MONTHLY REGULATORY UPDATE JANUARY 2017

MONTHLY REGULATORY UPDATE JANUARY 2017 6 February 2017

The following is a summary of the pronouncements issued since our last regulatory update for the financial services sector issued on 3 January 2017. This update will be provided on a monthly basis. WEEK ENDED 6 JANUARY 2017 Building Societies Association (BSA) Consumer Credit - The FCA has announced that it has withdrawn the latest version of the consumer credit information sheets which were due to go live on 18 January 2017. Common Reporting Standards - HMRC reminds all Financial Institutions of the 31 May 2017 deadline for FATCA, CD/OT and CRS returns for the year ended 31 December 2016. Council of Mortgage Lenders (CML) CML welcomes government commitment to affordable housing - The CML welcomes today's affordable housing announcement, which could help provide a wider choice of tenure. But it urges the government to support schemes that lenders can engage with. Sources 1 1 Nothing new issued by Financial Conduct Authority, Prudential Regulatory Authority, Financial Ombudsman Service, Council of Mortgage Lenders, HMRC, Information Commissioners Office, Association of Financial Mutuals, Payment Systems Regulator, National Crime Agency or Joint Money Laundering Steering Group. Monthly Regulatory Update January 2017 1

WEEK ENDED 13 JANUARY 2017 Information Commissioners Office (ICO) 150,000 fine for insurance company that failed to keep customers information safe - ICO enforcement officers found that RSA did not have the appropriate measures in place to protect financial information by preventing the theft at its offices in West Sussex from happening. The device was stolen from company premises either by a member of staff or a contractor, the information on it was not encrypted and the device has never been recovered. Sources 2 2 Nothing new issued by Financial Conduct Authority, Prudential Regulation Authority, Building Societies Association, HMRC, Payment Systems Regulator, Association of Financial Mutuals, Financial Ombudsman Service, National Crime Agency or Joint Money Laundering Steering Group, Council of Mortgage Lenders Monthly Regulatory Update January 2017 2

WEEK ENDED 20 JANUARY 2017 Financial Conduct Authority (FCA) Finalised Guidance FG17/1 Guarantor loans: default notices Overview: The FCA has published guidance for firms on the FCA s interpretation of provisions in the Consumer Credit Act 1974 that are relevant to guarantor lending firms seeking to take payment from a guarantor in respect of a borrower who is in default. In particular, the guidance sets out how we consider firms are required to notify guarantors of their intention to take payment before they do so. Applicable to: This guidance is relevant to firms which offer guarantor loans. Next Steps: Relevant firms should consider the guidance in relation to their business practices. Monthly Regulatory Update January 2017 3

Prudential Regulation Authority Policy Statements and Supervisory Statements PS1/17 SS18/15 (Update) Deposit protection limit Depositor and dormant account protection Overview: In CP41/16 the PRA proposed to: reset the deposit protection limit to protect depositors up to 85,000 as of 30 January 2017; provide a five month transitional period for firms to amend disclosure, advertising materials and posters and stickers and to update the Single Customer View (SCV) to reflect the new deposit protection limit; require firms to notify the PRA if they are ready to implement the rule changes prior to 30 June 2017; and update SS18/15 with the PRA's expectations in relation to the above rule changes, correct references and delete expired text. The PRA has made some changes to the rules consulted on in CP41/16 in response to feedback. Material changes to the proposals include: allowing firms more flexibility to make changes to customer-facing materials as soon as practicable during the transitional period and removing the requirement that firms notify the PRA. The PRA considers that the changes made to the draft rules are not significant in terms of the impact on mutuals and are likely to reduce costs to firms. Applicable to: UK banks, building societies, UK credit unions, as well as to overseas firms with PRA deposit-taking permission (hereinafter 'firms'); Next Steps: dormant account fund operators; the Financial Services Compensation Scheme (FSCS), as the administrator of the UK's Deposit Guarantee Scheme (DGS) and Dormant Account Scheme (DAS); and depositors. The new deposit protection limit is effective from 30 January 2017. Based on the final rules and expectations set out, firms: 1. must make all changes to customer-facing materials required to implement the new deposit limit as soon as practicable after 30 January 2017 and in any event on or before 30 June 2017; and 2. are expected to train their customer-facing staff to answer questions from customers about the change in the deposit limit, regardless of when a firm s written materials are amended, by 30 January 2017 or as soon as practicable after 30 January 2017. Monthly Regulatory Update January 2017 4

