March 2015 Banks & building societies // Investment managers &stockbrokers Financial advisers // Wealth managers & private bankers Mortgage lenders & brokers // Insurers & insuranceintermediaries Consumer credit // Credit unions

‘...we want tomake sure thatthere areadequateprotections andinformationoffered forpeopleapproachingretirement....’

It’s a pleasure to introduce the March edition of theRegulation round-up, which looks at some of the keyissues facing firms ahead of the pension reforms inApril.

Our Business Plan 2015/16, published on 24 March, is setagainst the backdrop of the most fundamental changes tothe UK pensions landscape seen in over a generation.Following the introduction of auto-enrolment, theGovernment has introduced a series of new pensionfreedoms that will give people greater choice over theirretirement savings.

As the regulator, we want to ensure that people who arestarting to save for their retirement are enrolled intoschemes that are well-governed and offer value for money.We also want to make sure that there are adequateprotections and information offered for people approachingretirement.

Following our rules on Independent Governance Committeeslast month, we have finalised our rules on charges inworkplace pensions to protect savers from high charges andfrom paying for services they do not need. We have alsoissued a joint discussion paper with the Department forWork and Pensions to explore ways to improve the

transparency of investment transaction costs.

At the other end of the spectrum, we have introducedfurther protections for consumers wanting to access theirpension savings by requiring firms involved in the sale ofretirement income products to give additional warningstailored to those consumers. Additionally, the final report ofour Retirement Income market study confirms our interimfindings on the market and the remedy proposals we will betaking forward this year.

We look forward to working with firms and Governmentpartners as we approach this challenging but exciting newfrontier in retirement savings.

Hot topic: Our 2015/16 Business Plan and Risk OutlookOn 24 March, we published our Business Plan 2015/16,setting out the key areas of work we will undertake in theforthcoming financial year. We have produced this video toprovide a brief summary of this year's Business Plan.

This year’s Business Plan follows on from our announcementin December 2014, where we said we would be sharpeningour focus and taking a more markets-led approach. Toenable us to do this, we will make better use of intelligence,data and analysis to prioritise our activity on fewer but high-impact pieces of work. Our strategy now places moreemphasis on sector and market-wide analysis. This will putus in a stronger position to identify and address the risksoutlined in the Risk Outlook.

During 2015/16 our priorities will cover the following areas,alongside our business as usual activities. They are:

Market approach (inc. market studies, thematicreviews, wholesale market integrity and competition)Protecting consumers (inc. consumer credit andpensionsIndividual accountability (inc. culture, seniormanagers and certified regime, remuneration)International issues (inc. engaging with the EUagenda and financial crime)Our people (investing in our staff, diversity andinclusion)

We have also published a timetable for ongoing and new

thematic reviews, market studies and current EU initiativesfor 2015/26. This can be downloaded here.

Alongside the Business Plan, we have set out details of thetwo divisions that will undertake our supervisory andauthorisations work, each led by a director who will sit onthe Executive Committee.

Supervision Investment, Wholesale and Specialists will beled by Tracey McDermott, whilst Linda Woodall will head upthe Retail and Authorisations Division as acting Director. OurApril edition of Regulation round-up will provide more detailof these changes, which formalise the integration ofsupervision and authorisation announced as part of our newstrategy.

Hot topic: Performance managementA firm's approach to performance management is a keydriver of culture, and we expect customers' interests to beat the heart of how firms do business. The role of culture isa key part of the six consumer outcomes.

There can be pressure from challenging and stretchingobjectives and regular discussions about progress againstobjectives, which is not unexpected in any job. Where poorperformance management practices exist, staff canexperience undue pressure regarding sales results, whichcan cause mis-selling.

We have seen an increase in the level of intelligence aboutpoor performance management practices at different typesof firms. We have not identified evidence of widespreadissues but we have identified instances of poor practice. Wehave not undertaken a programme of direct assessments ofhow firms manage performance.

It is not our role to prescribe how firms manage theperformance of their staff but we expect firms to managethe risk effectively.

