FCA Regulatory Updates: May 2022
The Financial Conduct Authority has issued a letter to around 28,000 consumer credit firms, explaining why a review of advertising should be considered. The FCA is concerned that the rising cost of living is leading to more consumers taking out loans, and that marketing “does not give clear information and warnings about how the potential consequences of borrowing puts consumers at risk of finding themselves in a worse financial position.”
Terms that worry the FCA include ‘no credit check loans’, ‘loan guaranteed,’ ‘pre-approved’ and ‘no credit checks.’ Marketing should not suggest automatic acceptance for a loan, or that the lender does not need to check whether the customer can afford it.
The warning applies to credit brokers as well – although they may not conduct creditworthiness assessments themselves, advertising that hints at the lender conducting no credit checks provides a misleading impression to potential customers. Credit brokers should also review whether their material makes clear that they are a broker and not a lender.
Advertising for high-cost short-term credit must carry the relevant mandatory risk warnings. The FCA have also warned that their rules are ‘media neutral’ and that failure to comply because of challenges posed by some media channels – e.g. those with character limitations – won’t be accepted.
The FCA has announced that it will monitor online credit advertising to make sure that consumer credit firms comply; those that do not could face an advert ban, being forced to change or withdraw them, or having permissions removed.
Critical issues in Financial Regulation – FCA CEO Speech
In a speech delivered at City Week 2022, the FCA’s CEO Nikhil Rathi spoke about the challenges facing the regulator – and the UK financial system – over the next 12 months. The cost-of-living crisis permeates much of the FCA’s concerns in one way or another. Consumers will be more reliant on financial services as their exposure to risk increases, meaning a major regulatory focus is on ensuring that firms act in their customers’ best interests.
The Consumer Duty, the FCA hopes, will help to guide firms to design business around what customers need, with the added benefit to firms that the FCA envisages fewer rule changes in future. The Regulator is also keeping a close eye on financial crime issues, and highlights that they have launched the first ever criminal prosecution under anti-money laundering regulations. The FCA reiterates their increasing use of data to stay ahead of emerging issues.
The sandbox – a ‘regulatory safe space’ to test innovative products – is being expanded, with the Regulator using it to support 300 newly authorized firms. This should also help the FCA to identify and address harms quicker, while supporting newer firms. The FCA is also working on regulation of high-risk assets, including crypto, in advance of their receipt of powers over the promotion and marketing of high-risk assets – due to come into effect soon.
In short, the FCA will focus on reducing and preventing serious harm, setting and testing higher standards, and promoting competition and positive changes – all very much within the remit of their objectives, but with updated methods.
Later Life Lending – New Approaches to Support
In a speech delivered on 5 May, Sheldon Mills, the FCA’s Executive Director, Consumers and Competition, noted that later life lending is growing, so to “serve older borrowers well, suitable advice and responsible lending are key.”
The speech focused on lifetime mortgages – a product that has increased from 23,000 in 2015 to almost 45,000 in 2021. Once used to unlock property value for higher living standards, with the shift in cost of living, Mills notes a much wider range of uses, including repayment of secured and unsecured debt, supplementing poor retirement income and supporting family members.
The FCA are hoping to see improvements in a current insufficient personalization of advice, for example failing to challenge customer assumptions, and suitability of advice for individual circumstances. Understanding later life consumers is likely to be an increasing focus for the FCA across all products, with the implementation of the Consumer Duty.
FCA bans five pensions directors
The bans – plus fines totaling over £1m – were issued after a finding that the directors had caused significant losses to pension clients. The directors challenged the FCA’s decisions, but the Upper Tribunal found the five had failed to act with integrity, and their firms had provided unsuitable advice to more than 2000 customers.
While the decision falls under Approved Persons rules and COBS, the finding has wider implications. The focus on integrity and the substance of the finding - that the directors did not consider the actual circumstances of the customers – is relevant given the incoming Consumer Duty. The action taken by the FCA demonstrates their intention to move forward with enforcement where they find harms.
Keeping up with the speed of ongoing regulatory change is a challenge at the best of times. The rules and best practices are constantly evolving, and from this year on, the expectations of the regulator are more involved than ever before.
Training is essential, and it delivers a lot of benefits for minimum outlay. Informed and confident staff will be more likely to notice and be prepared to act on any indicators of breaches and understanding the rules behind the processes makes for more accurate work and higher confidence.
Regular training can also improve efficiency. Staff that understand the background to the rules are more able to adapt their communications with customers in a compliant way. Take vulnerable customers, for example. Understanding how to record sensitive personal data – known as a special category under the GDPR – and in which circumstances this information can and should be collected avoids breaches and improves efficiency. It also has the added benefit of instilling confidence in a customer who may be feeling fragile and that in itself goes a long way to improving brand loyalty and compliance with the Consumer Duty – soon to be the standard in financial services. Regular training also helps to demonstrate compliance to the Regulator.
Our online Treating Customers Fairly course is able to be completed at the learner’s convenience and explains the background to TCF, the FCA’s expectations and why compliance matters, and how each individual can play an integral part.
We also offer a comprehensive online course covering the Fair Treatment of Vulnerable Customers, helping staff understand how to identify vulnerable customers, assess the best support options, and how to record vulnerability in line with legislative requirements.
Each individual course is priced at just £20 per user, is accessible at the delegate’s convenience and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.