Greg Kilminster
Head of Product - Content
Financial Ombudsman reports surge in fraud and complaints
The UK’s Financial Ombudsman Service (FOS) has reported a significant rise in complaints, with cases increasing by more than 50% in the second quarter of the 2024/25 financial year. Fraud, scams, credit cards, and current accounts drove much of the increase, reflecting both the growing complexity of financial crimes and customer dissatisfaction with financial service providers.
Some context
Between July and September 2024, the FOS received 73,692 complaints, a sharp rise from 46,716 during the same period last year. Fraud and scams accounted for a notable portion of this surge, with 9,091 complaints, up from 6,264 a year earlier. A growing number of these cases involved multi-stage frauds, particularly in cryptocurrency investments and “safe account” scams, where fraudsters impersonate trusted entities to trick consumers into transferring money.
Complaints about current accounts and credit cards also reached record highs, with current accounts seeing 9,186 cases and credit cards 22,366. Credit card complaints largely centred on claims of irresponsible lending, including issues with high credit balances, limits, and interest rates.
Key takeaways
- Fraud and scams: Authorised push payment (APP) scams represented over half of the fraud cases, with 4,956 complaints. Many involved scams orchestrated through e-money accounts and cryptocurrency platforms.
- Credit card and current account issues: Complaints about credit cards surged nearly fivefold compared to the previous year. For current accounts, many complaints were linked to fraud, poor service, and dissatisfaction with how banks handled disputes.
- Role of professional representatives: A significant portion of complaints were lodged by professional claims representatives, who handled 85% of credit card cases and one-third of current account cases. Concerns have been raised about the fees charged by these representatives when complaints are upheld.
- FOS response: The FOS has highlighted its efforts to return around £150m to victims of scams in recent years. It is also implementing a new fee model to charge professional representatives for lodging complaints, pending approval by Parliament and the FCA.
Next steps
The FOS plans to strengthen consumer protections by raising awareness about evolving scam tactics and providing clearer guidance for those affected. The surge in complaints emphasises the need for financial institutions to address emerging risks and improve service standards, ensuring they keep pace with the changing landscape of financial crime and consumer expectations.
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UK regulators propose remuneration reforms
The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have jointly launched a consultation proposing significant amendments to the remuneration regime for dual-regulated firms, aiming to simplify and modernise the framework. The measures seek to bolster accountability for risk-taking while enhancing the UK's competitiveness as a financial hub.
Outlined in the PRA's rulebook and the FCA's SYSC 19D remuneration code, the proposals target banks, building societies, and designated investment firms. The reforms focus on improving proportionality, accountability, and simplicity in remuneration practices, reflecting post-crisis lessons and evolving global standards.
Some context
The current remuneration framework, designed in the wake of the 2008 financial crisis, has been instrumental in mitigating excessive risk-taking. However, reviews by the regulators and the Financial Stability Board (FSB) have identified unintended complexities. These include disproportionate compliance costs and challenges in attracting talent. Recent changes, such as removing the EU-imposed bonus cap, suggest a shift toward flexibility while preserving sound risk management principles.
Key takeaways
- Material Risk Taker (MRT) identification: The proposals streamline the process by introducing a single quantitative threshold for identifying MRTs based on pay. Firms will gain more discretion to categorise MRTs without regulatory approval for exclusions.
- Simplified deferral and retention periods: For Senior Management Functions (SMFs), deferral periods would be reduced from seven to five years, with a shift to pro-rata vesting schedules. Other MRTs would adhere to a four-year deferral.
- Aligning remuneration with accountability: Firms would be required to adjust remuneration for failings linked to risk events. Senior managers would also see their pay tied to performance against supervisory priorities.
- Enhanced proportionality: Smaller firms and lower-paid MRTs would benefit from relaxed deferral and clawback rules, with thresholds adjusted to better reflect UK market conditions. The individual proportionality threshold would increase to £660,000.
- Consolidation of FCA rules: The FCA plans to align its remuneration rules more closely with the PRA's framework, reducing duplication and ensuring greater consistency across regulators.
Next steps
The consultation, open until 13 March 2025, invites stakeholders to provide feedback on the proposed changes. If implemented, the reforms would take effect for performance years beginning in the second half of 2025. The regulators aim to finalise the policy to ensure firms have sufficient time to adapt to the new requirements.
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ECB highlights banking supervision priorities amid rising challenges
In a speech at the European Banking Federation Executive Committee meeting, Elizabeth McCaul, Member of the Supervisory Board of the European Central Bank (ECB), reflected on the evolution of the Single Supervisory Mechanism (SSM) and outlined the challenges shaping the future of European banking supervision.
McCaul identified three key themes: the evolving nature of the SSM’s supervisory approach, the urgency of addressing emerging risks, and the critical balance between financial stability and competitiveness in the face of rapid digital transformation.
