Supplementary memorandum submitted by
Financial Services Authority
A. INTRODUCTION
1. When we gave evidence to the Committee
on 16 September, we undertook to provide further information in
a number of areas. This memorandum covers:
— changes to the Markets in Financial
Instruments Directive (MIFiD);
— the Distance Marketing Directive
and financial services;
— suggestions by the ABI of contradictory
regulatory requirements in the Financial Services Action Plan;
and
— an update on companies time barring
mortgage endowments complaints.
B. MARKETS IN
FINANCIAL INSTRUMENTS
DIRECTIVE
2. The Committee asked us about the unhelpful
outcome of the ECOFIN vote on the MIFiD on 7 October 2003 and
subsequent amendments made to the Directive during legislative
stages in the Parliament. The Parliament played a very valuable
role in raising the concerns of HM Treasury, the FSA and industry
participants, particularly on the issue of pre-trade transparency
(Article 27).
3. The Parliament's view was influential
in reaching the final compromise on this issue. HM Treasury negotiators,
supported by the UK Permanent Representative and the FSA, also
lobbied fellow member states extensively to help achieve a significant
improvement on the original ECOFIN text. As a result, the pre-trade
transparency provision was amended to reduce the adverse impact
on London's wholesale markets. We are satisfied with this outcome.
C. DISTANCE MARKETING
DIRECTIVE
4. The Committee asked us to confirm that
financial services sold exclusively by distance means of communication,
such as the telephone, are subject to the requirements of the
Distance Marketing Directive (DMD). That is correct. Article 1
of the DMD says: "The object of this Directive is to approximate
the laws, regulations and administrative provisions of the Member
States concerning the distance marketing of consumer financial
services."
5. The Committee also asked us to respond
to paragraph a(i) of the APCIMS submission, which alleges that
the UK has not implemented the DMD properly, in that it has applied
the Directive's provisions in the area of cancellation, despite
the fact that there is an available exemption, and that this approach
to implementation has caused firms unnecessary expense.
6. The APCIMS submission confuses the DMD's
requirements in the area of disclosure with its provisions on
cancellation. In the area of cancellation, the right of withdrawal
does not apply to distance contracts for "financial services
whose price depends on fluctuations in the financial market outside
the supplier's control". Services where cancellation rights
do not have to be provided include the purchase of foreign exchange,
money market instruments, transferable securities, etc. We have
implemented these provisions in a way which is consistent with
the Directive, which does not require cancellation rights to be
given in these situations.
7. The DMD also requires firms to provide
consumers with information about the financial service before
they enter into a distance contract. These provisions apply to
all distance contracts, regardless of whether or not cancellation
rights have to be given. We have amended our Handbook to implement
these requirements.
8. APCIMS raises a question about the cost
of implementing the DMD. In order to implement this Directive
we have had to amend our Handbook of Rules and Guidance. Inevitably,
there will be some cost to firms in having to comply with these
changes, but the process of consultation and CBA has kept costs
as low as possible, consistent with our obligation to comply with
the Directive's requirements.
9. HM Treasury and the Inland Revenue, not
the FSA, are responsible for the Savings Tax Directive.
D. ABI AND CONTRADICTORY
REGULATORY REQUIREMENTS
IN THE
FSAP
10. The AIM says in its written evidence
that the FSAP seems likely to bring "significant new costs,
mainly as a result of overlapping, and sometimes contradictory,
regulatory requirements". It does not give any examples in
support of this claim.
11. In the absence of specific detail, it
is not entirely clear what point the ABI has in mind. It is true
that certain regulatory requirements are dealt with in a number
of FSAP directives—for example, the Distance Marketing Directive,
the Prospectus Directive and the Markets in Financial Instruments
Directive all contain disclosure requirements. We are not aware
of any specific contradictions in this respect and, as we said
in our oral evidence, the aim of the FSAP is to bring greater
conformity and consistency across Europe. However, as we note
in paragraph 41 of our written evidence, ironing out ambiguities
stemming from compromise positions in a number of existing, non-FSAP
directives, including the E-Commerce Directive, would make a useful
contribution to creating a more certain legal environment in which
business can undertake financial services within the EU.
12. In this regard the Committee may be
aware of the report last year for the Foreign Office by Robin
Bellis, which makes several valuable recommendations for improving
the quality of EU legislation, as well as the joint response of
HM Treasury, the FSA and the Bank of England to the reports of
the four independent expert groups,
which was published earlier this month, and which
emphasises the importance of evidence based policy making. It
is available at:
http://www.hm-treasury.gov.uk/media/1B4/D3/1B4D3E5A_CDC_D4B3_14E1EB2D499571C2.pdf;
and the Bellis Report is available at:
http://www.fco.gov.uk/Files/kfile/EUBellis.pdf
E. TIME BARRING
13. As at 4 October 2004 15 out of 20 major
firms were not relying on time bars, in some form, to reject mortgage
endowment complaints, compared to 13 firms when we last updated
the committee in July.
14. Of these 15 firms, five are actively
reviewing their positions in this area. The Committee asked specifically
about the position of Aviva. They are planning to introduce time
bars from March 2005; they are giving policyholders at least 12
months notice of their time running out.
15. Twelve of the firms currently not time
barring have given us permission to disclose their names. These
are listed as Annex A. Of the five other major firms who are applying
time bars, most have indicated that they will look at the individual
merits of particular cases and will consider exceptional circumstances.
Annex
FIRMS NOT APPLYING A TIME BAR IN RELATION
TO MORTGAGE ENDOWMENT COMPLAINTS AS AT 4 OCTOBER 2004
| Barclays | Britannia
|
| Lincoln | Standard Life |
| Bradford and Bingley | CIS |
| HSBC | Aviva |
| Prudential | L&G |
| Nationwide | Royal London |
| |
| 
