Has anyone else noticed a change of tone coming out of the FCA these days? I remember the days when the ‘principles based’ regulator was exactly that, and all the outputs were at a high level leaving firms to work out proportionate responses, relevant to their individual business model. In my view it’s a good thing if guidance is becoming more specific.
Let me provide two examples of the change
- FG24/2 – Strengthening protections for borrowers in financial difficulty
The FCA final guidance FG24/2 has just come into force. These rules build on, and replace, the earlier Covid Tailored Support Guidance (‘TSG’) and further address the ongoing needs of borrowers in financial difficulty, by strengthening their protections.
The timing of FG24/2 couldn’t be more significant. Despite the potential for future interest rate reductions (the Bank of England still predicts that there will be four 25bp BBR rate cuts in 2025) the Financial Policy Committee has warned that around 420,000 households could see their monthly mortgage payments rise by £500 next year.
Specific guidance offers clear-cut instructions, reducing ambiguity and the potential for differing interpretations.
Helpfully FG24/2 gives firms guidance in several complex forbearance scenarios such as:
- Providing forbearance at scale
- Contract variations for the purpose of forbearance
- Interest rate switches
- Term extensions
- Reducing capital repayments for up to 6 months
Firms will benefit from this specific guidance and will, as a result, be more likely to provide better consumer outcomes.
- Consumer Duty Board Reports: good practice and for improvement
2024 was the first year when Consumer Duty board reports were required and helpfully the FCA have carried out some analysis of how firms have complied with the requirement. The FCA reviewed reports from 180 firms across the retail banking, wholesale, insurance, payments, consumer investments and consumer finance sectors. They looked at small, medium and large firms with a range of business models. They considered a range of firms from larger businesses with dedicated supervisory support, and 55 smaller firms (some of which have less than 10 employees) to ensure that any guidance was sector specific and proportionate.
As with FG24/2 the FCA is very specific in its ‘Consumer Duty Board Reports’ guidance. The FCA is complimentary in respect of some good practices, but firms can be in no doubt that the FCA is of the view that better consumer outcomes will be achieved by:
- Better quality data that justifies actions and conclusions
- A comprehensive view across all distribution chains encompassing all routes used to transact business with a firm
- Better analysis of different consumer groups, including those with characteristics of vulnerability
- Greater challenge, and recording of that challenge, from independent board directors
- SMART action plans which are specific, measurable, achievable, realistic, and time-bound
There are substantial benefits from the nuanced change in approach. Specific guidance offers clear-cut instructions, reducing ambiguity and the potential for differing interpretations. This leads to greater consistency in application, making it easier to enforce and audit. Specific guidance can also be more efficient, as it requires less judgment and analysis from those applying it. This can save time and resources, particularly for smaller organisations with limited expertise. Additionally, specific guidance can provide greater certainty for businesses, allowing them to plan and make decisions with more confidence. Overall, specific guidance can lead to more predictable and reliable outcomes, which is beneficial for both businesses and consumers.
So, if the change in tone is ‘a thing’, is ‘real’ then that’s great for all regulated firms; big and small, complex and simple. If the subtle change is continued into 2025 firms can genuinely look forward to a positive regulator relationship in 2025.
