Consumer Credit regulation – a lot more to do?

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As these two leading financial services training authorities announce their new compliance-focused partnership, FSTP’s Philippa Grocott and Unicorn Training’s Mark Jones reflect on the first year of FCA consumer credit regulation and what’s next.

So much can happen in a year, although the phrase ‘how time flies when you are enjoying yourselves’ probably does not apply to the consumer credit firms that are just about to commiserate their first year under the regulatory eye of the FCA.

We have already seen high-profile enforcement actions, thematic reviews and intensive scrutiny and supervision of a cross-section of firms in the consumer credit space.

The heart of regulation has always been about providing a better deal for customers.

Yet the review, which covered 60 per cent of the payday market and included a selection of smaller and large firms including online and high street lenders, found serious non-compliance and unfair practices in all firms that it evaluated.

But even as recently as March the FCA revealed that although the payday industry, as just one sector example, is beginning to take a more customer-focused approach to its business, a review of the first 12 months of FCA regulation has shown that too many firms have been failing to meet the requirement to treat customers in arrears fairly.

The regulator admitted it was encouraged by the steps taken by many firms to change behaviour and fully implement the rules, including changes to senior management, revising policies and procedures focused on treating customers fairly, implementing training programmes to ensure staff are equipped to deal with struggling customers appropriately and improving approaches to monitoring, compliance and managing risk.

Yet the review, which covered 60 per cent of the payday market and included a selection of smaller and large firms including online and high street lenders, found serious non-compliance and unfair practices in all firms that it evaluated.

This shows that for all regulated firms yet to achieve ‘full permission’ it remains a concerning time for Senior Management teams, especially those going for Approved Persons status.

Philippa Grocott said: “When working with Consumer Credit firms I often compare the transfer of regulation from the OFT to the FCA with saying a morning ‘goodbye’ to the family cat, who only ever bothers you when they want something to eat, and returning home to a lion roaming the house looking for their next meal and thinking you look quite appealing. 

“Over the past year the Partners at FSTP have attended and spoken at a number of trade body events to gain insight and provide support to firms who are making their way to gaining full permission status.

“I think it is fair to say we have seen more speakers from the FCA during this time than all of the collective years we have worked in financial services. It is really encouraging to see the FCA supporting events, working closely with the trade bodies and putting in the extra leg work to understand the nuances of the consumer credit market.” 

From the outset there was the sense that, despite the obvious pressure from regulators, managers or other avenues within the industry, the majority of firms knew that short termism wasn’t the answer.

There was, and still is, the will to look long-term at getting the right systems and checks in place to ensure firms are compliant, even if in some cases they are not 100% sure if they have covered every base that they are being asked to.

Mark Jones, Unicorn Training Commercial Director, continues: “Trying to make sense of things you may not fully understand can be extremely time, and energy, consuming.

“The key areas we have been asked about over the past year have been the responsibility and accountability of Approved Persons and what do employees need to know about. Can we provide recommended learning pathways?

“Our response has been to ask them to turn that on its head and look at what they already do sufficiently well, what they don’t do at all, what do they need to improve on and what do their employees know and understand about what it means to be regulated by the FCA.

“By identifying the gaps we can help them identify the learning pathways to nurture understanding and behavioural change.”

Sector-specific compliance training has also been high on the agenda. TCF, managing risk, specialist management responsibilities or averting the threat of financial crime can look very different from the car industry perspective to the debt management firms.

The new FSTP and Unicorn Training partnership is particularly focused on bringing more streamlined, sector-specific blended compliance training solutions across the FS industry.

Having helped a number of firms prepare for the ‘Approved Persons’ authorisation process in the past 12 months, FSTP have been party to the feedback and the change in initial information and guidance which firms were given on being consumer credit compliant.

The current regulatory landscape for consumer credit firms will keep evolving. But Philippa has this advice for any firm or individual as they work towards full permission:

  • Always remember the end consumer should be at the heart of whatever you do.
  • Demonstrate your commitment to ‘treating customers fairly’, for example by ensuring that alternative options are discussed with customers prior to on-boarding, even though you don’t offer those options.
  • As far as the regulator is concerned all firms are affected by conduct risk. So whether you are B2B or B2C you are still responsible and accountable for identifying and monitoring potential consumer detriment.
  • A clear and defined structure within your firm, with accountability for risk, governance and oversight clearly apportioned is paramount.
  • Ensure individuals undertaking an ‘Approved Person’ role understand the requirements of the FCA, the requirements of being a Significant Influence Function (SIF), their responsibilities and the implications of getting it wrong.
  • Spend time on the Business Plan to ensure it has the right level of detail. It needs to be clear, consider the firm’s strategy and approach to the market and demonstrate an understanding of the market in which you are operating. Be transparent
  • Robust induction training and development plans help to evidence that your people are competent to do the jobs they have been employed to do.
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