Our forward-looking report highlights good and poorpractice, and we are also consulting on draft guidance tohelp firms to:

satisfy themselves that the risk of mis-selling fromperformance management can be, and is being,managedmonitor performance management in practice andlook for indicators of undue pressure to identify poorpractices, including encouraging staff to providefeedback and taking appropriate action

This applies to all firms with staff who deal directly withretail customers, giving advice, undertaking sales orproviding a service, and where performance managementpractices are in operation.

It does not apply where the business owners are the onlyindividuals selling products or services, or providing adviceto retail customers (e.g. sole traders, partners or directors).The approaches your firm might take to manage these riskswill depend on the nature, scale and complexity of yourfirm's business.

Banks & building societies Investment managers &stockbrokers (retail &wholesale)

Improving responsibility andaccountability in the bankingsectorWe have confirmed our approach toimproving individual responsibility andaccountability in the banking sector bypublishing feedback that sets out howwe will implement the Senior ManagersRegime (SMR). We also provide furtherinformation on our plans for theCertification Regime (CR) and newConduct Rules. These policies aresignificant and will make it easier forfirms and regulators to hold individualsto account. Martin Wheatley also spokein relation to these publications, 'Nothing to fear from high standards'.

Governance of structuredproductsOur discovery work of retail andwholesale firms found weaknesses insome of their approaches to productgovernance. Firms need to match

Governance of structuredproductsOur discovery work of retail andwholesale firms, found weaknesses insome of their approaches to productgovernance. Firms need to matchproduct design with customer needs,demonstrate product value throughrobust stress-testing and providepotential customers with clear, balancedinformation on the product and anyrisks. Firms must do more to putcustomers at the heart of theirapproach.

DP: MiFID II We focus on the areas where we havepolicy changes to make on how MiFID IIis implemented in the UK. These includefor example: apply MiFID provisions toinsurance-based investment products,incorporate MiFID II's investor protectionmeasures for structured deposits intoour Handbook, MiFID II's approach toadviser independence and, how costs

product design with customer needs,demonstrate product value throughrobust stress-testing, and providepotential customers with clear, balancedinformation on the product and anyrisks. Firms must do more to putcustomers at the heart of theirapproach.

Governance of mortgagelendingWe have published a paper thathighlights the key findings of thethematic work that assessed the qualityof firms' governance from a conductperspective when setting or amendingmortgage-lending strategies. Effectivegovernance ensures that strategicdecision-making is challenged from acustomer perspective, and helps firms tobalance commercial objectives withgood customer outcomes. We provide alist of questions that may help firms toconsider good customer outcomes ateach stage of the mortgage lendingstrategy process.

Occasional paper: ConsumervulnerabilityOur research revealed that somevulnerable consumers seeking help fromfinancial providers are meeting 'acomputer says no' approach, puttingthem at risk of further harm. Our OP isthe first step in a conversation with firmsto determine how the regulator andindustry can work together to addressissues around vulnerability.

The impact of annualsummaries, text alerts andmobile apps on consumerbanking behaviourWe launched a paper on overdrafts andthe impact of annual summaries, textalerts and mobile banking apps in thepersonal current account industry.Analysis of some 300m observationsshows annual summaries have noinfluence at all on consumer behaviourin terms of avoiding overdraft charges,improving balance levels, or promptingswitching between providers. However,text alerts and mobile banking appsseem to reduce the amount ofunarranged overdraft charges incurredby customers by 5% to 8%. While forthose who take advantage of both, theeffect is a much larger 24% reduction.

Speech: The Evolution of theMortgage MarketAt the Mortgage Finance GazetteConference, Linda Woodall made some

and charges disclosure could beimplemented. We encourage firms torespond as it will inform our consultationlater this year. MiFID II will come intoeffect on 3 January 2017.

Speech: From intellectualcertainty to debateAt AFME's Annual European LiquidityConference, Martin Wheatley's speechfocused on the wholesale arena,specifically the Fair and EffectiveMarkets Review (FEMR), FX, MiFID IIand our wholesale competition review.

