What the FCA business plan means for Consumer Credit
Last week the FCA published their 2018/19 business plan. In the business plan there are several elements relevant for the Consumer Credit sector. Some of these items will already be familiar to firms, and for most already underway. However, there are new elements and it is important for firms to be aware of these. Here we summarise what Consumer Credit firms need to know.
Cross sector priorities are programmes of activity that affect more than one sector. They reflect the FCA key areas of focus. For the forthcoming period these include: culture and governance, financial crime and anti-money laundering, cyber security and treatment of existing customers. All these cross-sector priorities affect Consumer Credit firms.
The FCA will continue to highlight the importance of culture and governance. This includes the introduction of the new Senior Manager’s Regime which will come into effect for the Consumer Credit sector in 2019. The Regulator is also going to take a wider look at remuneration and commission arrangements. The latest discussion paper from the FCA, DP18/2: Transforming Culture in Financial Services, makes interesting reading for those wanting to understand the FCA perspective greater detail.
Financial Crime and Anti-Money Laundering is another critical issue that the FCA are combating. The Regulator has indicated that they will be undertaking some random sampling of lower risk firms to check the effectiveness of controls. Firms should consider what provisions they have in place and be prepared for making improvements following FCA findings.
Firms’ resilience to cyberattacks and data security arrangements will come under scrutiny. Again, the regulator proposes to carry out some thematic work with lower risk firms. Part of this will be to look at firms’ oversight of third party providers where key functions are outsourced.
One of the other cross sector priorities for the FCA is the fair treatment of existing customers. This is to explore concerns that new customers may be receiving preferential treatment, which is unfair for existing customers.
Consumer Credit Sector Priorities
In addition to the cross-sector priorities are sector specific priorities. The following are the key programmes of work that will affect the Consumer Credit sector:
The completion of the review of high cost credit. The FCA state that they want to send a clear message to the sector that more work needs to be done to improve consumer protection. This includes:
- Pricing policies within the rent-to-own sector, including ‘add-ons’ such as warranties and insurance.
- Home collected credit and the refinancing and rolling up of existing debt
- Catalogue credit, particularly the high arrears levels and associated charges
- Arranged and un-arranged overdrafts
Creditworthiness. The FCA will be issuing a Policy Statement and rules to clarify their expectations around the assessment of affordability.
Credit information market study. This market study will commence in Q4 2018. The main objective is to understand the quality of credit information and how effectively it is shared.
Thematic review, commission and remuneration. The FCA is currently undertaking a thematic review of commission and remuneration models between credit brokers and funders. This is in addition to their specific review of commission in the motor finance sector, which is further detailed below.
Debt advice. FCA is continuing to focus on the quality of advice in the debt management sector. They will be reviewing customer files and visiting firms to interview staff and assess their processes. They expect to report their findings in Q1 2019.
Motor finance sector review. The FCA continue their work reviewing the motor finance sector. This work is targeting responsible lending, particularly to higher risk customers and sales commission. There is concern that customer detriment may arise from
commission structures and whether lender controls, and the current rules, provide adequate protection. The FCA expect to complete the review, and publish their findings, by the end of 2018.
Consumer Credit Act. Currently there is a confusing mix of existing statutory provisions and regulatory rules. There is now consideration for whether the retained provisions of the Consumer Credit Act should be replaced by FCA rules.
Gap Insurance. The FCA will be reviewing the effectiveness of the 2015 rules to improve competition in the gap insurance market.
To review the full FCA business plan document you can access it here: https://www.fca.org.uk/publication/business-plans/business-plan-2018-19.pdf .