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Financial Services Law Insights and Observations


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  • U.K. FSA Seeks Comments on New Consumer Credit Regulatory Regime

    Federal Issues

    On March 6, the U.K. Financial Services Authority (FSA) issued a consultation paper (CP) to outline the regulatory regime for consumer credit markets after its regulatory powers transfer to the Financial Conduct Authority (FCA). The FCA is a new regulatory body that will succeed the FSA later this year, and will assume regulatory responsibility over the U.K.’s consumer credit and retail markets regulatory responsibilities. In addition to those markets, the FCA also will regulate conduct in wholesale markets, supervise the trading infrastructure that supports retail and wholesale markets, and prudentially regulate firms not regulated by the new Prudential Regulatory Authority. The CP outlines (i) the supervision of and reporting by covered firms, (ii) the interim permission for OFT license holders to continue operations, (iii) the supervision of credit advertising being subject to the Financial Services and Markets Act financial promotions regime, (iv) prudential requirements for debt management firms, (v) the Consumer Credit Act provisions that survive under the new FCA credit regime, and (vi) the sources of funding for the regime. Comments on the proposal are due by May 1, 2013.

    UK Regulatory Reform UK FSA

  • U.K. FSA Fines Banks for Slow Response to Payment Protection Insurance Customer Complaints

    Federal Issues

    On February 19, the U.K.’s Financial Services Authority announced a fine against three related banks for failing to promptly redress customers lodging complaints about the banks’ payment protection insurance (PPI) product. The FSA states that over a 10 month period, the bank failed to pay redress within the FSA-required 28-day period for nearly a quarter of the banks’ customers who submitted complaints regarding PPI, with some customers waiting over six months for payment. The FSA states that its investigation revealed (i) the banks failed to establish an adequate process for preparing redress payments to send to PPI complainants; (ii) bank staff engaged on the redress process did not have the collective knowledge and experience to ensure that the process worked properly; (iii) the banks failed to effectively track PPI redress payments; (iv) the banks failed to monitor effectively whether they were making all payments of PPI redress promptly and did not gather sufficient management information to identify, in a timely manner, the full nature and extent of the payments failings; and (v) the banks’ approach to risk management when preparing redress payments to send to PPI complainants was ineffective. The FSA has been active in addressing PPI issues. Last month, the FSA and the Office of Fair Trading jointly published final guidance to help prevent the problems associated with PPI recurring in a new generation of products. The FSA’s guidance for payment protection products within its jurisdiction stresses that firms should ensure that product features reflect the needs of the consumers they are targeting. It describes the importance of (i) identifying the target market for protection products; (ii) ensuring that the cover offered meets the needs of that target market; and (iii) avoiding the creation of barriers to comparing, exiting or switching cover.

    UK FSA Ancillary Products

  • FDIC Proposes Amended Definition of Insured Deposits

    Consumer Finance

    On February 12, the FDIC approved a proposed rule that would amend its deposit insurance regulations to clarify that deposits in foreign branches of U.S. banks are not FDIC-insured. The U.K. Financial Services Authority (FSA) has proposed a rule to prohibit banks from non-European Economic Area countries from operating deposit-taking branches in the U.K. unless U.K. depositors in such branches would be on an equal footing in the national depositor preference regime with home-country (uninsured) depositors if a bank were to fail and require a resolution. The FDIC believes that U.S. banks seeking to comply with the FSA proposal likely will change their U.K. deposit agreements so that the deposits are payable both in the U.K. and in the U.S. The proposed FDIC rule is intended to protect the Deposit Insurance Fund against the potential resulting liability that the FDIC could face as a deposit insurer for customers of foreign branches of U.S.-based insured depository institutions. While deposits at foreign branches of U.S. banks would not be insured, they could be treated as deposits for purposes of national depositor preference laws. The proposed rule would not affect deposits in overseas military banking facilities governed by regulations of the Department of Defense. The FDIC is seeking comment on all aspects of the proposal within 60 days of its publication in the Federal Register.


  • DOJ Announces Criminal Charges and Penalties for LIBOR Manipulation, Regulators Announce Parallel Civil Enforcement Actions

    Financial Crimes

    On February 6, U.S. and U.K. authorities announced that a Japanese financial institution and its British bank parent company agreed to pay roughly $612 million to resolve criminal and civil investigations into the firms’ role in the manipulation of the London Interbank Offered Rate (LIBOR), a global benchmark rate used in financial products and transactions. The U.S. DOJ announced that the Japanese firm agreed to plead guilty to felony wire fraud, admit its role in in the manipulation scheme, and pay a $50 million fine. In addition, the DOJ filed a criminal information and deferred prosecution agreement (DPA) against the parent company for its role in manipulating LIBOR rates and participating in a price-fixing conspiracy in violation of the Sherman Act. As a result, the parent company agreed to pay an additional $100 million penalty, admit to specified facts, and continue to assist the DOJ with its ongoing investigation. The DPA acknowledges the remedial measures undertaken by the bank’s management to enhance internal controls, as well as additional reporting, disclosure, and cooperation requirements undertaken by the bank. Domestic and foreign regulators also announced penalties and disgorgement to resolve parallel civil investigations, including a $325 million penalty obtained by the CFTC, and a $137 million penalty imposed by the U.K. Financial Services Authority.


  • UK FSA Fines Bank for Inaccurate Mortgage Records

    Federal Issues

    On October 19, the UK FSA announced that it fined a bank £4.2 million ($6.7 million) for failing to keep accurate records regarding 250,000 mortgages it was servicing. In monitoring a consumer forum website, the FSA found that certain of the bank’s borrowers had complained of being excluded from a bank program meant to remedy a separate problem. Upon investigation, the FSA determined that the bank held its mortgage information on two separate unaligned systems. The FSA also identified problems with two other processes where manual updates were not always carried out. The FSA claimed that, as a result of its recordkeeping practices, the bank relied on incorrect records for certain of its mortgages over a seven-year period. Because the bulk of the alleged misconduct occurred before the FSA’s new penalty framework came into force in March 2010, the penalty was assessed under the prior regime. Further, since the bank agreed to settle at an early stage of the investigation, it qualified for a 30% discount pursuant to the FSA’s executive settlement procedures.

    Mortgage Origination UK FSA

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