FCA Prudential SupervisionForumWe are holding the first FCA PrudentialSupervision Forum on Wednesday 13May 2015. Our prudential approach, forthose firms we prudentially regulate, isto minimise harm to consumers andmarkets arising from financial strain andfailure. The aim of the forum is to:

share our vision on prudentialsupervisionshare risk management practicesin identifying prudential riskswithin firmsgather views from industryparticipants to feed into ourprudential strategy and approachinform the industry of recentlyissued regulation

PS: Additional benchmarks The benchmarks being brought intoscope are: Sterling Overnight IndexAverage (SONIA), RepurchaseOvernight Index Average (RONIA),ISDAFIX (soon to be renamed the ICESwap Rate), WM/Reuters (WMR)London 4pm Closing Spot Rate, LondonGold Fixing (soon to be replaced by theLBMA Gold Price), LBMA Silver Priceand ICE Brent Index.

observations on what life looks likealmost one year on from the MortgageMarket Review and some of thechallenges still facing the industry. Shealso talked about Project Innovate andhighlighted the major changes resultingfrom the Mortgage Credit Directive -particularly regarding second chargesand consumer Buy to Let.

CP: GI add-ons Remedies This consultation paper follows ourGeneral Insurance Add-ons marketstudy, which found that competition inadd-on markets does not always work inthe interests of consumers. Theconsultation focuses on the tworemedies designed to address some ofthe issues we found with the add-onmechanism, by proposing rules andguidance, namely:

banning opt-out sellingimproving product informationprovision in relation to generalinsurance add-ons.

We will consult separately on ourproposals for introducing a measure ofmonetary value for general insuranceproducts, including the option ofrequiring the publication of claims ratiosfor these products.

Financial advisers Wealth managers & privatebankers

Governance of structuredproductsOur discovery work of retail andwholesale firms found weaknesses insome of their approaches to productgovernance. As distributors of structuredproducts, you should understand theproduct and know the target market theywere designed for. Manufacturers arerequired to carry out their own duediligence on distributors, which caninclude monitoring whether thestructured product is reaching its targetaudience.

Retirement risk warnings We have published new rules that willhelp to protect consumers wanting toaccess their pension savings from 6April 2015, by requiring firms involved inthe sale of retirement income products

DP: MiFID II We focus on the areas where we havepolicy changes to make on how MiFID IIis implemented in the UK. These includefor example: apply MiFID provisions toinsurance-based investment products,incorporate MiFID II’s investor protectionmeasures for structured deposits intoour Handbook, MiFID II’s approach toadviser independence and, how costsand charges disclosure could beimplemented. We encourage firms torespond as it will inform our consultationlater this year. MiFID II will come intoeffect on 3 January 2017.

Governance of structuredproductsOur discovery work of retail andwholesale firms, found weaknesses insome of their approaches to product

to give additional warnings tailored tothose consumers. The new personalised'risk warnings' must now be given tocustomers when they contact a firm toaccess their pension savings. Theinformation will support the guidance bythe Government’s Pension Wise service.One of the key purposes is toencourage people, who have chosennot to seek regulated advice, to considertheir options carefully before making anirreversible decision.

PS: Charges in workplacepersonal pension schemesWe have confirmed our final rules, whichwill require firms operating workplacepension schemes to implement a chargecap for default funds used for automaticenrolment. Under the new rules firmswill also be prevented from paying orreceiving consultancy charges andpaying commission for advice notexpressly agreed by scheme members.Firms will also be prevented fromcharging active and deferred membersof schemes differently, based onwhether they are contributing to thescheme or not.

DP: Transparency oftransaction costs of workplacepensionsWe have issued a joint Call for Evidencewith the Department for Work andPensions. It explores:

how improved transparency inthe reporting of information aboutthe transaction costs andcharges incurred by members ofworkplace pension schemes canbe achievedwhat costs should be included intransaction costs reportingthe basis on which costs shouldbe captured and reportedwhether other factors thatinfluence investment returnsshould also be providedhow Independence GovernanceCommittees (IGCs) and trusteeswill receive transaction costinformation and whetheradditional disclosurerequirements on other parties arenecessary to enable thiswhen, how and in what formatinformation should be providedand to whom.

governance. As distributors of structuredproducts you should understand theproduct and know the target market theywere designed for. Manufacturers arerequired to carry out their own duediligence on distributors, which caninclude monitoring whether thestructured product is reaching theirtarget audience.

