The Financial Conduct Authority (FCA) has issued its Annual Report for the financial year 2017/18. The regulator says that the ‘highlights’ of the year were:
- Preparations for Brexit
- Various work on high-cost credit and other consumer debt issues
- Preparing to extend the Senior Managers & Certification Regime (SM&CR) to all financial services firms
- Publicising the payment protection insurance (PPI) claims deadline
The report reminds readers of the five categories of ‘harm’, as defined in the FCA’s Mission document:
- Market abuse and other conduct undermines market confidence
- Customers are victims of mis-selling, buy unsuitable products, receive poor customer service or are otherwise treated unfairly
- Product gaps and consumer exclusion lead to customer’s needs not being met
- Prices are too high, or quality is too low
- Crime and terrorism has a major impact on the wider economy
On the subject of firms’ governance and culture, the report says:
“We place a high priority on ensuring that individuals, especially senior managers, are accountable for their behaviours and are fit and proper for their roles. We also focus on ensuring remuneration and other staff rewards do not create the wrong incentives.”
Specific mention is made of the new rules on how consumer credit firms should manage risks arising from the way they reward their staff.
Regarding SM&CR, which will be extended to all authorised firms from December 9 2019, the report warns that:
“The regime makes it clear that every individual in a firm is responsible and accountable for their own behaviour and that Senior Managers are also responsible and accountable for taking reasonable steps to ensure good conduct in their areas of responsibility. Finally, the regime is designed to ensure that those individuals with the greatest potential to do harm are fit and proper.”
All firms should also take careful note of the section on resilience, given the growing cyber threat. The report highlights the need to have “appropriate governance, risk management, and incident response arrangements.”
Some of the most important messages in the report concern consumer credit. The FCA highlights that its new rules require firms to take steps once a customer has been in persistent debt for over 18 months. Once a consumer has been in persistent debt for 36 months, then appropriate forbearance measures need to be considered, which may extend to reducing, waiving or cancelling interest, fees or charges.
Some of the other key messages in the report regarding retail lending include:
- Where a customer falls into arrears in the first six months, it could be an indication that an unsuitable product was sold
- The CEOs of second charge mortgage lenders have recently received a letter from the FCA asking them to confirm that their affordability assessments are adequate
- Regarding high-cost credit, the FCA has unveiled a package of proposals to reduce costs, improve sales practices and protect vulnerable consumers. The regulator is considering the introduction of a price cap on rent-to-own products
Andrew Bailey, Chief Executive of the FCA said:
“While this Annual Report illustrates the wide range of our activities, there are three key areas that particularly define our work this year.
“The first is our work to prepare for the UK’s withdrawal from the EU.
“The second is regulatory change: this year we have applied legislation which will have profound implications for firms’ transparency, the way they treat consumers and in some cases even their business models. This has included MiFIDII, the second Payment Services Directive and preparing for the extension of the Senior Managers and Certification Regime to all firms.
“And the third area is ensuring that firms treat consumers fairly. Our work this year has sent a clear message to firms that, if they do not treat customers fairly, then we will take action.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article