CONSUMERS AND INDUSTRY TO BENEFIT FROM CHANGES TO BANKING, MORTGAGE AND GENERAL INSURANCE REGIME

12 Dec 2001 04:15 PM

A better deal for consumers across a range of financial services together with a streamlining of regulation which will benefit business was announced today by Economic Secretary Ruth Kelly.

She set out the good progress made by the banks in implementing the recommendations of DeAnne Julius''s Review Group aimed at improving services to bank customers. Ruth Kelly also announced that the FSA is to regulate mortgage advice, a move called for by the Julius Group, consumer groups and industry, and, in parallel, the sale of general insurance products. These measures will ensure that a coherent regulatory framework exists.

The measures set out today will:

- Benefit millions of consumers by regularising standards and providing safeguards and minimum standards of mortgage advice;

- Benefit banking customers through easier account switching and clearer account information;

- Streamline and simplify regulation for mortgage advice and general insurance advice;

- Allow brokers to compete for insurance business in other EU countries.

Ruth Kelly said:

''Buying a mortgage is the biggest financial decision of most people''s lives, they need to get it right and high quality understandable advice is crucial. Regulation will ensure a high standard of advice is available across the board to the large number of people, 1.2 million in 2000, who take out mortgages every year. In the rare and unfortunate cases where things go wrong the Financial Ombudsman will be the single body for handling customer complaints.

''DeAnne''s review highlighted areas where improvements should be made to benefit banking customers. There has been a very constructive response with the majority of the recommendations being accepted by industry. The measures being taken forward will benefit customers, for example through making account switching easier and stimulating competition in personal banking.

''The Julius Review group argued that mortgage advice should be regulated, echoing the sentiments of many consumer groups and industry. We have listened to these views and after reviewing the policy believe regulation will bring benefits to both consumers and businesses.''

DeAnne Julius commented:

''I am delighted with the Government''s decision to regulate mortgage advice. This was supported unanimously by our Review Group, because we felt it would help both consumer and mortgage providers. I am also pleased that the banks have agreed to take on board the majority of our recommendations for changes in their self-regulatory codes. With the new cleaner process for code review I am hopeful that in due course those changes they have not yet accepted will also find favour.''

Ruth Kelly added:

''Many of the 12,500 UK mortgage brokers also sell general insurance. In order to maintain a consistent and streamlined approach, the sale of general insurance products will be regulated by the FSA. Brokers who deal in two or more lines of regulated business will deal with a single regulator, not several, and will be able to compete in European markets. Additionally the Government will look at insurance sold as part of a package with another product - for example, travel or extended warranty - to consider the implications of the new regime for them.''

''Today''s measures will benefit industry by simplifying and streamlining regulation. The watchword in developing the new frameworks will be proportionality. We and the FSA will be working closely with the industry and others to design a regime that understands the market, and is targeted precisely at maximising benefit to the consumer, and not loading industry and ultimately the consumer with unnecessary costs.''

''I am grateful to GISC and MCCB for all the hard work they have put in to raising standards in their respective industries. Today''s announcement is in no way a criticism of what both bodies have achieved. I hope that they will both be able to work closely with the FSA to ensure a seamless transition to the new regime.''

The timing and details for the implementation of regulation will be discussed with industry. It is anticipated that regulation for both mortgage and the sale of general insurance products will come into force simultaneously, following consultation by the FSA.

Notes to Editors

1. Today''s measures were announced to parliament at 3.30pm today in answer to a Parliamentary Question. The text of which is:

Barbara Follett LAB - STEVENAGE

To ask Mr Chancellor of the Exchequer, what plans he has to extend the scope of the Financial Services Authority''s responsibilities. [23124]

Ruth Kelly In the light of representations made by the industry and others and taking account of the views of the report and responses to the Banking Services Consumer Codes Review, I have decided to extend the FSA''s powers to enable it to regulate mortgage intermediaries and advice. The FSA will also be given responsibility for regulating general insurance intermediaries.

Giving the FSA powers to regulate mortgage and insurance intermediaries will streamline regulation. Intermediaries selling a range of products - general insurance, pensions, or mortgages - will all come under the FSA as single regulator, minimising compliance costs.

I intend to consult others on the appropriate transitional arrangements to ensure a smooth handover of responsibility to the FSA.

A regulatory impact assessment of the decision to give the FSA responsibility for regulating mortgage advice and general insurance intermediaries is available in the Library.

2. The Banking Services Consumer Codes Review Group reported in June 2001. The Government consulted with those to whom the report made recommendations until 30 September 2001. The recommendations and summary of responses are:

RECOMMENDATION and GENERAL INDUSTRY RESPONSE

New Standards for Account switching

Accepted the ''5 day start'' switching deadline and proposed further standards to cover the account switching process.

Portable Credit history

Further issues raised.

Customer Annual Summary Statement (CASS)

Broadly accepted.

Three Code Formats Accepted.

Biennial code reviews Accepted.

Publish Aggregate compliance data Accepted.

Publish individual institution compliance data. Further issues raised.

Universal coverage of Codes Accepted

Interim Mortgage Code Further issues raised.

Mortgage intermediaries to be covered by the Ombudsman Jurisdiction Accepted.

A better deal for those in financial difficulties Accepted

Business Banking Code (introduced by March 2002) Accepted.

Work to implement the accepted recommendations is now in hand. The process to appoint independent code reviewers is already far advanced as is work on amending the codes to improve procedures for customers in financial difficulties.

The Economic Secretary has also asked the relevant industry organisations to take forward the following pieces of work to maintain momentum in areas where queries were raised:

Account Switching

To publish an action plan of steps the industry will take to improve the end-to-end switching timescale and provide more certainty for consumers. This will require better coordination of responsibilities amongst all those involved in payment processes;

To undertake research to determine the main barriers to personal customer account switching and then to report on the most cost- effective way to remove them;

Information on code compliance

To undertake a more detailed assessment of costs and benefits of different options for publishing individual compliance information, looking at the type/number of performance indicators and how the data could be collected.

The Economic Secretary has asked the industry to undertake as much of this further work as possible to inform the final outcome of the next Banking Code review.

3. The FSA became the single statutory regulator for financial services on 30 November 2001. It replaced 10 regulatory bodies. The regulatory measures announced today build on this progress in streamlining and simplifying regulation.

4. Banks, building societies and insurance companies are prudentially regulated by the FSA and their customers are able to take complaints to the Financial Ombudsman Service (FOS). The changes will mean statutory regulation of mortgage and general insurance advice, and intermediaries in these sectors will become part of the FOS'' compulsory jurisdiction. The FSA is likely to consider, amongst other things, the following when consulting:

Training and competence requirements Conduct of business requirements Compensation and redress

5. The FSA will consult widely in developing the new regime and will work closely with standard-setting bodies in the industry, in particular the Mortgage Code Compliance Board (MCCB), set up to raise standards in the mortgage industry and with the General Insurance Standards Council (GISC), which was set up by the industry to raise standards for consumers.

The new regime would also give insurance intermediaries a ''passport'' to sell insurance products into other Member States under the Insurance Intermediaries Directive. It will cover the sales of life protection products which are not currently regulated by the FSA, as well as sales of general insurance products.

6. This press release and the report Cracking The Codes For Banking Customers can be found on-line at www.hm-treasury.gov.uk.