12Nov

Jonathan Davidson, Director of Supervision – Retail and Authorisations at the Financial Conduct Authority (FCA) recently spoke on the subject of “purposeful leadership”, and how it relates to a firm’s culture.

Addressing the Consumer Credit Trade Association Conference on Leadership in a Disruptive World in November 2018, Mr Davidson began by speaking of how the FCA wanted to achieve “cultural transformation in financial services”, and that he also wanted firms “to move beyond a compliance mindset.” Of course, all authorised firms need to comply with each of the rules in the FCA Handbook which apply to them, however no firm can afford to see regulation as simply a box-ticking exercise and must always be mindful of what their corporate culture is, and whether it encourages fair outcomes for customers.

Although the FCA remains concerned about certain practices within the sector and continues to devote a lot of its resources towards supervising credit firms, his next set of remarks heaped praise on the sector for the improvements they had made. Here, Mr Davidson commented:

“We are seeing rapid, extraordinary and positive change. Since I joined the FCA 3 years ago, this sector has made immense progress in offering UK consumers better outcomes.

“Many firms have significantly enhanced their approaches to affordability and as a result are making better-informed decisions about whether a loan is affordable. Altogether, I would assert that the sector has become a safer place for borrowers.”

He did add a note of caution though when he commented on how likely it was that credit firms would be faced with the issue of how to treat vulnerable customers. The speaker told his audience that he considered many “gig economy” workers to be vulnerable owing to their uncertain income levels, and that many young people were vulnerable as they sought to pay off student loans and meet the costs of getting on the housing ladder. Furthermore, large swathes of the UK population are vulnerable to rising costs of borrowing as interest rates begin to rise.

Next, Mr Davidson highlighted the case of a consumer who had taken more than 100 payday loans of £100 each over the last few years. Although every one of these loans had been repaid, he commented that the consumer in question was now in “a cycle where only a few days can elapse between her paying off a loan and needing to take a new loan.” He asked firms to note that the Financial Ombudsman Service had recently upheld irresponsible lending complaints in similar circumstances, on the grounds that “the lender should have recognised the emerging pattern of unsustainable debt.”

Payday lending firms were reminded of the FCA’s recent Dear CEO letter, which called for them to consider whether compensation should be paid to their clients, including those who had not submitted any complaints.

Turning to the subject of culture, Mr Davidson warned that the FCA had seen evidence of “a very small number of firms [who] appeared to be trying to make easy money from a vulnerable population.” These remarks related specifically to some firms in the debt management sector. He went on to describe “a flagrant disregard for systems and controls” and added that “these firms aren’t getting it right, but they also aren’t trying to get it right.”

He summed up a key attribute of the forthcoming Senior Managers & Certification Regime by saying of management:

“You are not just accountable for your own actions but – to a reasonable extent – for those who work for you.”

Finally, although the credit sector was praised earlier in the speech, Mr Davidson spoke of “a high proportion of firms [who] operated high-risk incentive schemes with little awareness of the risks driven by these schemes and inadequate controls to address them”. He urged firms to put in place systems and controls where their remuneration system has the potential to encourage staff to act contrary to the interests of customers.

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