Capital One 2012 Annual Report Download - page 32

Regulation of International Business by Non-U.S. Authorities
COBNA is subject to regulation in foreign jurisdictions where it operates, currently in the United Kingdom and
Canada.
United Kingdom
In the United Kingdom, COBNA operates through Capital One (Europe) plc (“COEP”), which was established in
2000 and is an authorized payment institution regulated by the Financial Services Authority (the “FSA”) under
the Payment Services Regulations 2009. COEP’s indirect parent, Capital One Global Corporation, is wholly-
owned by COBNA and is subject to regulation as an “agreement corporation” under the Federal Reserve’s
Regulation K.
A coalition government of the Liberal Democrat and Conservative parties was established in the U.K. following
the general election held in May 2010. The new coalition government has made significant changes to the
framework of financial services regulation. As part of these changes, in April 2013, the Financial Services
Authority (the “FSA”) will cease to exist in its current form and will split into a new Prudential Regulatory
Authority (the “PRA”) and a new Financial Conduct Authority (the “FCA”). From April 2013, COEP will be
regulated by the FCA and not the PRA. The FCA is expected to be a more engaged regulator that will be
involved earlier in a product’s lifecycle and will focus more heavily on consumer outcomes. Consultation activity
is also expected during 2013 as to whether and how the U.K. consumer credit regime currently regulated by the
Office of Fair Trading (the “OFT”) should transfer to the FCA and/or whether the existing underlying legislative
framework for consumer credit regulation (under the Consumer Credit Act 1974) should be replaced with a
model similar to regulation of other retail financial services (under the Financial Services and Markets Act 2000).
Regulatory focus on Payment Protection Insurance (“PPI”) complaint handling has continued following the
introduction of new FSA rules in December 2010 governing the handling of PPI complaints. As anticipated, PPI
complaint volumes have increased significantly following the regulatory focus on PPI. COEP has completed root
cause analysis of its historic PPI sales and developed a remediation plan. The FSA is monitoring firms’
compliance with the new complaint handling rules.
Cross-border interchange fees continue to be under scrutiny from the European Commission (the “EC”) and the
OFT. In May 2012, the EC held that MasterCard’s “interchange” fees were anticompetitive, and its decisions
were upheld by the General Court. The General Court held that there was no merchant or consumer benefit that
could justify the restriction on competition implied by the fee. MasterCard has appealed this decision, although it
is not expected that the appeal will be concluded before 2014. The OFT has indicated its own investigation will
remain on hold until after the outcome of MasterCard’s appeal. In August 2012, Visa Europe was warned by the
EC that its multilateral interchange fees may also violate the EU’s competition rules. Twelve major U.K. retailer
groups have issued proceedings against various MasterCard companies and the MasterCard U.K. Members
Forum Limited (“MMF”) for damages arising from their alleged anti-competitive behavior in the setting of U.K.
and intra-European Economic Area fallback interchange fees. COEP is a shareholder in MMF. MMF is in
liquidation and, as a result, COEP and other member banks are providing the legal fees required to enable MMF
to defend the claims. MasterCard has issued an application to stay the proceedings pending the outcome of
MasterCard’s appeal of the General Court’s decision. Three further retail groups have commenced proceedings
against MasterCard, but not MMF, and further claims from retailers against MasterCard, MMF or credit card
issuers may follow.
The EC has also issued a draft regulation which will replace the Data Protection Act 1998. This will be directly
effective without the need for additional U.K. legislation. The date on which the regulation will come into force
has not yet been confirmed, but it is expected to be in the next two years. There will then be a two-year grace
13