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EU Parliament Approves Online Transaction Dispute Resolution Platform
On March 12, the European Commission announced that the European Parliament voted to support new legislation governing the out-of-court resolution of contractual disputes resulting from online transactions for the sale of goods or services, referred to as Online Dispute Resolution (ODR). The ODR legislation establishes a single EU-wide platform to handle disputes between traders and consumers arising from cross-border online transactions. The platform, which would not be applicable to offline transactions, will: (1) allow consumers and traders to electronically submit complaints related to online transactions along with related documents to an alternative dispute resolution entity; (2) allow alternative dispute resolution entities to receive and transmit information electronically; and (3) allow the parties to conduct and resolve the dispute resolution process via the platform. The platform is intended to be operational by 2015.
U.K. FSA Seeks Comments on New Consumer Credit Regulatory Regime
On March 6, the U.K. Financial Services Authority (FSA) issued a consultation paper (CP) to outline the regulatory regime for consumer credit markets after its regulatory powers transfer to the Financial Conduct Authority (FCA). The FCA is a new regulatory body that will succeed the FSA later this year, and will assume regulatory responsibility over the U.K.’s consumer credit and retail markets regulatory responsibilities. In addition to those markets, the FCA also will regulate conduct in wholesale markets, supervise the trading infrastructure that supports retail and wholesale markets, and prudentially regulate firms not regulated by the new Prudential Regulatory Authority. The CP outlines (i) the supervision of and reporting by covered firms, (ii) the interim permission for OFT license holders to continue operations, (iii) the supervision of credit advertising being subject to the Financial Services and Markets Act financial promotions regime, (iv) prudential requirements for debt management firms, (v) the Consumer Credit Act provisions that survive under the new FCA credit regime, and (vi) the sources of funding for the regime. Comments on the proposal are due by May 1, 2013.
U.K. OFT Takes Broad Action against Payday Lenders
On March 6, the U.K. Office of Fair Trading (OFT) announced that it will institute enforcement actions and seek to revoke the licenses of payday lenders that do not change certain business practices within 12 weeks. The action applies to the leading 50 payday lenders who account for 90 percent of the U.K. payday market. The OFT action comes in a final report on a broad payday lending investigation, which revealed widespread irresponsible lending and a failure to comply with the standards set out in the OFT’s Irresponsible Lending Guidance. The OFT also proposed to refer the payday lending market to the Competition Commission to investigate competition in that market.
European Lawmakers Agree to New Capital Rules and Caps on Bank Executive Pay
On February 28, the European Parliament announced that negotiators from the Parliament and the European Council agreed to alter bank capital rules and limit executive pay. The capital requirements, developed to implement aspects of Basel III, would raise to eight percent the minimum thresholds of high quality capital that banks must retain. The announcement does not specify what types of capital would satisfy the requirement, but does indicate that good quality capital would be mostly Tier 1 capital. With regard to executive pay, the base salary-to-bonus ratio would be 1:1, but the ratio could increase to a maximum of 1:2 with the approval of at least 65 percent of shareholders owning half the shares represented, or of 75 percent of votes if there is no quorum. Further, if a bonus is increased above 1:1, then a quarter of the whole bonus would be deferred for at least five years. Finally, the legislation would require banks to disclose to the European Commission certain information that subsequently would be made public, including profits, taxes paid, and subsidies received country by country. The European Parliament is expected to vote on the legislation in mid-April, and each member state also must approve the legislation. Once approved, member states must implement the rules through their national laws by January 2014.
U.K. FSA Fines Banks for Slow Response to Payment Protection Insurance Customer Complaints
On February 19, the U.K.’s Financial Services Authority announced a fine against three related banks for failing to promptly redress customers lodging complaints about the banks’ payment protection insurance (PPI) product. The FSA states that over a 10 month period, the bank failed to pay redress within the FSA-required 28-day period for nearly a quarter of the banks’ customers who submitted complaints regarding PPI, with some customers waiting over six months for payment. The FSA states that its investigation revealed (i) the banks failed to establish an adequate process for preparing redress payments to send to PPI complainants; (ii) bank staff engaged on the redress process did not have the collective knowledge and experience to ensure that the process worked properly; (iii) the banks failed to effectively track PPI redress payments; (iv) the banks failed to monitor effectively whether they were making all payments of PPI redress promptly and did not gather sufficient management information to identify, in a timely manner, the full nature and extent of the payments failings; and (v) the banks’ approach to risk management when preparing redress payments to send to PPI complainants was ineffective. The FSA has been active in addressing PPI issues. Last month, the FSA and the Office of Fair Trading jointly published final guidance to help prevent the problems associated with PPI recurring in a new generation of products. The FSA’s guidance for payment protection products within its jurisdiction stresses that firms should ensure that product features reflect the needs of the consumers they are targeting. It describes the importance of (i) identifying the target market for protection products; (ii) ensuring that the cover offered meets the needs of that target market; and (iii) avoiding the creation of barriers to comparing, exiting or switching cover.