Strengthened resilience, evolving supervision
McCaul highlighted the strengthened resilience of the European banking sector over the last decade. The average ratio of non-performing loans among significant banks in the banking union fell sharply, from 7.5% in 2015 to 2.3% by mid-2024. Meanwhile, Common Equity Tier 1 ratios improved from 12.7% in 2015 to 15.8% in 2024, with profitability boosted by rising interest rates.
“These improvements reflect the lessons learned from the global financial crisis,” she stated, crediting the SSM's robust regulatory framework. However, she warned that the sector faces a dramatically altered landscape, with novel risks emerging from macroeconomic instability, geopolitical tensions, and technological disruption.
Emerging risks and structural shifts
McCaul cautioned against complacency in managing risks from the growing non-bank financial intermediation (NBFI) sector, which has expanded globally to €200 trillion in 2022. She noted the interconnectedness of NBFIs and banks, emphasising the potential for concentration risk and systemic vulnerabilities. “Banks often lack a full understanding of their exposures to private credit funds,” she said, calling for enhanced regulation and transparency.
She also noted rising cyber risks amid geopolitical tensions. ECB analysis showed a significant uptick in successful cyberattacks on supervised entities, with incidents increasing by 77% in 2023 compared to the previous year.
Digital transformation and competitiveness
McCaul emphasised the importance of embracing digital transformation to maintain competitiveness, noting that technological advancements present both opportunities and risks. The ECB has implemented its SSM tech strategy for 2024–2028, aiming to leverage artificial intelligence and other innovations in supervision while addressing the risks such technologies may pose.
Path to integration
Completing the banking union and advancing the capital markets union are critical to creating a competitive and integrated European financial landscape, McCaul argued. She called for removing barriers to cross-border banking and facilitating securitisation to enable banks to diversify risks and better support economic growth.
She concluded with a warning against regulatory complacency: “The global financial crisis is not so far behind us that we should not heed its lessons. Robust regulation remains a guardrail for resilience and competitiveness.”
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APRA highlights challenges and priorities in implementing the Financial Accountability Regime
The Australian Prudential Regulation Authority (APRA), in collaboration with the Australian Securities and Investments Commission (ASIC), has shared key observations and guidance on the Financial Accountability Regime (FAR) as it transitions from the Banking Executive Accountability Regime (BEAR). The FAR aims to bolster accountability, enhance governance, and foster a stronger culture of responsibility within Australia’s financial services sector.
Some context
Introduced in September 2023, the FAR applied to authorised deposit-taking institutions (ADIs) and their holding companies from 15 March 2024, and extends to insurers and superannuation licensees in March 2025. The regime builds upon BEAR, expanding its scope to include additional entities and introducing more stringent obligations focused on conduct, governance, and risk management.
Key reforms include enhanced notification requirements for large entities and an increased focus on individual accountability for senior executives.
Key takeaways
- Expanded scope and obligations: The FAR applies not only to ADIs but also to insurance and superannuation sectors. It introduces stricter requirements for “enhanced entities” with significant operations, including submitting detailed accountability maps and statements.
- Deferred remuneration: To align incentives with long-term outcomes, the FAR reinforces deferred remuneration standards, holding executives accountable for their decisions.
- Implementation challenges: APRA has observed variability in how entities are embedding FAR requirements, with smaller ADIs focusing on core functions and larger entities navigating complex accountability frameworks.
- Focus on conduct and governance: The regime emphasises the role of senior executives in shaping organisational culture and operational resilience, requiring clear documentation of their responsibilities and decisions.
Next steps
APRA and ASIC will continue hosting industry briefings to guide entities through the transition, with mandatory compliance beginning in March 2024. Entities are encouraged to review their governance frameworks, identify gaps, and ensure readiness for the new accountability standards. APRA expects ongoing engagement from firms to refine their practices and ensure alignment with the FAR’s objectives
The FAR marks a significant shift in Australia’s regulatory landscape, underlining the importance of strong accountability frameworks in promoting trust and resilience in the financial sector.
Click here to read the full RegInsight on CUBE's RegPlatform.
FINRA updates arbitration rules to improve customer access to records
The Financial Industry Regulatory Authority (FINRA) has amended its arbitration rules to enhance transparency and customer access to records. Effective from 1 December 2024, the changes will affect how records from expungement hearings are managed and shared with customers who participate in the process.
Some context
The amendments build on FINRA’s ongoing efforts to strengthen the expungement process for customer dispute information. Previously, while customers involved in expungement proceedings could provide input, their access to hearing records was limited. These changes aim to address this gap by providing customers with greater visibility into proceedings that directly affect their interests.
Key takeaways
- Enhanced record access for customers: Customers attending or participating in expungement hearings, or submitting written input, can now request a copy of the official record of the proceedings. This includes any transcription of the hearing if one exists.
- Digital recordkeeping: Updates to Rule 13606 remove references to outdated recording methods, such as tapes, in favour of digital and other modern formats.
- Alignment with prior amendments: These changes complement earlier revisions to Rule 13805, which mandated customer access to documents related to expungement requests. This broader approach ensures customers can make informed decisions and better understand the expungement process.