Building Societies Association (BSA) Financial Services Compensation Scheme - FSCS has updated disclosure materials reflecting the increase in deposit protection cover to 85,000. Mortgage Fraud - The BBA / BSA / CML / IMLA have produced a comprehensive guide to mortgage fraud good practice - which can be found here. Consumer Credit - The FCA has published revised consumer credit information sheets to accompany arrears and default notices, which must be used by firms from 14 April 2017. EU General Data Protection Regulation - the European Association of Co-operative Banks (EACB) has published guidance on the right to data portability, which will be introduced under Article 20 of the General Data Protection Regulation (GDPR). Council of Mortgage Lenders (CML) The fair treatment of mortgage customers in payment shortfall: impact of automatic capitalisations The CML has published its response to the FCA s paper GC 16-6 and welcomed the constructive approach. The CML believes that lenders should be free to develop their own frameworks for remediating affected customers within the spirit of the overall framework. Information Commissioner s Office (ICO) GDPR Guidance 2017 - The ICO remains committed to helping organisations to improve their practices and prepare for the GDPR. They have published an update setting out what guidance organisations can expect. GDPR and Accountability - Elizabeth Denham delivered this speech at a lecture for the Institute of Chartered Accountants in England and Wales in London on 17 January. She discussed the role of accountability in the GDPR, noting: " We re all going to have to change how we think about data protection. Sources 3 3 Nothing new issued by HMRC, Association of Financial Mutuals, Payment Systems Regulator, Financial Ombudsman Service, National Crime Agency or Joint Money Laundering Steering Group. Monthly Regulatory Update January 2017 5

WEEK ENDED 27 JANUARY 2017 Financial Conduct Authority (FCA) Consultation Paper (CP) CP17/2 CASS 7A & the Special Administration Regime Review Overview: This CP seeks feedback on a number of aspects of the client assets regime, in particular regarding the client money distribution rules and their interaction with the special administration regime. Applicable to: This consultation is relevant to all regulated firms that hold custody assets and/or client money in relation to investment business. Next Steps: Comments are requested in accordance with the following timetable: 23 February 2017 in relation to the EMIR and MiFIR RTS proposals (chapter 3) 24 April 2017 in relation to all other proposals (chapter 2) Press release Speeches FCA publishes general insurance value measures scorecard - In their general insurance add-ons market study, the FCA found poor value in both add-on and some stand-alone products sold by firms. They also found that consumers find it difficult to assess value due to the lack of a commonly available measure. To help address these issues the FCA set out in their subsequent feedback statement (FS16/1) that they would pilot the publication of value measures data. The published data includes four general insurance products: o o o o home insurance (combined buildings and contents); home emergency insurance; personal accident insurance sold as an add-on to motor or home insurance; and key cover sold as an add-on to motor. Beyond economics - Delivered by FCA Chief Economist, Peter Andrews to a conference on behavioural finance at London University. This speech provides an insight into how the FCA is drawing on expertise from a number of fields in determining its regulatory stance and policy. Free trade in financial services and global regulatory standards: friends not rivals Delivered by Andrew Bailey, Chief Executive of the FCA, at the Economic Council Financial Markets Policy Conference in Germany. Mr. Bailey provided personal opinion on the policy response to the financial crisis which is approaching its 10 th anniversary, acknowledges that whilst post-crisis global regulatory standards are not weak further development is required. Monthly Regulatory Update January 2017 6

Regulation Round-up The FCA publishes the January edition of regulation round-up; topics covered include: high level reference to the forthcoming consultation on extending the Senior Managers and Certification Regime to all sectors of the financial services industry; Markets in Financial Instruments Directive (MiFID) II user guide published to assist firms who need to apply for authorisation, or need to vary existing permissions; Guarantor Lending Guidance FG17/1 provides general guidance for consumer credit firms setting out how firms are required to notify guarantors of their intention to take payment before they do so; and Information sheets: Consumer Credit New versions of the default and arrears information sheet are published and will come into effect from 14 April 2017. Prudential Regulation Authority Supervisory Statements (SS) SS20/15 Supervising building societies treasury and lending activities (update) Overview: SS20/15 was updated to provide additional clarification and corrections following its publication on 1 December 2016 in Policy Statement 34/16 Supervising building societies treasury and lending activities - see Appendix 7 for full details. The SS aims to build on the principle that the risk appetites of building societies should be properly aligned to their risk capacity, in order to promote the safety and soundness of building societies as deposit-taking institutions. Applicable to: This SS sets out the PRA s expectations in respect of building societies compliance with the requirements of the Building Societies Act 1986 (the 1986 Act), the Financial Services and Markets Act 2000 (FSMA), the PRA Rulebook and SS24/15. This SS is applicable to all building societies. Next Steps: Firms should consider the publication in relation to their lending and treasury activities. Building Societies Association (BSA) FCA Overview The BSA has published its final response to the FCA: Our Future Mission consultation. Basel 4 reviews of Pillar 1 credit risk The BSA advises that the Bank of England has published research on impact of differential standardised / IRB risk weights on lending policy. The BSA will conduct further research and invites comments resulting from any related analysis undertaken by its members. Financial Ombudsman Service (FOS) Sources 4 Customers in Vulnerable Circumstances - FOS has issued an article that contains a number of cases studies that shows good and poor practices in relation to dealing with complaints and customer vulnerability. 4 Nothing new issued by the Information Commissioners Office, Council of Mortgage Lenders, Payment Systems Regulator, HMRC, Association of Financial Mutuals, Joint Money Laundering Steering Group or National Crime Agency. Monthly Regulatory Update January 2017 7

