• Robert Bell

Financial Services Regulation Round-Up - March 2019


As always, we aim to keep you right up to date with all matters to do with financial services compliance, as such we have produced a “regulation round-up” summarising the key updates from March.

The FCA Directory

On 8th March the FCA released the long anticipated final rules on the Financial Services Directory. If you remember from our previous articles, the FCA took steps to create an updated version of the Financial Services Register because, it became apparent, many individuals working in financial services would fall off the register upon commencement of SM&CR. The reason is that some roles, which are currently approved roles, will move into the Certification Regime under SM&CR rather than the Senior Managers Regime. An example is the current CF30 function. Individuals working under that function, upon commencement of SM&CR, would cease to be named on the Financial Services Register. The obvious impact of this is for the customer, who would be unable to ascertain whether the individual had proper authorisation from the FCA to be able to offer the services.

Therefore, the FCA consulted on creating a Directory containing information on those individuals who undertake a certification function. It should be noted that the Register will continue and will include those senior managers under the Senior Managers Regime. As part of the consultation plenty of decisions needed to be made, not only whether the Directory itself was a good idea, but what information should be included. The emphatic industry view is that a directory of those working within financial services should go ahead, the FCA highlighting that the FS Directory will promote transparency by requiring firms to disclose a relatively granular level of detail on their staff.

From the perspective of firms, the FS Directory will make it quicker and easier to check the work history of new hires, complimenting the regulatory reference regime. Wider regulatory benefits include enabling the FCA to better identify and prioritise high risk supervision cases as well as the creation of a robust information sharing network with intelligence partners including the police and other regulators.

The new directory will contain not only those in the Certification Regime but the non-executive directors who fall out of the Senior Managers Regime as well as Appointed Representatives.

Particularly interesting is the detail which will be kept on the register:

  • employer details;

  • any restrictions applying to a firm’s regulated activities;

  • individual’s name and unique individual reference number (IRN);

  • relevant roles held by the individual (e.g. applicable certified function under SMCR);

  • start and end dates of each role;

  • where applicable, the type of regulated business an individual is qualified to undertake (e.g. retail investment advice, mortgage advice and pensions advice);

  • workplace locations (required only in relation to customer-facing roles and not required where the firm believes that disclosure of this information might put the individual at risk);

  • customer engagement methods, for example face to face, telephone and/or online;

  • membership of relevant accredited bodies such as the Chartered Insurance Institute, the Pensions Management Institute and the London Institute of Banking and Finance;

  • regulatory sanctions and prohibitions including any Final Notice, withdrawal of approval or financial penalty; and

  • date the information was last updated.

As you can see, the information above could be really useful when reviewing regulatory references.

The FCA Directory will be open for Banks and Insurance providers to use from September 2019 with a deadline of March 2020 for the information to be submitted. Firms must keep the data up to date and, at least annually, review the data. The FCA may fine firms £250 for not doing so.

If you are a solo-regulated firm falling under SM&CR in December 2019 the register will be available from that date with a final deadline of December 2020.

If you require any further information please don’t hesitate to contact us.

Motor Finance

The FCA have been looking into access to motor finance for some time, since April 2017 in fact! They released their final findings in March 2019 which highlighted three areas of concerns:

  1. The way in which firms remunerate their brokers

  2. Pre-contract disclosures

  3. Affordability assessments

The FCA were most concerned about the wide-spread use of commission structures which link the brokers payment to the interest rate given to the customer, finding that some lenders allowed the broker flexibility when deciding the interest rate but paid the broker a greater amount where they agreed higher interest rates. For obvious reasons this creates a conflict of interest and, often, the customer gets a bad deal. Firms need to take steps to place controls into their models to prevent brokers from inflating the interest rate where the customer could qualify for a better rate. Furthermore the FCA hint at changes to CONC to support the drive away from such payment structures – expect the FCA to ban commission structures which change based on value.

The FCA undertook a number of mystery shops and found that many sales staff were not in compliance with the existing rules which require firms to present pre-contract information in good time before a sale, this is to enable the customer to make an informed decision. Furthermore, brokers are required, under CONC, to provide information about their status and commission, again the FCA did not see compliance with this requirement. Some of the rules in this area can be complex, for example, the need for a broker to provide an information notice relies on a number of factors, however, you can contact us for specific advice.

Generally brokers must disclose the existence of any commission or other financial arrangement with a lender which could affect the broker’s impartiality in promoting a particular product or impact on the customer’s decision-making. Such disclosure should be clear and readily comprehensible. In addition, the broker must disclose the amount (or likely amount) upon request. Lenders also have obligations in this area. In particular, CONC 1.2.2R requires lenders to take reasonable steps to ensure that persons acting on their behalf comply with CONC. This includes compliance with rules relating to disclosure of commission.

Last year the FCA implemented new rules for the consumer credit sector around affordability assessments, the FCA found that many motor finance firms were still not compliant with such rules. Essentially, the new rules preclude a firm from relying solely on credit checks to ascertain a persons creditworthiness under CONC 5.2. Instead, firms must also review the customers affordability. More information can be found in our article - FCA's Proposed New Creditworthiness Rules: What You Need To Know.

Rent to Own Market

On the 5th March the FCA announced it will place a price cap on the rent to own market, similar to the action the FCA took on the payday lending market. The price cap works by:

  • setting a total credit cap of 100%

  • introducing a requirement that firms must benchmark product base prices (including delivery and installation, but excluding any add-on products like warranties etc) against retail prices

  • preventing firms increasing their prices for other goods and services sold with an RTO agreement – for example, theft and accidental damage cover, extended warranties, or arrears charges – to recoup lost revenue from the price cap

Debt Management

The FCA have published their second thematic review of the debt management sector looking at commercial and not-for-profit firms that provide debt advice and administer debt management plans. The review shows that most customers are getting better advice and outcomes than was previously the case, and firms that have focused their culture on what is best for their customers have made the biggest strides. However, there are still areas where firms must do better – particularly in identifying and helping vulnerable consumers.

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