Next steps
These amendments apply to arbitration cases filed on or after 1 December 2024. FINRA encourages customers and firms to familiarise themselves with the updated procedures.
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OCC announces enforcement actions for November 2024
The US Office of the Comptroller of the Currency (OCC) has published details of enforcement actions issued in November, targeting several banks and individuals under its supervision. The measures address violations of law, unsafe or unsound practices, and breaches of fiduciary duty.
Actions against banks
- Clear Fork Bank, NA, Albany, Texas: A Cease and Desist Order was imposed for repeated failures to address deficiencies in compliance with the Bank Secrecy Act (BSA) and anti-money laundering regulations. This order replaces a 2021 agreement with the OCC.
- Hiawatha National Bank, Hager City, Wisconsin: The bank entered into a Formal Agreement addressing concerns over liquidity management, credit review processes, and loan risk assessments.
- Industry Bancshares subsidiaries: Three banks—The First National Bank of Shiner, Bank of Brenham, NA, and The First National Bank of Bellville—were issued Cease and Desist Orders linked to high-risk investment strategies. These strategies concentrated on long-term securities and exposed the institutions to excessive interest rate risk. Corporate governance and credit administration shortcomings were also cited.
- The National Bank of Coxsackie, Coxsackie, New York: A Formal Agreement was reached following findings of inadequate corporate governance, strategic planning, risk management, and internal controls. Violations included improper loans to insiders.
Actions against individuals
- Dean A Lafrentz, Midstates Bank, NA, Iowa: A Personal Cease and Desist Order was issued against the former Senior Vice President for falsifying loan collateral information, resulting in the bank miscalculating its collateral position.
- Clarice Saw, Citibank NA, New York: An Order of Prohibition was issued against a former Financial Advisor for abusing a power of attorney to misappropriate an elderly customer's funds.
The OCC’s enforcement actions reflect its ongoing commitment to holding banks and individuals accountable for violations and poor practices.
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DFSA concludes eight enforcement cases in 2024
The Dubai Financial Services Authority (DFSA) has drawn attention to eight finalised enforcement cases during 2024, highlighting its ongoing commitment to maintaining integrity within the Dubai International Financial Centre (DIFC). The cases, which involved both firms and individuals, underscore the DFSA’s rigorous approach to addressing breaches of regulatory standards.
In the statement, the DFSA emphasised its priority to protect the financial system by holding parties accountable for misconduct. The enforcement actions reflect a diverse range of regulatory breaches, including non-compliance with anti-money laundering requirements, unauthorised activities, and failures in governance.
The DFSA stated that its decisions aim to reinforce the principles of transparency and ethical conduct, integral to ensuring the DIFC remains a trusted global financial hub. The authority also noted that its enforcement actions are underpinned by due process, with affected parties given opportunities to respond before decisions are finalised.
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FRC publishes annual review
The Financial Reporting Council (FRC) has released its 2024 Review of Corporate Governance Reporting. This annual assessment, which precedes the implementation of the new UK Corporate Governance Code from January 2025, highlights areas of strong reporting and those needing improvement. The review aims to guide companies in their transition to the updated requirements, particularly focusing on outcomes-based disclosures and enhanced internal controls reporting.
Some context
The current 2018 UK Corporate Governance Code will remain applicable for annual reports until 2025, with new requirements, including Provision 29 on risk management and internal controls, effective from 2027. The 2024 Code emphasises flexibility, allowing companies to either comply with its provisions or explain deviations, provided these explanations are robust. The FRC's analysis of 130 company reports this year prioritised risk management, stakeholder engagement, and alignment with evolving Code standards.
Key takeaways
Improved compliance
- There has been a significant increase in compliance with Code provisions, notably on pension contribution alignment. However, some areas, such as disclosures on the effectiveness of internal controls, remain underdeveloped.
- Early references to the forthcoming Provision 29, despite its later implementation date, suggest proactive preparation by many companies.
Enhanced focus on outcomes
- The FRC observed a shift towards more meaningful outcomes-based reporting, though boilerplate disclosures persist. Examples of robust reporting included clear narratives on risk mitigations and corporate culture assessment.
Stakeholder engagement
- Reports generally reflected high-quality engagement with shareholders and other stakeholders. However, many lacked specific details on outcomes or board-level involvement. The FRC encourages more transparent and detailed reporting in these areas.
Diversity and board responsibilities
- Diversity reporting improved, with 59 companies clearly outlining policies and progress. However, the reporting of outcomes from diversity initiatives remains limited.
- Transparency around directors' time commitments and external roles has increased, although some reports failed to address concerns over “over-boarding.”
Next steps
The FRC urges companies to enhance their focus on concise, outcomes-oriented disclosures, especially in preparation for the 2024 Code’s requirements. Boards should ensure robust governance practices are effectively communicated, with clear narratives linking strategy, risk management, and stakeholder engagement. To aid implementation, the FRC is providing resources, including podcasts and webinars, alongside this review.
Click here to read the full RegInsight on CUBE's RegPlatform.