In most cases the Financial Conduct Authority (FCA) only releases significant details of its thematic reviews once it has completed them. However, the regulator has already issued details of how it will conduct its two new studies into the consumer credit market. These reviews will focus on remuneration schemes and arrears management.
The remuneration review will assess a wide range of firms, including debt management firms, lenders and brokers. Some firms for whom credit is a secondary activity can also expect to be included.
The FCA’s previous supervisory work has indicated that there is reason to be concerned that some credit firms are operating ‘high risk’ remuneration and incentive schemes. The four areas of concern the FCA mentions are:
• Firms not considering the risks their incentive scheme could pose
• Where risks have been considered, the measures taken to mitigate the risks are insufficient or ineffective
• Schemes being so complex management and staff could not understand them
• Managers receiving bonuses dependent on the sales volumes generated by staff they supervise
The FCA has already requested information on the incentive schemes operated by the firms selected to participate in the review. It will analyse this information during the remainder of 2015. Then in the latter part of the year, and in early 2016, it will visit firms to seek further evidence regarding how their incentive schemes operate. The final report will be published before the end of the second quarter of 2016.
The arrears review will focus on management of ‘early arrears’ – how firms treat their customers when they first show signs of financial difficulty. Only firms that offer unsecured lending products, including personal loans, credit cards and retail finance, will be included in the review. The FCA aims to discover whether firms are exercising forbearance appropriately, whether they are complying with the detailed Handbook rules on arrears management and whether they are treating customers fairly in general.
This month (August 2015), the FCA is collecting information regarding firms’ arrears management policies, and it will analyse this information during the remainder of 2015. Also before the end of the year, it will review a selection of customer files from participating firms, to gather evidence on how arrears management is working in practice. The third stage will take place in the first quarter of 2016, when the participating firms will be visited by the FCA. Again, the final report will be published before the end of the second quarter.
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.