The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have launched a consultation proposing measures to boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent.

]]> http://www.artemisfinancial.co.uk/group-regulatory-and-reporting-manager-2/feed/ 0 http://www.artemisfinancial.co.uk/government-confirms-ir35-extension-into-private-sector/ http://www.artemisfinancial.co.uk/government-confirms-ir35-extension-into-private-sector/#comments Sun, 01 Mar 2020 21:06:41 +0000 http://www.artemisfinancial.co.uk/?p=2054 Find out more...]]> 27 February 2020

The government has confirmed it will proceed with the planned extension of off-payroll rules into the private sector from April.

The confirmation came in a report from Treasury published this morning into the review of the implementation of the extension off-payroll working rules into the private sector.

However, having listened to stakeholders the government also revealed it is making a number of changes to address concerns, and support the smooth and successful implementation of the reform.

These include:

• Customers will not face penalties for errors relating to off-payroll in the first year – barring cases of deliberate non-compliance 
• HMRC has reaffirmed that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies (PSCs) for tax years before 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
• The government reaffirms the rules will only apply to services carried out from 6 April 2020 onwards
• The government will legally require clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.

While HMRC has already published detailed guidance on the reform and clarified the position on a range of concerns raised – for example, the client-led status disagreement process, including by making explicit the time limits within which a disagreement can be raised – the Employment Status Manual guidance has been further updated in line with other outcomes from the review. 

Although HMRC has already published a factsheet to support contractors prepare for the changes, and are continuing to step up their communications in the run-up to implementation, it will launch further products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.

Government further committed to continue to listen to stakeholders, and monitor and evaluate the operation of the rules, while HMRC is to commission external research into the impacts of the reform six months after implementation, including on how status assessments are being made.

Commenting on today’s development, Samantha Hurley, director of operations at APSCo and co-chair of the government’s IR35 Forum, said the association’s members will welcome the extra time to adjust that the promised ‘soft landing’ offers.  

“When the review into implementation was launched last month, APSCo made it very clear that we were not seeking a complete delay to implementation, but a period of time within which recruitment businesses and end clients wouldn’t be penalised. This was communicated directly to HMRC and other stakeholders, and we are extremely pleased this recommendation has been listened to and taken on board by the government.

“HMRC has long maintained that it genuinely wants businesses to comply with the new rules and that there will be no witch hunt – and this latest move suggests this may truly be the case. The fact that it has also published additional guidance to educate the supply chain is welcomed by APSCo.

“In addition, policy changes announced today also offer much needed clarity for our members. The fact that all businesses now have a statutory obligation to confirm whether or not they are ‘small’ takes the onus off others in the supply chain, while confirmation on the timeline for disputes is also welcomed. Many of our members will be particularly relieved that the rules will no longer apply to clients based wholly overseas, with the obligation to determine tax status in these instances moving back to the contractor.

“While there is no escaping the fact that the extension of off-payroll rules is not ideal, overall, this is a significant win for the professional recruitment sector and I’d like to thank all of our members who got involved, shared their experiences and contributed to this outcome.”

Sophie Wingfield, director of policy at the Recruitment & Employment Confederation, said: “It’s a positive move that the Treasury is putting the obligation on small businesses to declare whether the IR35 rules apply to them. This is a direct response to what the REC has been calling for and should provide recruitment businesses with much needed clarity on their obligations.”

In relation to the decision by HMRC to take a ‘light touch’ approach to enforcement, Wingfield added: “Taking a ‘light touch’ approach to enforcement in the first year will create more problems than it solves. The consequences of not complying with tax law should be clear. Not doing so could create an unlevel playing field where compliant employers lose out to unethical ones. We need to see more details about how this approach will work in practice. What’s obvious from this is that the Treasury know IR35 is not quite right. Rather than tinkering around the edges of this complex legislation, we need the government to delay implementation until 2021 to make sure it’s done properly.”

While welcoming government’s promise of a soft landing in implementation of the rules, Julia Kermode, CEO of the Freelancer & Contractor Services Association (FCSA), added she is cautious that this may cause more confusion if clients and contractors are misled into thinking that the legislation has been delayed or will not be enforced.
 
