The burgeoning consumer credit sector was described as ‘dynamic’ in a recent speech by a Financial Conduct Authority (FCA) director. However, Jonathan Davidson, Director of Supervision – retail and authorisations, also spoke of the need to protect consumers, and the need to maintain the integrity of the peer-to-peer (P2P) lending market.

Addressing the Future of Lending Conference in September 2016, he began by praising credit firms for the way they have engaged with the FCA since it became consumer credit regulator two and half years ago.

Mr Davidson said that the 39,000 applications the FCA had received from firms seeking credit authorisation was “a lot more than we had anticipated.” He suggested many more firms would seek authorisation in the near future because of issues such as lenders seeking to take advantage of the current high margin, low interest rate landscape; and the advent of new platforms and technologies.

Regarding technology, he invited firms to make use of the FCA’s Regulatory Sandbox scheme, where they can apply for permission to test new business models, and where the regulator may relax some of its usual requirements if it is satisfied that customers will still be protected.

Protection of customers was also the main topic of the middle section of Mr Davidson’s speech. He said that the FCA remains concerned about firms’ assessment of affordability, and the way borrowers in financial difficulty are treated.

Two uncompromising statements about the expectations the regulator has of firms, and how it will respond to firms failing to meet their obligations, came next. Firstly, Mr Davidson said:

“Please be aware that we do not see authorisation as a one-off focus on performance, equivalent to cramming for an exam and then forgetting everything you’ve learnt. We will continue to expect you to understand our rules – and take on board their spirit – long after you’ve gained authorisation.”

Then he commented:

“Where we do identify issues with firms, we will not hesitate to take action. You will have seen last week in the media the action we have taken with CFO Lending, who’ve entered into an agreement with us to provide over £34 million redress, to more than 97,000 customers, for issues including failing to assess affordability and failing to treat customers in financial difficulties fairly.”

Mr Davidson also referred to the forthcoming publication of the FCA’s thematic review into staff remuneration, and suggested that having inappropriate remuneration systems could lead staff both to offer unsuitable products, and to act inappropriately when dealing with customers in arrears.

Next he spoke of the growth in the P2P market, as while only 12 firms currently hold full permission in this area, another 85 applications are waiting to be determined, including 39 from firms currently operating under limited permission. He expressed the hope that the P2P sector would not respond to increasing demand by lowering their underwriting criteria, which he said would lead to “affordability issues for borrowers and credit risk for lenders.”

There were also more uncompromising remarks from Mr Davidson in concluding his speech, when he said:

“I … hope I have made it abundantly clear that we see our role as integral to making sure your industry is focused on promoting good customer outcomes. We will continue to pay close attention to personal lenders, and we will certainly not relax our standards. We want to see firms following our rules, but also the spirit of what we are trying to achieve. Ultimately, we all want a landscape where the general public has confidence in you. And we all want a market in which you have confidence that your market is working well – with principled firms protected from unprincipled ones.”

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