Monthly Archives: September 2016

Weekly Round-up, 2nd September, 2016.

Whistle while you work

New rules come into force next week for Banks and Building Societies designed to improve the ability of their employees to raise concerns about poor industry practice. Called “Whistleblowers”, these employees play an important role in contributing intelligence crucial to action taken against firms and individuals.

The new rules are designed to build on and formalise examples of good practice already found in parts of the financial services industry and aim to encourage a culture in which individuals working in the industry feel comfortable raising concerns and challenge poor practice and behaviour.

The rules on whistleblowing, which take full effect this month apply to deposit-takers (banks, building societies, credit unions) with over £250m in assets, and to insurers subject to the Solvency II directive; they are non-binding guidance for all other firms the Financial Conduct Authority supervises. The FCA has seen an increase in the number of reports it receives; for example, there were 1340 whistleblowing disclosures recorded for financial year 2014/15 against 1040 in 2013/14 (28% increase). In the financial year 2007/08 the then Financial Services Authority received only 138.

Steady but possibly windy

Gross mortgage lending held steady in July and was an estimated £21.4 billion, according to the Council of Mortgage Lenders (CML). This closely matches June’s gross lending total of £21.5 billion and is 1% lower than July last year (£21.6 billion).

The CML suggest that their indicators are likely to provide truer readings of market conditions the further that the mortgage market moves away from the distorting effects of April’s stamp duty change. The subdued nature of property transactions and mortgage lending in July are consistent with a less positive backdrop for house purchase activity post-referendum.

Commenting on market conditions the CML have highlighted the Bank of England’s expectations of stronger economic headwinds to build as we move into 2017, and the Monetary Policy Committee’s package of monetary policy measures represents an effort to lean against these on a timely basis. The MPC has penciled in a further cut in Bank Rate later this year, but aims to avoid negative interest rate territory.

Holiday Reading

According to research from the Over-50’s Life Insurer SunLife, Insurance customers fail to read 85% of the information sent to them by providers. The insurer said on average insurance products come with “more than 25,000 words of explanation written in PhD level language.”

SunLife has found that if customers were every insurance policy we’re sent in full, they would spend an entire month of their lives reading about insurance. In general customers are just actually spending 27 minutes reading through policy documents.

The research also found that the average insurance product comes with 25,669 words of explanation – more than Shakespeare’s Romeo and Juliet – and takes as much effort to understand (Romeo and Juliet is 24,545 words long, the average insurance document is 25,669 words according to sample of 30 products). If you started reading your travel insurance policy when you took off from Heathrow on a flight to Malaga, you’d finish the document when the plane touched down in Spain (3 hours 33 minutes). And a typical Health insurance policy may take longer to understand (3 hours 15 minutes) than to run a marathon.

SunLife warned that customers are skimming through the vast majority of the text and reading just 15% of the content meaning they will not fully understand the cover they’re paying for.

Cheese and wine

Three hundred and fifty years ago this week, Samuel Pepys buried his wine and Parmesan cheese to protect them from the Great Fire of London. These days people are more likely to want to save credit cards, cash and photographs than anything else, a survey by the Association of British Insurers (ABI) has found.

The ABI survey also showed a third of people would reach for their mobile phone, but only 16 per cent would save jewellery or other valuables. And just 1 per cent would emulate Samuel Pepys by snatching up luxury food and drink.

September 2nd 2016 is the 350th anniversary of the start of the blaze which destroyed more than 13,500 homes and 87 churches in London while burning for four days. It is also the event which created the modern property insurance industry and, in turn, the fire service.

According to the ABI, the Great Fire of London caused damage on an unprecedented scale. Unlikely as it is, if such a fire were to tear through London today they estimate it would cost £37 billion to rebuild the city.

And finally…Mr & Mrs Royde, I name this child “Emma”

Almost one in five parents would pick a different name for their child if given the chance again, a survey has suggested. The main naming regret, chosen by a quarter of respondents, was how commonly the name was used by others, while over a fifth (21%) said the name they chose just “doesn’t feel right” for their child.

Another fifth admitted they were pressured into choosing a name they had “never liked” while more than one in 10 cited frustrations with spelling and pronunciation.

One mother said her daughter’s name “was taken by a terrorist group soon after she was born”. The survey was conducted by parenting website Mumsnet and comes as the annual report on baby names is released this week by the Office for National Statistics.