“We have confirmed with HMRC that the soft landing is genuine and that penalties won’t ordinarily be applied for the first 12 months of implementing the reforms. This is good news because HMRC’s education programme was delayed due to the general election, so a number of businesses are only finding out about the reforms and their new liabilities now, just weeks before the legislation comes into effect. However, the soft landing does not mean that businesses and individuals can plan to ignore the changes because HMRC has also confirmed that penalties will be applied where there is deliberate non-compliance.

“FCSA also welcomes the clarity regarding overseas clients being out of scope, plus the amendment requiring clients to confirm whether or not they are small so that the supply chain can ascertain if the new off-payroll rules apply.
 
“It has been clear to me for some time that HMRC has been hell bent on planning to implement the off-payroll reforms this April come what may, and the publication of their review clearly shows that these reforms are coming whether we like it or not. I can’t see the budget on 11 March bringing about a U-turn, so it would seem that the House of Lords inquiry into the legislation is the last hope to affect any meaningful change.
 
“Having given evidence to the House of Lords this week, it was clear that they were listening to the various representations, and I did get the distinct impression that they were not supportive of the legislation. Time will tell as to whether or not they can make a difference but, in the meantime, I would strongly urge everyone to prepare for the reforms as penalties will still be issued for deliberate non-compliance.”

Market participants who refuse to amend inappropriate behaviour must be removed from their roles even if they bring in large profits, the Lloyd’s CEO has said.

John Neal said at the Insider Progress event yesterday: “I don’t think there are ‘rainmakers’. The organisation is bigger than the individual.

“If they are not behaving and they cannot change, they should go.”

Neal’s comments came after Financial Conduct Authority CEO Andrew Bailey said in September that he had seen instances within the financial sector where management had quashed complaints about “loose cannon” individuals because of the profit they brought into businesses.

It also comes after AJ Gallagher UK CEO Simon Matson was forced to issue a public apology after a court case revealed him and commercial director Vyvienne Wade had used racist and abusive language about departing staff. Both currently remain in post.

The Lloyd’s culture study revealed that just over a fifth of respondents had seen people in their businesses turn a blind eye to inappropriate behaviour, and sparked a programme of measures from the Corporation that aim to create an inclusive culture within the market.

Neal noted that despite the figures in the survey and Lloyd’s messaging on diversity and inclusion (D&I) since then, some individuals were not yet on board with the initiative.

“I am genuinely worried that people still don’t get it,” Neal said.

“They say, ‘it’s not as bad as you think’. I don’t care how bad it is, it’s not a Richter scale of behaviour.”

Neal pointed out that the average age of the industry had been rising over the past two years, rather than falling, as efforts faltered to recruit the next generation.

Younger people do not consider a career in insurance to be fulfilling and, according to the executive, improving the culture was a key part of attracting in millennial staff.

Neal said that when the Corporation launched next year’s culture survey in early summer, he wanted it to attract substantially more responses than the 6,000 it received this year.

The CEO detailed Lloyd’s actions on culture and inclusivity so far, explaining that the Corporation was in the midst of checking D&I policies within each Lloyd’s business, and ensuring each had the ambition to change.

Lloyd’s has also set up an advisory group chaired by Fiona Luck, non-executive director for talent and culture. This board will include independent experts who will hold the Corporation to account on D&I and report each year on the market’s progress in Lloyd’s annual report.

The Lloyd’s market made a £2bn ($2.8bn) pre-tax loss in 2017 as £4.5bn of major claims took their toll.

The market made its first underwriting loss in six years, as the Lloyd’s combined ratio worsened by 16.1 percentage points to 114.0 percent. Lloyd’s plunged into the red after making a £2.1bn pre-tax profit a year earlier.

Lloyd’s had an underwriting loss of £3.4bn in 2017, compared to a £468mn underwriting profit the year before.

Gross written premiums increased by 12.3 percent to £33.6bn, driven by new products such as cyber cover and expansion in the US market.

The £4.5bn major claims tally more than doubled from 2016, as hurricanes Harvey, Irma and Maria battered the 332 year old market.

Gross of reinsurance, Lime Street paid out £18.3bn in claims over the year.

Along with major cat claims, the market also had to contend with a rise in non-cat losses.

According to the Lloyd’s annual report, published today, the underlying accident year combined ratio, excluding major claims, deteriorated by 4.5 percentage points to 98.4 percent.

The rise in non-cat claims was linked to underlying claims inflation, an erosion in deductibles and pricing weakness.

