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- Robert Bell
FCA Warning: Stop Exploiting The Cost-of-living Crisis To Promote Your Services
The FCA's 'Dear Ceo' letter, issued on 6 May 2022 to 28,000 consumer credit firms, sets out the FCA’s concerns about advertising, particularly in light of the ‘clear, fair and not misleading’ rules, and rules within CONC 3. The letter is of note to a wider body of firms involved in credit lending and broking activities. Significantly, this letter comes under a year before the Consumer Duty comes into force; signaling an intention on the part of the FCA to intervene sooner rather than later; firms should act now.
The FCA is concerned that the rising cost of living is leading to more consumers taking out loans to get by, 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.” Given the current and likely future economic situation, the FCA is taking action now to prevent potential harms to those in the UK who are likely to experience straitened finances and are therefore likely to need credit – including in the short term.
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The FCA highlights high-cost short-term lending in particular, as more and more people are likely to need to use these services to get by. The FCA said “we need to keep the sector under close review to ensure that demand does not result in unsustainable and often unaffordable lending. Firms have a responsibility to ensure they do not exploit the cost-of-living crisis to promote their services. Firms should focus on their customers’ needs, delivering the right information, at the right time, and in accordance with our rules.”
Although the letter points to advertising in particular, firms should not miss the wider message. Good customer outcomes, based around a good understanding of their circumstances and needs, should be at the forefront of business. Firms should be working towards a good-outcomes culture – clearly evidenced – well before the Customer Duty comes into effect.
The list of rules and identified issues muddies the waters a bit, but firms should focus on:
Review whether financial promotions currently in use comply with rules in CONC 3.
Consider conducting a review of financial promotions processes and systems and controls, including any social media, websites, and paid for Google ads; the FCA reminds firms that these communications can also count as financial promotions under the rules.
Ensure any reviews and judgements are well documented.
Ensure the Board has had sight of the FCA letter and are given sufficient evidence and management information to be able to consider the actions taken by the firm in light of issues the FCA have raised.
Coming, as it does, during the period where firms are already having to devote resources to prepare for the Consumer Duty, this additional review will put pressure on already stretched compliance departments. Outsourcing reviews and gap analysis projects to a trusted firm with long standing experience in consumer credit regulation can ease the burden.
We offer a Comprehensive Gap Analysis Service. Our experience with the FCA means we understand what the Regulator wants to see. Our experience across the industry means we can benchmark processes and practices against competitor firms.
For more information, contact Rob Bell: robert.bell@rbcompliance.co.uk.
Impact of the Queen’s Speech
As we previously reported, the Data Reform Bill was announced in the Queen’s Speech in May 2022. The Bill will lead to an overhaul of the UK’s data protection regime. Also contained within the speech were proposals for a new Financial Services and Markets Bill aimed at improving the effectiveness of the regulator, embarking on an approach designed to foster innovation in the market.
Whilst we are yet to receive the details of the two Bills in full, this article sets out what we can expect.
Data Protection Bill
The Bill promises to streamline GDPR [now UK GDPR], ‘cutting down on red-tape’ in the process by creating a more flexible, outcomes-focused approach rather than ‘box-ticking exercises.’ The aim is to reduce some of the burdens imposed by the GDPR and aim to ensure a ‘pro-growth’ model that will help to boost the economy.
Whilst the details are currently sparse, one insight into its contents is the Department for Digital, Culture, Media & Sport’s data consultation which closed in November 2021. The consultation proposed removing the requirement to undertake Data Protection Impact Assessments (DPIAs), which it framed as low-level administrative exercise; introducing a fee for Data Subject Access Requests (DSARs); reducing the independence of the Information Commissioner’s Office (ICO); and removing the safeguard that protects people against solely automated decision-making.
It has also been proposed that Data Controllers be provided with exemptions from the need to respond to DSAR’s, similar to those given under the Freedom of Information Act. Blocking access to people’s own data is likely to be a controversial addition.
Cookies are another potential area of focus, having been mentioned at several intervals. As part of the more-outcomes-based approach to Data Protection, the current prescriptive cookie regime is likely to change. We will produce guidance when the new requirements are clear.
Although the Bill affirms the Government’s commitment to a ‘world class data protection regime,’ it will need to achieve this goal in order to maintain EU equivalency status. Failure to do so risks adding costs to businesses rather than stripping them away.
More on these developments to follow.
Financial Services and Markets Bill
Another change framed under Brexit freedoms is the Financial Services and Markets Bill which aims to amend the current regulatory framework so that the rule making powers which historically sat with the European Union formally move to the Bank of England, Prudential Regulation Authority and Financial Conduct Authority. This approach makes sense as the technical details are best placed within the regulatory rulebooks rather than in legislation.
However, constitutional difficulty begins to arise where the Government then needs to consider the level of oversight of the regulatory bodies. Whilst it sensibly follows that an increased level of oversight is necessary due to their enhanced law-making powers, the separation of powers the UK constitutionally operates under suggests regulatory bodies should remain independent of government. The proposal within the Bill is to enhance Government oversight of the regulators, exactly how they aim to achieve this within the constitutional norms remains to be revealed.
The objectives of the regulators are likely to be updated in order to focus on innovation and growth, an example is the operation of FinTech and cryptocurrencies.
Other likely changes include increased powers to oversee critical third parties, such as IT providers/cloud services. It’s proposed that customers gain greater rights to access cash, a move likely to heavily impact retail banking. Payment Services providers are likely to be given obligations to reimburse customers following a push payment scam.
Again we’re awaiting full details of the Bill, when we do we’ll make sure you’re the first to know.
