The Financial Conduct Authority (FCA) has written what it calls a ‘portfolio letter’ to the directors of credit broking firms. This letter sets out what the FCA sees as the ‘key risks’ within the sector and asks recipients to “consider the extent of these risks in your business and assess if your strategies reduce the risks.”

After assessing complaints data and other information, the FCA believes that the principal ways in which credit broking could result in harm to consumers are:

  • Firms that do not understand the regulatory environment – this might for example apply to firms offering credit for whom financial services is not their main activity. The FCA says that issues in this area include failing to understand the regulatory permissions the firm requires, and not completing accurate data returns
  • Inadequate procedures for monitoring the activities of staff and any appointed representatives
  • Misleading or inaccurate financial promotions, leading to customers making “uninformed decisions”
  • Firms that have not managed or mitigated technology-based risks, such as the risk of a cyber-attack

The letter – written by Andrew Kay, the FCA’s Head of Department / Retail Lending 1 / Supervision – Retail & Authorisations – also lists a number of concerns over how firms describe the level of service they offer. These issues include:

  • Firms that have arrangements to refer customers to specific lenders
  • Any connection between the broker and the lenders
  • Where commission is paid to the broker by a lender

The FCA says that its supervisory work in the credit broking sector over the next two years will include:

  • Verifying that firms update their Firm Details via the Connect system every year
  • Continuing to produce video guides – here the letter urges firms to sign up to the FCA’s monthly Regulatory Round-up newsletter, so they are aware of the subject matter of any videos the FCA has produced
  • Examining the information firms provide to customers at each stage of the sales process

The FCA says that one of its biggest concerns is the consumer harm that often takes place when domestic premises suppliers sell goods or services by calling at customers’ homes. In many cases, the remuneration model for these types of firms is 100% commission or sales bonuses. This could lead to potential customers being put under pressure to sign up for finance products immediately. This could be especially true when the customer has an urgent need to make a purchase, such as when a heating system breaks down.

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