The Financial Conduct Authority (FCA) have issued their annual business plan setting out their priorities by sector and cross sector considerations. It's now 16 months since the first Covid lockdown, a period that has seen the FCA implement significant measures to provide financial assistance to consumers affected by the pandemic. It's therefore unsurprising to see some of the key areas that are in scope over the next 12 months as the FCA seeks to ensure appropriate consumer protection, but we should equally not lose sight of the central message to adopt a more assertive style.
Signalled a more assertive style
Before we look specifically at the Consumer Credit sector, I'd like to just spend a moment looking at the FCA Chief Executive's opening message. In the message Nikhil Rathi, the FCA Chief Executive, states that the it will be “more innovative, more assertive, and more adaptive”. Of these, an increase in assertiveness is probably the most interesting, and possibly concerning, for FCA regulated firms. Rathi states that the FCA will be “testing the limits of our own powers and engaging with partners to make sure that they bring their powers to bear”.
This is likely to mean that where the FCA sees customer detriment, even if there is any doubt as to the FCA’s power to act, they will act on the assumption that they have the power and argue about it afterwards. Firms with activities which are on or around the regulatory perimeter need to be aware of this.
Key areas of focus
The FCA has highlighted four key outcomes:
- Affordable credit available to consumers to smooth their consumption
- Consumers do not become over-indebted with credit they cannot afford
- Consumers can find products to meet their needs
- Consumers can take control of their debt at an early stage when they fall into financial difficulty. The FCA are particularly keen to ensure that any measures brought in do not affect the quality of lenders' decision making
Financial difficulties and high-cost credit
Three areas of the plan demand close attention, consumers suffering financial difficulties; high-cost credit; and overdrafts.
The FCA anticipate borrowers being more likely to suffer financial difficulty due to the uncertain economic times and they expect firms to continue to ensure support is available to those consumers that need it. Along with the expected increase in financial difficulties, there will be more demand for consumers to receive good quality debt advice. The FCA is planning to consult on policy changes on debt advice before the end of 2021, whilst continuing to monitor firms and their ongoing treatment of customer in arrears.
High-cost credit remains high on the FCA agenda, especially as many consumers use this type of borrowing as they are excluded from mainstream lending. The FCA recognise that there needs to be an increase in legal alternatives to high cost credit and the promotion of more ethical and sustainable finance options.
Finally, have the recent rule changes relating to overdraft charges had a positive impact? This is something that will continue to be monitored by the FCA to make sure customer outcomes have improved.
Buy now, pay later
Following the Woolard Review, and subject to the Treasury’s consultation, the FCA plan to consult on new rules in 2022 in readiness for the expected inclusion of 0% Buy-Now-Pay-Later agreements as a regulated activity. This will include setting out how the authorisation process will work and how this sector will be supervised in the future.
Significant work to improve the Appointed Representative (AR) regulatory regime will take place in the next 12 months. Whilst this will focus on Wholesale markets it is bound to filter into the FCA’s thought processes for supervising the Principal/AR relationships across all sectors, including Consumer Credit where the AR and Introducer Appointed Representative (IAR) structure is prevalent. Ultimately, the main objective from this work is to ensure that consumers are receiving fair outcomes regardless of whether the product or service is provided by the Principal firm or its AR. This will only be achieved through Principal firms taking their AR/IAR responsibilities seriously and ensuring that robust monitoring frameworks are functioning well.
In summary, the FCA is planning to be tougher, more assertive and more active in the coming year. Firms seeking to apply for authorisation, as well as those already regulated by the FCA need to have a good understanding of what the regulator’s expectations are and have systems and processes in place to enable them to evidence that those expectations are being met.
Firms offering consumer credit would be advised to review their customer service process to make sure they offer a high level of care and consideration that is focused on delivering fair consumer outcomes.
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