Changes to UK Financial Regulation

CHANGES TO FINANCIAL REGULATION The UK Government is in the process of dismantling the long-derided FSA and replacing it with 3 new regulatory bodies. While some will cheer others will say "better the devil you know". Either could be right. Very little is certain yet as the regulatory changes underway are subject to several government consultations due over the next two years and to the ongoing "transposition" of EU directives into our national laws. Individual laws and guidelines will be set in the UK, but taken together they must deliver the overall provisions of the relevant EU directives. FSA NEW LEGISLATION FROM EUROPE 3 NEW REGULATORY BODIES FPC EU DIRECTIVES UK REGULATION This body will be part of the Bank of England and modelled on the Monetary Policy Committee. It will hold responsibility for the stability of the UK financial system as a whole. Since the onset of the financial crisis, the EU commission have established ESA - a trio of new The UK government will implement the finalised provisions of the ESA directives by transposing them into a combination of UK legislation and guidelines to be enforced by the three new regulatory bodies that will replace the FSA; namely the FPC, PRA & FCA. FINANCIAL POLICY COMMITTEE bodies (EBA, ESMA and EIOPA) charged with improving supervision of financial services. Their directives are creating obligations for the UK government and our national regulatory bodies PRA OMD DRAFT MORTGAGE MMR MORTGAGE MARKET REVIEW This body will carry out 'firm-specific' regulation of larger financial institutions (e.g. banks and insurers). The PRA will also be the DIRECTIVE Bank At the heart of this directive is the introduction of rules/principles for commission and proc fees. It also proposes changes to KFI format and that mortgage applicants rejected via an automatic decision system are entitled to an explanation from lender at no cost to themselves. Due: 2014 Framework due in late 2011 - rule changes from 2012. Aims to increase "sustainability" of mortgage market by addressing aspects implicated in 2008 crisis. Indications that 'self-cert' likely to go and 'interest-only' stay. Ongoing MMR rework to fit with DMD likely. PRUDENTIAL REGULATION AUTHORITY 'lead regulator' for the Lloyd's market as a whole. IMD2 INSURANCE RDR RETAIL DISTRIBUTION REVIEW FCA This is the body that will regulate financial services firms that are too small to come onto the PRA's radar. They will cover most of the 20,000 UK firms currently regulated by the FSA including the majority of brokers and IFAS. MEDIATION DIRECTIVE This directive aims to "increase transparency in remuneration of insurance intermediaries" (which hints at the possibility of mandatory commission disclosure). Also - playing field between direct sales by insurers and via brokers. Formal Gl qualifications likely. The big change is the ban on commission for new business post-RDR including trail commission. (Trail commission on pre-2013 cases will continue). Some predict the shift to a fee-based model will see over 30% of IFAS exit the market, but Aviva's 2011 survey shows only 7% planning to do so. FINANCIAL CONDUCT AUTHORITY nsuring a level Source Software Ltd: Insurance quotation systems for financial intermediaries. For more information visit: www.thesource.co.uk Source