CP: Pension Wise -recommendation policyIn the 2014 Budget the Governmentannounced reforms to retirementoptions. These proposed that allconsumers with Defined Contribution(DC) pensions should be entitled toaccess free impartial guidance atretirement about their options whenaccessing their pension savings – the‘Guidance Guarantee’. This has recentlybeen launched under the brand PensionWise and becomes operational from 6April 2015. In November, we publishedstandards for the Treasury’s designatedguidance providers to meet in deliveringPension Wise.

We are required to monitor thedesignated guidance providers’compliance with our standards and,where providers have breached them, tomake recommendations to thedesignated guidance providers and theTreasury where appropriate. In thePolicy Statement in November weoutlined our proposed approach tomonitoring and said we would consulton a policy on recommendations. Weare now consulting on our policy formaking recommendations to thedesignated guidance providers and tothe Treasury. We also include furtherinformation on our approach tomonitoring guidance service providers.

MS: Retirement income marketstudyWe have published the final report of ourRetirement income market study. Weconsulted on our provisional findingsand proposed remedies, with thefeedback received being largelysupportive. We have also stayed closeto market developments since thepublication of the interim report. Thefinal report summarises both theconsultation feedback and marketdevelopments. We have refined, but notfundamentally altered, our thinking andare confirming that our findings are finaland we will be taking our remedyproposals forward, with furtherconsultation on design andimplementation where appropriate. Thisnext phase of our work will form part ofour wider review of our rules in thepension and retirement area in summer2015.

DP: MiFID II We focus on the areas where we havepolicy changes to make on how MiFID IIis implemented in the UK. These

include, for example: apply MiFIDprovisions to insurance-basedinvestment products, incorporate MiFIDII’s investor protection measures forstructured deposits into our Handbook,MiFID II’s approach to adviserindependence and, how costs andcharges disclosure could beimplemented. We encourage firms torespond as it will inform our consultationlater this year. MiFID II will come intoeffect on 3 January 2017.

PS: Independent GovernanceCommitteesIn February 2015 we published our finalrules for Independent GovernanceCommittees (IGCs), including feedbackon our consultation paper 14/16. Somefirms have asked whether these rulesapply to the providers of Group SIPPswhich are not insured schemes. Thequestion has arisen because therequirement to establish and maintainan IGC applies to a firm which operatesa relevant scheme in which there are atleast two 'relevant policyholders'. Wecan clarify that our definition of 'relevantpolicyholder' does include members ofschemes which are not insuredschemes and therefore our rules mayapply to the providers of Group SIPPswhich are not insured schemes.Providers of smaller and less complexschemes may wish to considerGovernance Advisory Arrangements(GAAs) as a proportionate alternative toIGCs.

Mortgage lenders & brokers Insurers & insuranceintermediaries

Governance of mortgagelendingWe have published a paper thathighlights the key findings of thethematic work which assessed thequality of firms’ governance from aconduct perspective, when setting oramending mortgage-lending strategies.Effective governance ensures thatstrategic decision-making is challengedfrom a customer perspective, and helpsfirms to balance commercial objectiveswith good customer outcomes. Weprovide a list of questions that may helpfirms to consider good customeroutcomes at each stage of the mortgagelending strategy process.

Retirement risk warnings We have published new rules that willhelp to protect consumers wanting toaccess their pension savings from 6April 2015, by requiring firms involved inthe sale of retirement income productsto give additional warnings tailored tothem. The new personalised 'riskwarnings' must now be given tocustomers when they contact a firm toaccess their pension savings. Theinformation will support the guidance bythe Government’s Pension Wise service.One of the key purposes is toencourage people who have chosen notto seek regulated advice, to considertheir options carefully before making an

Speech: The Evolution of theMortgage MarketAt the Mortgage Finance GazetteConference, Linda Woodall made someobservations on what life looks likealmost one year on from the MortgageMarket Review and some of thechallenges still facing the industry. Shealso talked about Project Innovate andhighlighted the major changes resultingfrom the Mortgage Credit Directive –particularly regarding second chargesand consumer Buy to Let.

irreversible decision.