Almost a third (32%) of participants said the remorse kicked in within the first six weeks of their child’s life, while just under a quarter (23%) said it was when they started nursery or school. One mother said she regretted naming her daughter Elsa – the protagonist of Disney film Frozen – when the animated movie became wildly popular. A quarter said they knew someone who had picked a first or middle name for their child and then changed it, yet just 2% had actually gone as far as to do so themselves.

The survey was carried out between June 15 and 20 with 1,362 participants, and was open to all UK Mumsnet users with at least one child. The data was not weighted.

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HLP Compliance Blog

Compliance Q & A, 1st September, 2016

Over the next few weeks, HLPartnership’s Compliance Director, Gavin Earnshaw (GE), will be answering compliance questions posed by our Adviser Partners. This week’s question comes from Julie Bilsby (JB), of the Cirencester Mortgage Company.

JB: Do you feel regulation is actually benefitting the consumer or is it a ‘tick box exercise’ for the FCA?

GE: I have received a number of questions, but I am picking this one first as it gets to the heart of the way that many brokers feel about regulation. It definitely feels like a tick box approach for many, that’s for sure!

A fundamental question deserves a detailed response. I promise to try and get a bit more ‘clippy’ when responding to more specific questions, in future, but I think the detail below is useful for all brokers to reflect upon. Here goes…

Regulation of the mortgage and protection/insurance markets has come a long way in the last 20 years. There was a time when a voluntary, self-regulating code existed, which many will remember: the mortgage code overseen by the Mortgage Code Compliance Board (MCCB). At the time, it felt like this code worked perfectly well and I remember feeling that a move to legislative regulation under the FCA in 2004 was unnecessary. However, on reflection, I can see that there were a lot of very poor individuals operating in the market then, either extremely incompetent or down-right crooks! There are still some of these around now, but regulation had a massive impact on removing a huge number of these people and there is no doubt the reputation of our industry is much, much better now.

In fact, following the implementation of MMR rules, when affordability checks mean a detailed conversation and checking evidence of income/outgoings, the standing of the broker sector has never been higher; we have seen a shift to a position where around 70% of all mortgages are now intermediated, as high as it has ever been. Lenders have been unable to support the level of interaction introduced by MMR in a branch/high street environment and therefore the value of a quality broker has increased significantly. The industry would not operate without us.

In a way, therefore, I am all for plenty of product choice and burdensome compliance as this creates customer confusion, which means that customers need help to make the right choice. Perfect conditions for mortgage and protection brokers!

That said, the FCA state their principal purpose is their “…aim to make financial markets work well so that consumers get a fair deal”. Julie’s question ponders if regulation is benefiting customers and, as I suggested earlier, there is no doubt that customers are much better protected under the FCA. Problems are less likely to occur now as a result of higher standards from increased professionalism in the market. Also, importantly, when things do go wrong, the customer has clear options to for redress.

The problem for me, though, is that all this regulation comes at a cost.

In total, the budget to fund the FCA for 2016/17 is £519M (an increase of 7.8% on the previous year). It employs 3,300 staff. Added to this are the Financial Services Compensation Scheme (FSCS), Financial Ombudsman Scheme (FOS), Money Advisory Services (MAS) levies as well as ever increasing Professional Indemnity Insurance costs due to increased regulation.

This is all paid for by the 56,000 firms it regulates. Who in turn pass on some of these costs to the customer.

20 years ago, most customers would have been able to secure a service from their mortgage and protection broker for free. Today fees of £495 or 1% of the loan amount are the norm. It leaves me wondering if this is better for the consumer. The old way, for ‘free’ under the MCCB, or as it is today with the FCA, at a cost.

I think, on balance, regulation has been good overall and that the cost to the customer is a premium worth paying to benefit from a more professional, competent service, with all the in-built protections that come with it. And, as I said, with regulation comes customer ‘confusion’, which ironically benefits the broker market.

So, the FCA’s tick box approach is not perfect and I’m convinced they could become more efficient, for sure. I also see the Brexit as an opportunity to review some of the more onerous and unnecessary parts of MMR and MCD designed to create European harmonisation. But, overall, I have to say it works for customers and, strangely, it works for brokers too.

Click below to read more:

Interview with Gavin Earnshaw, Compliance Director: Part One.

Interview with Gavin Earnshaw, Compliance Director: Part Two.