Lloyd’s chairman Bruce Carnegie Brown said in a statement today: “After a number of relatively benign catastrophe years, the second half of 2017 demonstrated the precarious nature of the world in which we live.”

Carnegie Brown said the market losses were “not a surprise”.

“Last year it was clear that the benign claims environment was masking the impact of tough trading conditions and so it has proved,” he said.

Prior-year releases were £706mn in 2017, compared to £1.15bn in 2016. That improved the combined ratio by 2.9 points compared with a 5.1 point uplift from reserve releases the year earlier.

Lloyd’s made an improved investment return of £1.8bn, compared to £1.3bn in 2016.

Lloyd’s CEO Inga Beale said the market faced two challenges: modernisation and improving diversity.

Beale called on the market to “speed up the adoption of the market’s modernisation programme, which will digitise processes, reduce unsustainable expense ratios, and make Lloyd’s more attractive to do business with”.

She continued: “We need to attract the best talent from around the world if we are to continue to innovate and provide customers with the products they need in today’s fast-changing risk landscape. That is why we are working hard on closing the Corporation’s gender pay gap.”

The International Underwriting Association (IUA) is seeking regulatory leeway on a proposed threshold after which European carriers with consumer-facing operations would have to convert their UK branches to subsidiaries for Brexit.

The Prudential Regulation Authority (PRA) has since December been consulting on a proposal to supervise European Economic Area (EEA) commercial carriers as third-country branches after Brexit, instead of making them become separately capitalised subsidiaries.

The proposal will relieve most of the 80 EEA carriers operating branches in the UK from the need to convert to subsidiaries that are controlled and capitalised locally. However, it is contingent on what the IUA considers an ill-defined proviso that their operations do not involve retail insurance.

The proposal specifies a threshold of £200mn ($278.4mn) for “Financial Services Compensation Scheme-protected liabilities”, above which the branches would have to become subsidiaries. The IUA fears the relatively low limit could pull in a number of commercial carriers.

CEO Dave Matcham said: “The IUA hopes that such a limit will not be rigidly applied and that other factors offering policyholder protection will also be taken into consideration,” the organisation said in comments released to this publication.

“We would like to see greater clarity about the new factors to be considered alongside current requirements for third-country branch authorisation.”

Overall, however, the executive welcomed the PRA’s plan for dealing with Brexit.

“It suggests there will continue to be a high degree of supervisory cooperation between the UK and EU and that, provided they are not conducting material retail business in the UK, firms may apply for authorisation as a branch,” Matcham added.

In its December consultation paper, the PRA noted that it has a “greater ability to mitigate risks in subsidiaries as it has access to a wider range of supervisory tools and legal powers. Accordingly, we expect a firm above a certain threshold to subsidiarise.”

It also noted that the proposed £200mn threshold for FSCS-protected liabilities as not a “hard limit”.

Despite qualms over the retail threshold, the PRA’s blueprint in the main represented a major unilateral concession to EEA insurers and banks as the regulator marked a pathway for cooperation with peer supervisors. Its plan for the insurance sector mirrors its thinking on banks.

In December the PRA made the proposals subject to Brexit negotiations yielding no unexpected surprises and to it garnering “sufficient supervisory cooperation and assurance on resolution” from carriers’ home state regulators.

In tandem with the PRA December announcement, the UK Treasury said it would legislate to ensure that EEA carriers in the UK could continue to pay claims on existing policies after Brexit.

However, the outlook for contract fulfilment for UK insurers operating in certain EEA countries is less certain, save for those which already have plans to establish EU subsidiaries in train.

The London Market Group noted in November that £6bn ($8bn) of premium written in the London market emanates from carriers with an EU base.

About 2,400 EU nationals work in the London insurance market out of a workforce of 52,000, while EU carriers have 6 million policyholders in the UK.

The PRA began accepting applications for branch authorisations at the start of the year. It expects about 200 applications between now and March 2019, up from an average of 12 a year.

Its consultation on the branches proposal ends on 27 February.

Lloyd’s has estimated that male employees across the Corporation are paid 27.7 percent more on average than female staff.

The Corporation published its gender pay gap figures today, as all UK companies with more than 250 staff are required to do by 4 April.

On a median basis, Lloyd’s gender pay gap is 32.1 percent.

The gender pay gap is the difference between the gross hourly earnings for all men and the gross hourly earnings for all women.

There is a higher proportion of men than women in senior roles across the Corporation, Lloyd’s said in commentary on the figures.