PS: Charges in workplacepersonal pension schemesWe have confirmed our final rules whichwill require firms operating workplacepension schemes to implement a chargecap for default funds used for automaticenrolment. Under the new rules firmswill be prevented from paying orreceiving consultancy charges andpaying commission for advice notexpressly agreed by scheme members.Firms will also be prevented fromcharging active and deferred membersof schemes differently based on whetherthey are contributing to the scheme ornot.

DP: Transparency oftransaction costs of workplacepensionsWe have issued a joint Call for Evidencewith the Department for Work andPensions. It explores:

how improved transparency inthe reporting of information aboutthe transaction costs andcharges incurred by members ofworkplace pension schemes canbe achievedwhat costs should be included intransaction costs reportingthe basis on which costs shouldbe captured and reportedwhether other factors thatinfluence investment returnsshould also be providedhow Independence GovernanceCommittees (IGCs) and trusteeswill receive transaction costinformation and whetheradditional disclosurerequirements on other parties arenecessary to enable thiswhen, how and in what formatinformation should be providedand to whom.

CP: Pension Wise -recommendation policyIn the 2014 Budget the Governmentannounced reforms to retirementoptions. These proposed that allconsumers with Defined Contribution(DC) pensions should be entitled toaccess free impartial guidance atretirement about their options whenaccessing their pension savings – the‘Guidance Guarantee’. This has recentlybeen launched under the brand Pension

Wise and becomes operational from 6April 2015. In November, we publishedstandards for the Treasury’s designatedguidance providers to meet in deliveringPension Wise.

We are required to monitor thedesignated guidance providers’compliance with our standards and,where providers have breached them, tomake recommendations to thedesignated guidance providers and theTreasury where appropriate. In thePolicy Statement in November weoutlined our proposed approach tomonitoring and said we would consulton a policy on recommendations. Weare now consulting on our policy formaking recommendations to thedesignated guidance providers and tothe Treasury. We also include furtherinformation on our approach tomonitoring guidance service providers.

MS: Retirement income marketstudyWe have published the final report of ourRetirement income market study. Weconsulted on our provisional findingsand proposed remedies, with thefeedback received being largelysupportive. We have also stayed closeto market developments since thepublication of the interim report. Thefinal report summarises both theconsultation feedback and marketdevelopments. We have refined, but notfundamentally altered, our thinking andare confirming that our findings are finaland we will be taking our remedyproposals forward, with furtherconsultation on design andimplementation where appropriate. Thisnext phase of our work will form part ofour wider review of our rules in thepension and retirement area in summer2015.

CP: GI add-ons Remedies This consultation paper follows ourGeneral Insurance add-ons marketstudy, which found that competition inadd-on markets does not always work inthe interests of consumers. Theconsultation focuses on the tworemedies designed to address some ofthe issues we found with the add-onmechanism, by proposing rules andguidance, namely:

banning opt-out selling, andimproving product informationprovision in relation to generalinsurance add-ons

We will consult separately on ourproposals for introducing a measure ofmonetary value for general insuranceproducts, including the option ofrequiring the publication of claims ratiosfor such products.

PS: Independent GovernanceCommitteesIn February 2015 we published our finalrules for Independent GovernanceCommittees (IGCs), including feedbackon our consultation paper 14/16. Somefirms have asked whether these rulesapply to the providers of Group SIPPswhich are not insured schemes. Thequestion has arisen because therequirement to establish and maintainan IGC applies to a firm which operatesa relevant scheme in which there are atleast two 'relevant policyholders'. Wecan clarify that our definition of 'relevantpolicyholder' does include members ofschemes which are not insuredschemes and therefore our rules mayapply to the providers of Group SIPPswhich are not insured schemes.Providers of smaller and less complexschemes may wish to considerGovernance Advisory Arrangements(GAAs) as a proportionate alternative toIGCs.

