trade body. Aifa said it would not be recruiting a new deputy director general but would be looking for candidates to fill the new role of policy director instead.

Personal Finance Society chief executive Tim Eadon also resigned and Goddard took over from him.

On the annuities front, the FSA uncovered shocking evidence that nearly 40 per cent of life companies’ consumer correspondence on the open market option fails to meet regulatory requirements.

Former FSA chief Tiner certainly seemed to be in demand with yet another appointment – this time to join the board of the Financial Services Skills Council.

Former pension review leader Lord Lipsey became the new chairman of the Financial Services Consumer Panel.
Advisers were given a break as it emerged that complaints to the FOS about IFAs plummeted from 12 per cent of total cases in 2006/07 to just 4 per cent in 2007/08 while complaints about banks rocketed.

The Chancellor confirmed that Lord Adair Turner would be joining the FSA as chairman in September.

The FSA ended the month by announcing it was considering using league tables of poor service and publishing the number of complaints that banks and financial services companies receive.

June got off to an exciting start when the OFT raided the offices of Royal Bank of Scotland and Barclays over allegations of price fixing.

The FSA proposed a ban on insurance companies being allowed to pay for compensation for misselling from the inherited estates of with-profits funds.

The Court of Appeal disappointed many in the advisory community by rejecting the County Court judgement which said it was unfair for advisers to stump up the FOS case fee if they were found innocent.

Aifa announced that senior policy analyst Andrew Strange would take up the new position of policy director following Fay Goddard’s resignation.

Chancellor Darling gave the Bank of England new powers to take responsibility for financial stability and confirmed that the FSA would be granted new powers to tackle market abuse.

The FSA launched free comparison tables for PPI on its consumer website and the FOS case fees court battle continued with the IFA firm which lost the ruling taking the case to the House of Lords.

The month ended on a low note as only 13 per cent of firms assessed by the FSA met the March treating customers fairly deadline which required them to have management information in place to test their TCF systems.

In July, the FSA wrote to mortgage trade bodies, outlining its plans to toughen the industry’s defences against mortgage fraud, which included targeted visits to 200 firms.
The replacement for the menu and IDD was finally revealed in late July. The Services and Costs Disclosure Document combines key information about firms’ services and costs and was launched in August.

Sir James Crosby’s interim report suggested the Bank of England’s Special Liquidity Scheme could be extended to new home loans in a bid to revive mortgage lending.

At the end of July, the FSA arrested eight individuals and executed search warrants across London and the south east in connection with a major investigation into insider dealing rings. Employees of UBS and JPMorgan Cazenove were among those arrested.

August arrived and with it came news that Abbey had failed in its attempt to challenge the Financial Services Compensation Scheme’s legal authority to sue the firm for £21m for alleged precipice bond misselling.

Several lenders were in the firing line as it emerged the FSA was considering referring them to enforcement following its review of responsible lending. Meanwhile, seven small mortgage advisers were referred to enforcement a further 23 were required to review customers files following the FSA’s second Quality of Advice review.

The FSA called on mortgage brokers to provide greater collaboration and help in tackling mortgage fraud at the end of August. It called for brokers to look out for suspected fraudulent documentation and false or doubtful income and employment details.

In September, the Treasury Committee called for a financial stability committee to be established to control the Bank of England’s financial stability functions.

The FSA took fairly drastic action by temporarily banning the short-selling of financial stock in a bid to restore stability to the markets.

At the Labour Conference in Manchester, Chancellor Darling called for stronger global supervision and action to improve the effectiveness of credit rating agencies.

Following recommendations in the Hunt Review, the FOS announced it would name and shame companies with the highest claims numbers by publishing this information twice a year.

In October, the Government announced that the FSCS compensation limit for bank deposits would be raised from £35,000 to £50,000.

In the wake of Lehman’s collapse and the US Government’s bailout of AIG, EU leaders affirmed there was a need for a coordinated response to the crisis, while Chancellor Darling repeatedly pledged to do “whatever it takes” for financial stability.

The Government unveiled a £50bn rescue package to use taxpayer’s money to buy stakes in banks and provided a guarantee on the money that banks borrow from each other in a bid to restore confidence in the wholesale markets.

Meanwhile the FSA said it would publish a general review on the remuneration structures of financial institutions after it expressed concerns over the bonuses paid in the City.

The FSCS said that most depositors with savings in Icesave UK would receive compensation within a month after the bank was declared in default.

November brought the surprising news that Skandia had left the Association of British Insurers to join Aifa, after saying it had little in common with the traditional life offices that the ABI represents.

But it was all about the 25 of November when the final RDR paper was released. The paper was greeted with dismay from many quarters as it introduced independent advice and sales advice channels which critics such as Aifa slammed as confusing and a missed opportunity.

The FSA also confirmed it would be doubling the minimum capital adequacy requirement for firms to £20,000 in its review of the prudential rules for personal investment firms.

Lord Lipsey resigned as chairman of the Financial Services Consumer Panel saying he did not have a wide enough lobbying remit.

In December, the FSA published yet another consultation paper. It proposed an overhaul of the liquidity requirements for banks, building societies and investment firms.

The Competition Commission ended the year by proposing to ban point-of-sale PPI and single-premium policies with advisers and brokers included in this.

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