Although Lloyd’s has a 50:50 gender balance on the executive committee, there is almost double the number of men than women in the highest-paid quartile of the Corporation, at 66.2 percent compared to 33.8 percent.

In the lowest-paid quartile this is reversed, with over twice the number of women than men, at 66.2 percent compared to 33.8 percent.

There is also a higher proportion of part-time female employees, which can result in slower career progression and impact remuneration, Lloyd’s said. About 11 percent of Lloyd’s employees are part-time. Of these, 92 percent are women.

Lloyd’s CEO Inga Beale said: “We know that access to senior roles has historically been limited by the culture of the insurance sector that was much less inclusive and welcoming than it is now.

“While there has been good progress, particularly over the past 30 years, progress is simply not happening fast enough. We must turn this situation around, not just to benefit women, but to benefit the whole sector.”

For bonuses, men working at the Corporation are paid 36.7 percent more than women on a mean basis, and 40.7 percent on a median basis.

However, the percentage of female employees receiving a bonus is slightly higher than for men, at 87.3 percent compared to 84.7 percent.

“Our mean bonus gap of 36.7 percent is based on actual bonuses paid, and is impacted by the fact that the calculation does not take into account pro-rated bonuses which reflect the reduced hours worked,” Lloyd’s said.

The gender pay gap is different to equal pay, which is men and women being paid the same for the same work or work of equal value and is a legal requirement.

Lloyd’s said it did not believe it had an equal pay issue. However, it said this was reviewed annually.

“Lloyd’s is committed to closing the gender pay gap by working to increase the number of women taking up senior roles across the Corporation, and improve the gender and broader diversity balance across all levels,” it said.

The Corporation said redressing the gender imbalance would require a long-term approach, and said it had set a diversity target of having at least 40 percent women in the top 25 percent-ranking employees in the next five years.

It outlined four 2018 objectives to reduce the gender pay gap over time. These included mandating a 50:50 gender split for all external recruitment long lists, reviewing current succession plans and the execution of a bespoke female development programme.

Lloyd’s will also conduct a full review of family care policies and continue to improve flexible working for all employees.

The Corporation also said it had a number of ongoing initiatives to improve gender equality, including inclusive hiring and unconscious bias training, enhanced progression opportunities for all employees and a gender equality employee network.

In comments published today in the Financial Times, Beale called for a rethink of the reporting requirements for partnerships, such as law firms. Since partners are not deemed to be employees, they do not feature in gender pay data. Beale suggested the omission masked the extent of the gender pay gap at certain firms.

The vast majority of insurance companies worldwide are not prepared for the incoming accounting standard IFRS 17, despite recognising the significant risks it poses to their business

Data from 240 insurance firms reveals that 92% have yet to put their solutions in place, and that 88% know they will need to invest in new processes to support disclosure requirements.

That is according to a new report by Aptitude Software, with chief technology officer, Martin Redington, warning IFRS 17 will be the “most significant change to insurance accounting that has ever taken place”.

“Time is of the essence. It is a massive project with significant risks, and there is not a one-size-fits-all solution, bespoke solutions are required,” he said.

“Insurers need to be selecting their vendors now and working on implementing IFRS 17 financial accounting solutions to avoid the skills shortage and ensure they comply in time.”

The report shows that 78% of insurance companies are still in the early research and impact analysis phase of implementing the accounting standard, which comes into effect at the start of 2021.

It identifies a wide range of challenges that insurers will need to overcome, with 84% of firms having cited having a disparate actuarial environment as being a constraint to delivering consistent calculations.

In addition, it was found that 39% of insurance companies expect to kick off their implementation projects in the second quarter of this year, suggesting a huge demand for expertise at the same time, and a potential skills shortage.

Ernst & Young estimates that smaller life insurers with less than $10bn (£7.4bn) of gross written premium will need a budget of $25m to comply with IFRS 17, while those with more than $25bn will need to spend approximately $150m.

“Insurance company profits are under duress as many sectors have become commoditised and many firms recognise the need to innovate their offerings and operations,” Redington continued.

“In a post-IFRS 17 world, it will be difficult for CFOs to service the many financial and regulatory requirements without an approach that centralises control of reporting and financial data.

“IFRS 17 is already proving to be the straw that broke the camel’s back, driving insurance CFOs to modernise their financial systems.”