Canadian Securities Law : Canadian Securities Lawyer & Attorney : Stikeman Elliott Law Firm : Montreal, Ottawa, Calgary, Vancouver, Montreal, Toronto

As we've discussed in the past, the UK financial regulatory universe is undergoing, in the words of Financial Services Authority Chairman Adair Turner, a "major shift in philosophy". Under the new system of regulation, the Financial Policy Committee of the Bank of England will be responsible for macro-prudential regulation, a new Prudential Regulation Authority is being created as a subsidiary of the Bank of England to supervise deposit takers, insurers and significant investment firms and a new Financial Conduct Authority will be responsible for regulating conduct in retail and wholesale markets.

In preparation for the upcoming changes, the FSA recently published a document outlining how the FCA is expected to approach the delivery of its objectives. Specifically, the document sets out the objectives and powers of the FCA and the regulatory approach expected to be taken. The document also provides a summary of the FCA's plans to coordinate with regulatory authorities in the UK and internationally.

The FSA's paper follows publication of a consultation document by HM Treasury in February that provided further details on the UK Government's proposals for regulatory reform and the more recent White Paper, which takes into account public response to the consultation document.

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On September 30, 2010, the U.K. Financial Services Authority (FSA) released a consultation paper proposing changes to its rules regarding how financial firms handle consumer complaints. Specifically, the FSA proposed: (i) abolishing the current two-stage complaints handling process; (ii) requiring firms to identify a senior individual responsible for complaints handling; (iii) setting out guidance regarding how firms can satisfy rules relating to root cause analysis of complaints received; (iv) providing guidance regarding the requirement that firms take into account decisions of the ombudsman service and other material when resolving complaints; and (v) increasing the ombudsman service's award limit from £100,000 to £150,000. The changes are proposed to be implemented between August 2011 and July 2012 and would, according to the FSA, "improve how customers are treated when they complain to firms, and ultimately lead to increased consumer confidence in financial services".

In Canada, changes to IIROC's Dealer Member Rules requiring its members to designate a complaints officer and establish complaint-handling procedures went into effect on February 1 of this year. Changes to the MFDA policy regarding complaint handling also took effect on February 1. The CSA have also proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions and the related companion policy with respect to client complaints and dispute resolution. While these provisions currently apply to all registrants, one of the proposed amendments would exempt IIROC and MFDA members from the relevant sections of NI 31-103CP now that MFDA and IIROC rules have come into effect.

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The U.K. Financial Services Authority last week published a discussion paper focusing on the prudential requirements for banks and investment firms that engage in trading activities. The paper makes recommendations in three key areas:

1. Valuation - the FSA recommends an increased regulatory focus on valuing traded positions as an input into capital resources.
2. Coverage, coherence and the capital framework - a change in the structure of the capital framework is recommended in order to bring greater coherence and reduce the opportunities for structural arbitrage in the banking sector and wider financial system.
3. Risk management and modelling - the FSA recommends measures intended to improve firms' risk management and modelling standards, and ensuring that they are aligned with regulatory objectives.

The FSA is accepting comments on the discussion paper until November 26 and is expecting to issue feedback in the first half of 2011.

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On Monday, Her Majesty's Treasury launched a consultation to gather views on the British Government's proposals to reform the UK's financial regulatory framework. As discussed in our post of June 17, the proposals would: (i) give the Bank of England the authority over macro-prudential regulation; (ii) establish a new prudential regulator, operating as a subsidiary of the Bank of England, that would regulate financial firms; and (iii) establish a new Consumer Protection and Markets Authority to regulate the conduct of financial firms providing services to consumers. The just-released consultation document provides further details regarding the proposals and asks specific questions for public comment.

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In a speech Tuesday to the British Bankers' Association, Lord Adair Turner, Chairman of the Financial Services Authority (FSA) discussed a new approach to regulation in the U.K. Specifically, Lord Turner discussed a "major shift in philosophy" towards a "more pre-emptive and instrusive approach to supervision". This would involve analyzing trends in the economic and market environment to identify potential risks to consumers, examining firms' business models to understand the drivers of profitability, reviewing whether firms have product development and approval processes that weed out innappropriately marketed or harmful products and taking action to ensure customers are protected where incentives, structures or products are found that would likely lead to poor customer outcomes.

