Regulation Round Up - July 2021
Here is our regulation round up for July 2021 covering all the major compliance and regulatory updates you should be aware of for financial services.
Regulation of Funeral Plans by the FCA – Further Proposals
The FCA has opened a further consultation on their proposals for the regulation of funeral plan firms. The Consultation document sets out the final proposed rules, although all proposals are still currently under consideration, particularly any which may need to be updated in light of responses to the most recent consultation.
The additional proposals are around new rules for firms to notify customers following a transfer of a firm’s funeral plan contracts, plus additional guidance to be added to the Funeral Plans: Conduct of Business sourcebook, including recordkeeping requirements, reporting requirements and rights of action for damages.
The consultation also sets out finalised rules on compensation and FSCS protection, plus further proposals including providing for the FSCS to secure continuity of cover, or pay appropriate compensation if that is not possible, and helping to enable the FSCS to seek to recover the sums paid.
Consumer Credit Directive
The European Commission has adopted the proposed Directive on consumer credit, which will replace the current Consumer Credit Directive.
The reasons for the update are in part the increase in ‘digitalisation’ where increasing use of technology has meant changes in the habits and decision-making process of customers who prioritise smoother and faster processes. This has also meant that new credit products have evolved, as have new market players, to offer credit in different forms. The shift to online lending means that there are now considerations around sharing personal information and assessing creditworthiness online, which are relatively new. Covid-19 has accelerated the shift to online platforms, as well as severely impacting already vulnerable customers.
The changes are also, in part, to modify some ‘imprecise wording’ that has been identified as causing legal uncertainty which in turn has led to some differences in service for customers.
The revisions would mean that the CCD would be extended to include loans of less than EUR200 and loans which offer interest-free credit – including Buy Now Pay Later schemes. It will also bring changes to the information provided by the lender. The Directive sets out that general information on credit products available should be accessible by consumers at any time, and that standard information allowing consumers to compare different offers must be provided for credit agreements and crowdfunding credit services. The amount of information provided to consumers in advertising should be reduced, with a focus on key information provided through certain channels required. Pre-ticked boxes, tying practices and unsolicited sales will also be banned.
There will also be an obligation on firms to ensure that staff have the proper skills and knowledge and a direction that creditworthiness assessments should be carried out based on information on financial and economic circumstances, and should be ‘sufficient and proportionate’.
The Directive will now be considered by the European Parliament and the Council of the EU.
Lending Standards Board – Delivering Good Outcomes
The Lending Standards Board have published guidelines that set out how smaller firms and new market entrants can deliver good outcomes for consumers. The piece is the first in their ‘Standards for All’ series.
Focusing on Governance, the paper sets out some factors to consider in working towards the aim to do the right thing by customers, as well as being able to demonstrate having done so.
Each short section – the paper covers policies and processes, risk management frameworks, identifying failures, management information, change management and complaints – explains the steps that can help firms towards good customer outcomes at a high level, which means that firms of any size can benefit from the suggestions and decide how to implement them within their firm.
The policies and processes section, for example, sets out that a policy should express the firm’s aims and strategy, and the process should support policy by explaining how it should be delivered in practice, with the given example that a vulnerable customer policy should define vulnerability and explain the firm is committed to supporting those in vulnerable situations, while the process should set out how that support would be given.
The easy-to-understand suggestions offer a good basis for an analysis of the effectiveness of current practices or a framework for new firms to build towards ensuring good outcomes for customers.
The latest edition of the Financial Ombudsman’s News publication was released on 30 June 2021.
The new edition covers the Ombudsman’s approach to event and wedding insurance, including how firms should handle these complaints – with an eye on the relevant time limits, and ensuring evidence that the complaint has been investigated thoroughly is kept – and how the FOS will act to put things right if it decides a customer has been treated unfairly. This is particularly important as the Ombudsman notes that these types of complaints have increased over the previous 16 months and that it has found in favour of customers in a high proportion of cases. It also includes some case studies.
Business Interruption Insurance is also a focus, with the FOS noting that the pandemic has meant many businesses have been interrupted or have had to close their premises. Over the previous year, complaints have mainly focussed on the insurer turning down the claim, but there have been complaints about how insurance was sold, delays in considering the claim, or the final amount offered. The Ombudsman offers clarity on how they deal with complaints, and how they calculate compensation.
The edition also covers an overview of the Ombudsman’s approach to complaints about the government-backed loan schemes, covering the types of complaints generally submitted, and case studies that clarify its approach to complaints about the Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Scheme.