Proportionate Regulation and the Debt Management Industry
Proportionality was the one of the key themes of the day at the recent DRF/Demsa annual conference. Stephen Atkins gave a very insightful keynote speech to explain the approach that the FCA is taking to regulation of firms offering consumer credit, and in particular what this means for the Debt Management Industry.
In combination with the Consumer Credit Act, the principles based regime of the FCA represents a risk based approach to regulation where risk is transferred to firms. Rather than simply set out a series of prescriptive actions, the FCA requires that firms evidence how they are operating in the spirit of 11 principles of business (PRIN), and in doing so ensure that they achieve good and fair outcomes for customers.
This new approach means that firms must act in a way that is proportionate. A firm must first fully acknowledge that its’ actions directly, and often very significantly, impact customer’s lives. And then make reasonable provisions to ensure its’ actions do not impact customers in a way that is of detriment. In managing this risk firms can focus on 9 key risk areas; environment, business, process, prudential, customer and product controls, financial and operational controls, oversight, governance and liquidity.
In practical terms one of the things that the FCA expects is that information and promotional materials are clear, fair and in no way misleading. Advice and sales processes must be equally as clear, open and trustworthy. Another key area of focus is to ensure that remuneration and reward drives sales behaviours that result in good customer outcomes. This should be extended to due-diligence over lead providers, agents and referrers both onshore and offshore. Firms must also make sure that their complaint handling processes meet FCA and FOS rules, which includes that all customer complaints are identified and recorded correctly.
The FCA have acknowledged that the Debt Management industry is complex and that it may take longer for full permissions to be authorised. In the meantime firms were reminded that interim permissions are subject to meeting the FCA’s threshold conditions (COND) which provides that firms comply not just with the Consumer Credit Sourcebook (CONC) but with all of the FCA regulatory handbooks. So rather than there being a period of grace as might have been perceived the full regulations are already in effect.
Whilst there is still time, the FCA landing slots for the Debt Management Industry are fast approaching. Firms should by now be reviewing the application process and the FCA sourcebooks to understand what is required. It is likely that most firms will have to take action and implement new practices into the current ways of doing things.