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CMCs become FCA regulated: This week in regulation

08/04/19

The speed read

  • Rise in standards expected as CMCs become FCA regulated
  • Review to ensure mini-bonds investor protection
  • Speech: Creating effective stewardship

Rise in standards expected as CMCs become FCA regulated

1st April marked the start of FCA regulation of claims management firms (CMCs). CMCs will now have to apply for FCA authorisation, with 900 firms currently registered for temporary permissions while awaiting authorisation. The FCA will use its range of tools and powers to ensure firms comply with the rules and CMCs will have to demonstrate continuing commitment to meeting the FCA’s minimum standards.

FCA requirements include:

  • Rules preventing firms from encouraging customers to make claims without sound basis
  • Clearer information on fees and services
  • Informing customers of free alternatives such as FOS and FSCS
  • Recording and retention of customer telephone calls.

The expectation from this new regulatory environment is a rise in standards with better protection for consumers and improved professionalism within the claims management sector.

 

Review to ensure mini-bonds investor protection

An independent review will investigate whether purchasers of mini-bonds are adequately protected by the current regulatory system following the collapse of an investment firm at the centre of a £236m scandal . The review will look at both FCA supervision of the firm and the regulation of mini-bonds, with the aim of gaining full understanding of the circumstances around the investment firm’s collapse.

 

Speech: Creating effective stewardship

Edwin Schooling Latter, Director of Markets and Wholesale Policy, spoke to delegates at the LSE Conference this week about the importance of effective stewardship and the positive impact it can have on both investors and wider society.

The demand for effective stewardship is on the rise, driven by both improvements in data availability highlighting poor practices and an increase in investors seeking ethical/sustainable investments and/or responsible management.

Why does the FCA care about stewardship?

Effective stewardship helps markets work well as it protects against strategies that may provide short-term gains but unsustainable value creation. The FCA believes that stewardship should be implemented in accordance with firms’ varying strategies and objectives and that firms will have individual interpretations of what effective stewardship means. However, it also believes that firms have a responsibility to make it clear what their approach is so investors can make an informed choice.

What’s been happening in practice?

  • An increasing number of firms are following the FRC’s Stewardship Code
  • There are positive examples of firms altering their practices as a result of stewardship
  • Establishment of the Investor Forum and subsequent launch of collective engagement initiatives
  • Some examples of a lack of evidence of real outcomes and some ‘boilerplate reporting’
  • Potential barriers to effective stewardship such as short-termism influenced by short run performance and complexity of information and supply chain.

What does the future hold?

The FCA and FRC released both a discussion paper and consultation paper on stewardship that set out baseline stewardship actions and the minimum expectations of firms that invest for clients and beneficiaries. Beyond this, the FCA hopes to discover the right conditions and incentives for creating effective stewardship. It is looking at areas such as:

  • Disclosure of firms’ stewardship activities to inform investors
  • Underlying governance and cultural structures that support effective stewardship
  • Access to information from issuers around how corporate strategies promote long-term, sustainable value creation
  • Whether the regulatory framework supports effective stewardship.

Find out more and contribute feedback via the discussion paper and consultation paper.

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