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In a June 16 speech at the Lord Mayor's Dinner for Bankers & Merchants of the City of London, the Chancellor of the Exchequer outlined a plan to reform financial regulation in Britain. Specifically, the Chancellor announced a plan to abolish the current tripartite system of regulation, which consists of the Financial Services Authority (FSA), the Bank of England and the Treasury, and wind down the FSA.

In place of the current system, an independent Financial Policy Committee at the Bank of England would be tasked with macro-prudential regulation.  According to the Secretary to the Treasury, Mark Hoban, "[o]nly central banks have the broad macroeconomic and markets understanding, the authority and the knowledge required to make macro-prudential judgments." Meanwhile, a new prudential regulator, operating as a subsidiary of the Bank of England would regulate financial firms, including banks, investment banks and insurance companies. Finally, a new Consumer Protection and Markets Authority would be established to regulate the conduct of financial firms providing services to consumers.

According to the Chancellor, the transition to the new regulatory system is intended to be completed in 2012.

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The U.K. Financial Services Authority (FSA) announced new rules last week intended to improve the clarity respecting the costs charged by investment advisers. Specifically, as of 2011, firms will need to be upfront with respect to the costs of their services and will no longer be able to embed the cost of their advice in the cost of a product. Further, firms will not be permitted to accept commissions for recommending specific products. According to FSA director Sheila Nicoll, “[t]here is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.”

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Back in December, the U.K. Financial Services Authority (FSA) announced the publication of proposals intended to "rebuild people's trust and confidence in the retail investment market by raising standards of professionalism." The FSA's proposals address issues respecting the governance of professional standards for retail investment advisers, the application of principles to the corporate pension market and advice on pure protection products (certain types of insurance). With respect to professional standards, the FSA proposes an internal FSA model to govern professional standards.

The FSA is accepting responses on its proposals until March 16, 2010.

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The U.K. Financial Services Authority (FSA) released a discussion paper today titled "A regulatory response to the global banking crisis: systemically important banks and assessing the cumulative impact". The paper focuses on two major issues: (i) the "dangers" posed by systemically important banks that are considered too big or interconnected to fail, or too big to rescue; and (ii) how the cumulative impact of various capital and liquidity regime changes should be assessed. U.K. and international policy developments are considered and of particular note, the migration of OTC derivatives to central counterparty clearing is cited as a risk-reducing policy initiative.

Responses to the discussion paper are being accepted until February 1, 2010.

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The U.K. Financial Services Authority (FSA) released a Feedback Statement yesterday summarizing and responding to comments it received in response to its proposals on regulating short selling as published in a discussion paper of February 2009. While the discussion paper concluded that direct constraints on short selling, such as a 'tick' rule, were not justified, it proposed enhancing the transparency of short selling. In considering the feedback received, the FSA reiterated its position that direct constraints on short selling are not justified at this point, while also stating that no major aspects of the proposals for a disclosure regime should change.

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Chairman Schapiro Photo Courtesy of www.sec.gov

The U.S. Securities and Exchange Commission (SEC) and the U.K. Financial Services Authority (FSA) announced plans today "to explore common approaches to reporting and other regulatory requirements for key market participants such as hedge funds and their advisers." Specifically, the two regulators "agreed to identify a common, coherent set of data to collect from hedge fund advisers/managers" in order to help the regulators identify risks to their regulatory mandates and objectives. The announcement, subsequent to a meeting between the SEC and FSA, stated that discussions also included OTC markets and central clearing, accounting issues, regulatory reform, credit agency oversight, short selling and corporate governance and compensation practices. Today's release follows an announcement by the U.S. Commodity Futures Trading Commission (CFTC) yesterday that the CFTC had signed a memorandum of understanding with the FSA "to enhance cooperation and the exchange of information relating to the supervision of cross-border clearing organizations."

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The U.K. Financial Services Authority (FSA) released proposals on July 9 that would require financial firms to publish their complaints data every six months. The required information would include the number of complaints opened and closed, the percentage of claims closed within eight weeks and the percentage upheld. The FSA would also publish results from the whole sector twice a year. The FSA is accepting comments on the proposals until October 30, 2009.

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