WEEK UP TO 31 JANURY 2017 Financial Conduct Authority (FCA) Final Notice Notice Served Upon: Sanction: Reason: Deutsche Bank AG (Deutsche Bank) The FCA has fined Deutsche Bank AG (Deutsche Bank) 163,076,224 for failing to maintain an adequate anti-money laundering (AML) control framework during the period between 1 January 2012 and 31 December 2015. This is the largest financial penalty for AML controls failings ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA). The FCA found significant deficiencies throughout Deutsche Bank s AML control framework. The FCA specifically found that, during the relevant period, Deutsche Bank s Corporate Banking and Securities division (CB&S) in the UK: performed inadequate customer due diligence failed to ensure that its front office took responsibility for the CB&S division s Know Your Customer obligations used flawed customer and country risk rating methodologies had deficient AML policies and procedures had an inadequate AML IT infrastructure lacked automated AML systems for detecting suspicious trades failed to provide adequate oversight of trades booked in the UK by traders in non-uk jurisdictions As a result, Deutsche Bank breached Principle 3 (taking reasonable steps to organise its affairs responsibly and effectively, with adequate risk management systems) of the FCA s Principles for Businesses. In addition, Deutsche Bank also breached Senior Management Arrangements, Systems and Controls (SYSC) rules 6.1.1 R and 6.3.1 R. The FCA emphasises the importance of having a strong AML control framework through its proactive supervisory programmes on AML. Firms are regularly reminded of the importance of safeguarding the UK financial system from financial crime and how to comply with AML requirements. Monthly Regulatory Update January 2017 8

Building Societies Association (BSA) Making Tax Digital HMRC has issued a response to comments on their consultation relating to making tax digital. A key issue for banks and building societies will be will be HMRC s requirement for third party providers to tell their customers that they have submitted information to HMRC. Its standard approach will be that the customer should be notified at the same time, or in advance of, the information for the tax account being submitted to HMRC. It does say that the format of the notification may depend on the provider and the type of information being submitted to HMRC. Sources 5 5 Nothing new issued by the Prudential Regulation Authority, Information Commissioners Office, Financial Ombudsman Service, Council of Mortgage Lenders, Payment Systems Regulator, HMRC, Association of Financial Mutuals, Joint Money Laundering Steering Group or National Crime Agency. Monthly Regulatory Update January 2017 9

FOR FURTHER INFORMATION CONTACT RSM Springfield House 76 Wellington Street Leeds LS1 2AY rsmuk.com The UK group of companies and LLPs trading as RSM is a member of the RSM network. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm each of which practises in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction. The RSM network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London EC4N 6JJ. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug. RSM Corporate Finance LLP, RSM Restructuring Advisory LLP, RSM Risk Assurance Services LLP, RSM Tax and Advisory Services LLP, RSM UK Audit LLP, RSM UK Consulting LLP, RSM Employer Services Limited, RSM Northern Ireland (UK) Limited and RSM UK Tax and Accounting Limited are not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. RSM Legal LLP is authorised and regulated by the Solicitors Regulation Authority, reference number 626317, to undertake reserved and non-reserved legal activities. It is not authorised under the Financial Services and Markets Act 2000 but is able in certain circumstances to offer a limited range of investment services because it is authorised and regulated by the Solicitors Regulation Authority and may provide investment services if they are an incidental part of the professional services that it has been engaged to provide. Baker Tilly Creditor Services LLP is authorised and regulated by the Financial Conduct Authority for credit-related regulated activities. RSM & Co (UK) Limited is authorised and regulated by the Financial Conduct Authority to conduct a range of investment business activities. Before accepting an engagement, contact with the existing accountant will be made to request information on any matters of which, in the existing accountant s opinion, the firm needs to be aware before deciding whether to accept the engagement. 2017 RSM UK Group LLP, all rights reserved