Consumer credit Credit unions

The impact of annualsummaries, text alerts andmobile apps on consumerbanking behaviourWe launched a paper on overdrafts andthe impact of annual summaries, textalerts and mobile banking apps in thepersonal current account industry.Analysis of some 300m observationsshows annual summaries have noinfluence at all on consumer behaviourin terms of avoiding overdraft charges,improving balance levels, or promptingswitching between providers. However,text alerts and mobile banking appsseem to reduce the amount ofunarranged overdraft charges incurredby customers by 5% to 8%. For thosewho take advantage of both, the effect isa much larger 24% reduction.

Credit Union Annual ComplaintsReturns due by 30 AprilCredit union annual complaints returnsare due to be submitted to us by 30 Apriland should cover the period from 1 April2014 to 31 March 2015. Whencompleting your return, please checkthat your firm is reporting for the correctreporting period and using the currentform, as some credit unions have beenusing an old form and reporting for thewrong period. Details of credit unioncomplaints reporting responsibilities canbe found in CREDS Chapter 9, and thecurrent reporting form is attached toannex 1 of the chapter.

Completed returns should be sent as apdf to Regulatory.Reports@fca.org.ukor alternatively sent by post to DataServices Team, Data and Analysis

CP: Changes to our rules andguidanceIt is nearly a year since we took overresponsibility for consumer credit. Inresponse to feedback, we are proposinga number of changes covering creditbroking, debt issues and second chargemortgages.

Consumer credit roadshows We have recently held roadshows inScotland and Belfast and will be holdingroadshows in London, Manchester andBirmingham throughout the rest ofMarch and April. While the events arenow at full capacity, we will also beholding a live webinar for firms wishingto ask questions of a panel of experts on17 April. Further information will be onour website.

Department, the Financial ConductAuthority, PO Box 35747, London, E145HS. If you have any queries aboutcompleting your return, please get intouch with our Customer Contact Centre.

St Machar Credit Union’s use ofpersonal accountsSt Machar Credit Union (SMCU) set uppersonal accounts with six banks in thename of an employee − rather than anaccount in the name of SMCU − andused them to facilitate faster paymentsto members between 2009 andDecember 2014. SMCU failed toconsider the risks associated with suchan arrangement, which included the lossof control and/or legal rights to moniesonce the funds had been transferred tothe personal accounts. Working with usto resolve the issue, SMCU has given avoluntary undertaking not to usepersonal bank accounts to facilitatecredit union business, and will ensurethat all credit union monies are paidthrough accounts held in the name of StMachar Credit Union.

March news round-up Events & publications

ScamSmart campaign This week we launched the second phase ofour ScamSmart campaign. Timed to coincidewith the launch of the pension reforms, ourcampaign aims to help people spot thewarning signs of investment scams.

The Pensions Regulator is also raisingawareness with trustees, firms andconsumers through their 'Scorpion'campaign. You can find out more about theircampaign, and download useful guides here.

FCA Prudential Supervision Forum We are holding the first FCA PrudentialSupervision Forum on Wednesday 13 May2015. Our prudential approach, for thosefirms we prudentially regulate, is to minimiseharm to consumers and markets arising fromfinancial strain and failure. The aim of theforum is to:

share our vision on prudentialsupervisionshare risk management practices inidentifying prudential risks within firmsgather views from industryparticipants to feed into our prudentialstrategy and approachinform the industry of recently issued

regulation

Financial promotions on socialmedia: finalised guidanceThe finalised guidance on social mediaintends to help firms understand how theycan use these media and comply with ourrules. We also remind firms that our rules areintended to be media-neutral, to ensure thatconsumers are presented with fair andbalanced information at each stage of thecustomer journey.

How we handle disclosures fromwhistleblowersOur publication aims to give individuals whowish to understand how we engage withwhistleblowers, what we do with theirinformation and their impact on our work.

CP: Fees Our annual funding requirement for 2015/16will be £481.6m, up 8.4%. We will use this todeliver the programme of work set out in our2015/16 business plan, the development ofour information systems and the continuingneed to invest in our people. The minimumfee which will increase to £1084 from £1000.In addition we have proposed fees for firmsoffering consumer credit and the pensionguidance levy.

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