Enforcement

Issue 1119 / 22 July 2021

Treasury Committee

Greensill Capital - Treasury Committee publishes report on inquiry - 20 July 2021

The House of Commons Treasury Committee has published a report which considers the lessons learnt following its inquiry into Greensill Capital. Points of interest in the report include:

  • the failure of Greensill does not appear to have threatened financial stability. The Committee therefore considers that Bank of England (BoE) Governor, Andrew Bailey, was right to conclude that there was no case for regulation on the basis of financial stability in this case;
  • the Committee does not think the failure of Greensill leads to strong evidence about procyclicality in the regulation of insurance markets. It also does not believe that the failure of Greensill has demonstrated a need to bring supply chain finance within the regulatory perimeter for financial services;
  • the failure of Greensill has highlighted risks around the growth of the non-bank sector and the expansion of non-banks into areas of financial intermediation traditionally dominated by banks. The Committee welcomes the BoE’s focus on the importance of enhancing data on the non-bank financial sector. In addition to international work to intensify global co-operation and data-sharing on non-bank finance, HM Treasury should work with the BoE and the FCA to consider which domestic data gaps could be addressed;
  • there should be reform of the change in control process that regulates who can acquire the ownership of an existing bank. This should ensure that the PRA has the powers necessary to ensure that existing banks are not owned by entities which would not be granted a banking licence in their own right. The Committee considers this should be done as a matter of urgency; and
  • it appears that the appointed representatives regime may be being used for purposes beyond those for which it was originally designed. The Committee welcomes the FCA’s investigation into the oversight of Greensill’s regulatory permissions by Mirabella Advisers LLP. The FCA and HM Treasury should consider reforms to the appointed representatives regime, with a view to limiting its scope and reducing opportunities for abuse of the system.

Report: Lessons from Greensill Capital (HC 151)

Financial Conduct Authority

Debt packager firms - FCA announces action following review - 20 July 2021

The FCA has announced that, following a review of the practices of debt packager firms, five firms have stopped providing regulated debt advice, having applied for voluntary arrangements to be imposed. This means that they can no longer provide regulated advice services until the FCA is satisfied they can comply with the rules. The FCA has also used its formal powers to remove another firm’s permission to provide regulated debt advice.

Debt packager firms advise consumers on how to deal with their debts, often referring them to an insolvency practitioner or debt management firm, for which they receive referral fees. The fees can be higher when firms refer consumers to an insolvency practitioner to enter into an individual voluntary arrangement. The FCA has made it clear to firms that it expects them to manage this conflict of interest to ensure that their advice is right for consumers, not just firms’ financial interests.

The FCA’s review identified concerns that some debt packager firms appear to have, for example: manipulated consumers’ income and expenditure to meet the criteria for an individual voluntary arrangement; used persuasive language to promote these products to consumers without fully explaining the risks involved; and provided advice that did not accurately reflect their conversations with consumers or information that consumers had given. The FCA’s view is that firms failed to sufficiently consider consumers’ circumstances and vulnerabilities, including mental health issues and economic abuse.

As part of its priority work to ensure that consumer credit markets work well for consumers, the FCA is considering policy changes to address the significant potential for harm through poor advice that the debt packager business model poses. If it concludes that changes are needed, it plans to consult on proposals later in 2021.

The FCA has also published two letters, one between FCA Executive Directive, Consumers and Competition, Sheldon Mills and Insolvency Service CEO, Dean Beale, setting out how the two organisations are approaching these issues and working together to protect consumers who need debt advice.

Press release: FCA takes action against debt packager firms

Letter from Insolvency Service CEO, Dean Beale

Letter from FCA Executive Directive, Consumers and Competition, Sheldon Mills

Recent Cases

European Commission v Landesbank Baden-Württemberg (Joined Cases C-584/20 P and C-621/20 P) (EU:C:2021:601)

Single Resolution Fund – 2017 ex-ante contributions – authentication of a decision of the Single Resolution Board – obligation to state reasons – confidential data

The European Court of Justice (ECJ) has considered an appeal brought by the European Commission and the Single Resolution Board (SRB) against a decision of the General Court concerning the calculation of the 2017 ex-ante contributions to the Single Resolution Fund (SRF), and the legality of provisions in Commission Delegated Regulation (EU) 2015/63.

Landesbank Baden-Württemberg, a German credit institution, brought an action to annul the SRB’s decision concerning these contributions. In September 2020, the General Court annulled the SRB’s decision, concluding that provisions in Articles 4 to 7 and 9 and in Annex I of the Commission Delegated Regulation were illegal, on the grounds that the method of calculation specified in them meant that the SRB was not in a position to give verifiable and reviewable reasons for the individual burdens imposed on an institution.

The ECJ has set aside the General Court’s judgment. It has annulled the SRB’s decision on the ground that the SRB’s statement of reasons was inadequate, although it has taken a different approach from that of the General Court concerning the scope of the requirement to state the reasons for the decision. It has concluded that the obligation to state reasons is fulfilled where the institution concerned by a decision fixing ex ante contributions to the SRF has been provided with: (i) the method of calculation used by the SRB; and (ii) sufficient information to understand, in essence, how their individual situation has been taken into account for the purposes of the calculation. That is the case even if the institution has not been provided with confidential data relied on by the SRB in making the calculation.

However, the ECJ has not upheld the General Court’s finding on the illegality of the provisions in the Commission Delegated Regulation. Instead, it has concluded that the provisions do not prevent the SRB from disclosing, in collective and anonymised form, sufficient information to enable an institution to understand how its individual situation has been taken into account in making the calculation.

Commission v Landesbank Baden-Württemberg and Single Resolution Board, Judgment of the Court (C-584/20 P and C-621/20 P)

Press release