Consumer credit firms make up around two thirds of the total number of firms regulated by the Financial Conduct Authority (FCA), and these firms have been put on notice to expect further close scrutiny in the coming 12 months.
Publishing its Business Plan for 2017/18, the FCA said its main priorities included:
• Preparing for the UK’s withdrawal from the EU
• Alerting consumers to the August 2019 deadline for making payment protection insurance claims
• Long-term savings and retirement outcomes – reference was made to conducting a review of pension drawdown non-advised sales, and the introduction of the Pensions Dashboard
• Improving competition in a number of sectors
• High-cost credit, with a view to considering whether additional measures are required, similar to the cost cap which already affects payday lenders
• Treatment of vulnerable customers
As regards the last of these, the term ‘vulnerable’ could refer to customers from any sector, and all financial firms are expected to have procedures in place that allow them to identify vulnerable customers, and are also expected to take steps to ensure that vulnerable customers are treated fairly.
However, the issue of vulnerable customers also has particular significance for credit firms. The FCA has remarked on a number of occasions that the very fact a customer has taken out some form of credit product, or maybe entered into a debt management solution, could be an indicator of their vulnerability.
The FCA’s Plan lists a number of issues relevant to the consumer credit sector, which include:
• Whether customers in financial difficulty are being treated fairly
• Inadequate affordability assessments, leading to customers being unable to maintain their repayments
• Whether customers are being provided with clear information to allow them to compare the options available
• Poor conduct on the part of some firms may be causing financial detriment and other adverse outcomes for customers
In his foreword to the Business Plan, FCA chairman John Griffith-Jones urged all authorised firms to ensure that their corporate culture was one that resulted in good outcomes for customers. Mr Griffith-Jones said:
“There is a clear link between poor culture and poor conduct, and the industry must continue its work to achieve and embed cultural change.”
Later on, the Business Plan says on this subject:
“We expect firms to have effective governance arrangements in place to identify the risks they run – with a strategy to manage and mitigate those risks to deliver appropriate outcomes to consumers and markets.
“Firms’ senior managers have a crucial role in demonstrating that they are accountable and responsible for their part in delivering effective governance. This includes taking responsibility, being accountable for their decisions and exercising rigorous oversight of the business areas they lead.
“Boards have a critical role in setting the ‘tone from the top’. We expect them to take responsibility for their firm’s culture and its key drivers, ensure culture remains high on the agenda and that an appropriate culture is embedded throughout the firm at all levels.”
The Plan also warns firms that sell complex products that they may also expect to be closely watched by the regulator. This should serve as a warning to firms that carry out pension transfers, or which offer high-risk structured investment products, that they must consider the interests of their clients at all times. All clients must understand the risks of the transaction they are entering into, and firms must provide suitable advice.
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.