In his new regular column, the CII's David Thomson provides an update on the key regulatory events of the past few weeks and takes a look at what can be expected next.
As we are all living longer – the number of UK centenarians increased from 2,600 in 1981 to 14,600 in 2012, according to the Office for National Statistics – the provision for care in later life has risen higher up the political agenda.
The Long Term Care Bill seeks to introduce a cap on the cost of social care and give carers the legal right to support from their local council. The Bill has now completed its passage through the House of Lords and has moved to the Commons.
It has been amended so that local authorities will have to identify those individuals that would benefit from financial advice and to consider how they might access ‘independent’ financial advice. In this context, ‘independent’ means independent of the local authority – confusing, perhaps, considering its definition in the context of financial advice.
Regulation: Hot topics
There had been calls from a number of Lords, including Lord Lipsey (president of the Society of Later Life Advisers), to have local authorities facilitate access to regulated advice, which would help ensure that consumers receive high quality, appropriate and accurate advice.
The government resisted putting this in the Bill itself but agreed that the issue of regulated advice would be covered in subsequent statutory guidance, which will be issued to local authorities. This is good news as it will, over time, be a powerful spur to consult a specialist in long-term care.
Clean share classes
The end of October also saw the Financial Conduct Authority (FCA) issue a consultation on guidance around changing customers to post-Retail Distribution Review (RDR) – or clean – unit classes. This concerns the transfer of investors in authorised funds from pre-RDR unit classes to clean unit classes and follows queries from stakeholders, as well as some uncertainty about how to convert investors to the new unit classes.
The guidance covers a number of issues, including whether conversions can happen in bulk instead of individually, whether advice is needed and the role of advisers in the conversion process.
Following the transition from the Financial Services Authority (FSA) to the FCA, ‘cultural change’ in financial services has become much talked about. On 24 October, Martin Wheatley, chief executive of the FCA, gave a speech at Mansion House.
The speech centred on the concept of ‘fairness’ in finance – in particular, the importance of culture and accountability. Wheatley set out how the FCA will work to anticipate rather than react to future problems with ‘forward looking’ being its new mantra. On ethical practice, he said that, rather than be prescriptive, the FCA will place greater emphasis on good judgement, not narrow compliance.
Mortgage Market Review
Another hot topic currently is the Mortgage Market Review (MMR), which started with a discussion paper in 2009 and culminated in a policy statement and final rules in October 2012.
The most recent development has been the publication of the findings of the MMR readiness survey. Results show that two thirds are on track to meet the new requirements.
The second, and final, readiness survey will be sent to firms in December. This is increasingly important in a part of the market which is changing from its current dormant status as the economy improves.
Finally, the Department for Work and Pensions has published a consultation on the issue of commission charges on workplace pensions. This is in response to worries that workers, especially those in smaller firms, will lose out as firms are unable to secure lower charges.
Proposals include improving the disclosure of information about charges (through measures such as ensuring the disclosure of transaction costs) and taking action on high or unfair charges.
As part of this, the government is proposing a cap on charges for auto-enrolment default funds. Three options have been put forward: a charge cap of 1%, 0.75% or a two-tier ‘comply or explain’ cap (a higher cap of 1% would be available to employers who explained to The Pensions Regulator the reason for charges in excess of 0.75%). The consultation closes on 28 November.
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