The Financial Conduct Authority (FCA) has released a video of a webinar on how it will supervise consumer credit firms from April 1 onwards. The video is available on the FCA’s website. Firms’ questions were answered by Denise Sbraga and Francisco Esteves, who are both managers of the team that will supervise consumer credit.

The FCA’s approach will be different to that of the Office of Fair Trading (OFT) in that it will have the resources to subject firms to a formal, ongoing supervision programme; whereas the OFT could often act only once it had received information from other sources about possible issues.

Ms Sbraga began by saying that higher risk firms will receive a higher degree of supervision. All firms are divided into four categories: C1, C2, C3 and C4. C4 firms are deemed to present the lowest risk, and most credit firms will fall into this category.

She then explained the three ‘pillars’ of the way the FCA conducts its supervision activities:

  • Proactive firm supervision – its programme of regular supervision
  • Event-driven, reactive supervision – what happens once issues of concern have been identified. If the additional supervision of a firm carried out at this stage confirms the FCA’s concerns, enforcement action may follow.
  • Issues and products supervision – supervising business sectors to identify areas of concern. An example of this form of supervision is the FCA’s regular thematic reviews, where information is collected on a selection of firms to assess their conduct standards surrounding one specific issue. It has already announced that debt collection practices of payday lenders will be the subject of the first credit-related thematic review.

Mr Esteves reminded firms that, as well as obeying the detailed consumer credit rulebook, they needed to comply with the FCA’s Principles, which include the need to treat customers fairly, the need to conduct business with integrity and the need to provide clear and not misleading information at all times. The last of these also applies to financial promotions. Ms Sbraga later reminded viewers that another principle required firms to co-operate with the FCA at all times.

Mr Esteves added that debt management, payday lending, debt collection, credit cards, home-collected credit and pawnbroking would be early areas of priority, and that visits would be taking place to firms practising in these areas in the early months of regulation to assess conduct standards.

One of the most critical things he later mentioned was for firms to ensure that the FCA was named as the regulator on credit agreements. If this does not occur, the loan may be unenforceable.

He then reminded firms that the FCA can impose a wider range of penalties for non-compliance than was the case with the OFT. Key individuals can be banned from working in financial services, and the FCA can initiate prosecutions, as well as impose fines and prohibition orders on firms. He said that actions causing customer detriment were particularly likely to result in enforcement action, and added that the FCA would be taking over a number of investigations from the OFT.

 

Ms Sbraga urged any firms with queries about regulation to make use of the FCA’s Firm Contact Centre. Only firms in the C1 and C2 categories will be allocated a dedicated FCA supervisor.

Ms Sbraga said all firms would know by May 1 when they should apply to upgrade their interim permission to full permission.

She also gave some indications of the data reporting requirements for firms, in response to the many questions from viewers on this topic. Once credit firms have obtained full permission, they will be subject to the reporting requirements, and this task is likely to be new to firms who have only dealt with the OFT previously. Data is required on the firm’s financial position, numbers of customers and complaints received. Lenders will also need to provide information on the types of loans they are selling. Firms with turnover in excess of £5 million will need to report every six months, while the remainder will report annually.