FCA publishes dealing commission review: FCA has published a review of how firms use dealing commission. It found too few firms properly consider the added value and cost of research paid for using dealing commission. It sampled 30 firms and found only two of them were performing at the levels it would expect. It has now published a discussion paper on how to improve firms' performance. In the paper, it outlines the results of its review. While the review showed improvements in some areas since 2012, it also found several indications of poor practice, including:

  • too few investment managers applying "sufficient rigour" when they assess the value of the research services they use; and
  • a general lack of price transparency in the market for research, exacerbated by the habit of bundling supplies of execution and research services.

FCA is in discussion with some of the investment managers and brokers it surveyed about redress or other action that may be appropriate. It has now decided it would be appropriate to unbundle research services from dealing commission and thinks MiFID 2 implementation would present an ideal opportunity to do it. It also believes ESMA's proposals in its MiFID 2 implementation papers support this and would have the ultimate effect of requiring unbundling except for the most generic information. FCA noted brokers’ unpriced bundling of research and execution services not only prevents transparent price formation but also makes it difficult for independent research providers to compete and for investment managers to assess the value for money of research. It also noted that investment banks prefer to bundle research services due to the complexity of their business models, which means the market for research is unlikely to move to the transparent, priced, market FCA wants. It appreciates the proposed changes will be costly for firms, and the paper looks at this. FCA plans to feed back and consult further in late 2014 or early 2015, after ESMA reports on the results of its consultations. In the meantime, it seeks views generally, and specifically on the prospect of UK rules prohibiting bundling in excess of the MiFID 2 requirements. FCA asks for comment by 10 October. (Source: FCA Publishes Dealing Commission Review)

FCA consults on investment advice models: FCA has published a guidance consultation to help firms accurately tell the difference between various investment advice models. The guidance aims to explain what constitutes a "personal recommendation" and is supplemented by a thematic review and consumer research paper. The paper also heralds the introduction of Project Innovate (see below). The paper explains the current law, and the views of ESMA. It gives worked examples and charts and sets out a "five point test" for classifying advice. It backs up its suggestions with results of consumer research. The paper pulls together and updates existing regulatory guidance. FCA asks for comment by 10 October. (Source: FCA Consults on Investment Advice Models)

FCA publishes high risk country list: FCA has published a list of countries that it regards as being of high risk to its financial crime objectives. It has compiled the list from various sources, and there are nearly 100 countries on it, including many not on the Financial Action Task Force or Treasury list and some EU Member States. (Source: FCA Publishes High Risk Country List)

FCA proposes payday lending cap: FCA is proposing a double cap on the cost of payday loans. From January 2015 payday lenders would not be allowed to charge interest and fees above  0.8% per day, and the overall cost of a payday loan would not be allowed to exceed 100% of the amount originally borrowed. Fixed default fees would also be capped at £15. FCA estimates that firms will lose 42% of their revenue per year. FCA asks for comments by 1 September. It plans to publish the final rules in November so that the cap can start applying from 2 January 2015. FCA expects payday lenders to prove how they plan to comply with the caps when they start applying for full FCA authorisation from 1 December. (Source: FCA Proposes Price Cap For Payday Lenders)

FCA publishes insurance comparison website review: FCA has published the results of its thematic review into general insurance price comparison websites. The review has found that some websites:

  • fail to provide appropriate information to customers where they focus on headline price and this distracts customers' attention from policy coverage or terms. An example of good practice in this respect is where the website provides that information through "more info" buttons;
  • do not make clear the nature of the service they provide, leading consumers to believe that they are receiving advice or quotes tailored to their needs;
  • do not disclose the potential conflict of interest where they are part of an insurer or a broker; and
  • have not fully implemented FCA's 2011 guidance on price comparison websites.

FCA says the findings of the review will also be relevant for comparison websites operating in other financial services sectors. All firms should also consider the European Insurance and Occupational Pensions Authority (EIOPA) report on good guidance practices on comparison website. (Source: Price Comparison Websites in the General Insurance Sector)

FCA publishes Annual Report: FCA's first Annual Report highlights FCA's focus on conduct and says it has been well received. It also looks at some of the specific themes on which FCA has focused in the past year, including:

  • warning for customers on interest only-mortgages;
  • review of mobile phone insurance;
  • RDR six-month review;
  • regulation of consumer credit and payday lending;
  • the Mortgage Market Review new rules;
  • Transitions Management Review; and
  • retirement income study.

The paper is divided into 10 main sections, with a number of appendices, including one on skilled persons reports. The report covers:

  • FCA's general approach and highlights some specific areas of focus, including its supervisory approach and how it measures its performance;
  • the consumer protection objective and what FCA has done on pensions, consumer redress, mis-selling, holding client money and custody assets, and retail investment advice;
  • the market integrity objective in areas such as wholesale conduct, asset management, benchmarks, financial crime and market abuse;
  • how FCA has built its competition capabilities, carrying out market studies, working with other organisations and reducing regulatory barriers;
  • FCA's work on the transition to consumer credit regulation and how it has set out priority areas where it sees potential risk to consumers;
  • how it has implemented, supervised and enforced EU and international standards and regulations in the UK, as well as contributing to international debates and policy-making processes;
  • how FCA operates internally;
  • a strategic report to help stakeholders assess how the directors have performed their duty to promote the success of FCA under section 172 of the Companies Act 2006;
  • the directors’ report; and
  • financial statements.

(Source: FCA Publishes Annual Report)

FCA calls for input on Project Innovate: FCA has called for input on Project Innovate, which is designed to help innovator firms make the best use of opportunities. It plans to launch an Incubator and Innovation Hub with this in mind, and seeks views on the type of help these initiatives could bring. It asks for comment by 5 September. (Source: FCA Calls for Input on Project Innovate)

Payday lender agrees to improvements and refunds: FCA has announced that Dollar, which trades as The Money Shop, will refund over £700,000 of interest and default charges. The refund will apply in respect of a total of 6,247 customers who, a review of customer calls revealed, were lent amounts which Dollar’s criteria would not normally allow. Dollar will also appoint an independent skilled person and make changes to its affordability assessments. (Source: Payday Firm Dollar Agrees to Improve Lending Practices and Refund Customers)

FCA publishes AIFMD forms: FCA has linked in its website to forms relevant to the Alternative Investment Managers Directive (AIFMD). (Source: UK AIFMs)

Regulators publish HBOS TOR: PRA and FCA have published the Terms of Reference (TOR) for the review into the failure of HBOS. The results of the review should be published by the end of the year. (Source: Regulators Publish HBOS TOR)