President Obama Issues Executive Order on Cybersecurity
On February 12, President Obama issued an Executive Order (EO) titled Improving Critical Infrastructure Cybersecurity, and a related Presidential Policy Directive (PPD). The EO establishes a process to facilitate sharing of cybersecurity information among private firms in critical infrastructure sectors and the federal government, and tasks the National Institute of Standards and Technology (NIST) with developing standards, methodologies, procedures, and processes that will form a voluntary best practices framework to address cyber risks. The EO also includes provisions designed to protect privacy and civil liberties. The financial services sector is one of the many sectors identified as a critical sector, and the EO and PPD name the Treasury Department as the federal entity responsible for providing institutional knowledge and specialized expertise as well as leading, facilitating or supporting the security and resilience programs and associated activities for critical financial services firms. On February 13, NIST initiated the process to develop the best practices framework by announcing a request for information from critical infrastructure owners and operators, federal agencies, state, local, territorial and tribal governments, standards-setting organizations, other members of industry, consumers, solution providers and other stakeholders. NIST is required by the EO to prepare a preliminary framework by October 10, 2013, and a final framework by February 12, 2014.
UK's HM Treasury Unveils Bank Break-Up Legislation, Expects Passage Next Year
On February 4, Britain’s HM Treasury introduced legislation—entitled the Banking Reform Bill—that would provide regulators with new authority to break up a bank if its investment activities put deposits at risk. The legislation goes a step beyond previously proposed policies that would merely require banks to separate retail banking from investment banking. Under the proposed legislation, in addition to requiring that institutions ring-fence deposits, the Bank of England could force an institution to sell off certain businesses if it determines that the institution has failed to protect retail banking activities from high-risk investments. The bill also would, among other things, provide depositors preference if a bank becomes insolvent, and set new leverage caps. The introduction of the bill is the first step in the legislative process, which Britain’s Chancellor of the Exchequer stated he expects to be finalized next year.
HHS Issues New HIPAA Rules
On January 17, the Department of Health and Human Services (HHS) issued a new rule under the Health Insurance Portability and Accountability Act (HIPAA). The omnibus rule is intended to enhance patient privacy protections, provide new rights with regard to patient health information, and strengthen the government’s enforcement abilities. For example, the new rights allow patients to (i) request a copy of their electronic medical record in an electronic form and (ii) instruct their provider not to share information about their treatment with their health plan when the patient pays by cash. The rule also sets limits on how information is used and disclosed for marketing and fundraising purposes and prohibits the sale of individuals’ health information without their permission. While the rules are of general interest as an important development regarding privacy rights, HIPAA protections can, in some circumstances, apply to financial service providers. Not only may financial services firms need to take note as a provider of health care benefits to their employees, but also because the rule expands applicability of HIPAA requirements to “business associates” of health care providers, health plans, and other entities that process health insurance claims and receive protected health information.
Basel Committee Relaxes Liquidity Standards
On January 7, the Basel Committee released its revised Liquidity Coverage Ratio (LCR), a component of the comprehensive Basel III accords that also address capital standards. The committee’s LCR is intended to promote short-term resilience of a bank's liquidity risk and reduce the risk of the banking sector harming the broader economy by failing to absorb shocks arising from financial and economic stress. The LCR requires that a bank have an adequate stock of unencumbered high-quality liquid assets that can be converted into cash easily and immediately in private markets to meet a 30-day liquidity stress scenario. The revised LCR updates standards originally adopted by the Committee in 2010. Given slower than expected strengthening of the banking system and the broader economy, and in response to industry requests, the Committee decided to expand the range of eligible assets to include corporate debt, unencumbered equities, and highly-rated residential mortgage-backed securities. The Committee also clarified its intention to allow banks use their high-quality liquid assets in times of stress. Finally, the Committee revised the timetable for phase-in of the standard. The standard will take effect as planned on January 1, 2015, but the minimum requirement will begin at 60%, rising 10 percentage points each year until full implementation on January 1, 2019.
FTC Announces Departure of Consumer Protection Director
On December 17, the FTC announced that the Director of its Bureau of Consumer Protection, David Vladeck, will leave the agency on December 31, 2012. Since taking the position in 2009, Mr. Vladeck has led the Bureau’s focus on financial fraud and consumer privacy. Charles Harwood, who currently serves as a Deputy Director in the Bureau, will take over as Acting Director of the Bureau of Consumer Protection. The FTC also announced that Eileen Harrington, the agency’s Executive Director, will retire at the end of year, and that Pat Bak, who currently serves as Deputy Executive Director, will serve as Acting Executive Director.