Regulatory Compliance Round Up - November 2020
This week, we’ll take a look at some of the latest regulatory compliance updates from across the financial services industry.
FCA announces ongoing coronavirus measures
In early November, the FCA announced further measures for borrowers impacted by coronavirus. The Regulator is extending payment deferrals and other support to personal loan, credit card, motor finance, rent-to-own, buy-now-pay-later and pawnbroking customers.
In short, customers who have not yet had a payment deferral will be eligible for two payment deferrals of up to 6 months in total, and those who currently have an initial payment deferral will be eligible for a further payment deferral of up to three months. Borrowers will have until 31 January 2021 to request a payment deferral.
High-cost short-term credit customers who have not yet had a payment deferral would be eligible for a payment deferral of 1 month. HCSTC customers are entitled to one payment deferral in total, and those who have already had one payment deferral and are still experiencing difficulties are encouraged to speak to their lender, who should then provide tailored support.
Payment deferrals are not reported as missed payments on the borrower’s credit file, however tailored support may be reported – lenders should therefore tell borrowers if this is the case.
FCA update on senior manager accountability
The statement confirms that at financial services firms, the Chief Executive Officer Senior Management Function (SMF1) should be accountable for ensuring an adequate process for following and adhering to government guidance. Where firms do not have an SMF1 CEO, this will be the most relevant member of the senior management team.
FCA Directory Updates
The FCA have confirmed that solo-regulated firms must submit their Directory Persons data via Connect by 31 March 2021 via the single-entry submission form.
If firms want their data to appear earlier, they may submit the data from December, with the FCA incrementally displaying submitted data in submission order, with publications to begin from 14 December 2020.
Firms with more than 10 Directory Persons can submit via a multiple add submission form, but a timeslot has to be assigned in order to be able to do this. The FCA are in the process of contacting firms that may be affected.
Transition from LIBOR
UK Finance and the Lending Standards Board have published a report setting out guidance on the transition from LIBOR for small and medium sized enterprises. There is just over a year until the discontinuation of LIBOR, and the guidance and best practice framework is intended to help firms understand the potential impact of the transfer and be in a position to be able to deliver clear communications to their customers.
The recommendations cover:
alternative reference rates (e.g. SONIA) - including an explanation of how SONIA differs from LIBOR
engaging with customers on alternative reference rates - covering the tailoring of information to the customer, communications and engagement strategy and informing customers on the calculation and conventions for alternative reference rates
approaching the transition of existing LIBOR contracts - including identifying contacts that ned to be amended and the selection of alternative reference rates and conduct risk
governance and oversight - covering governance, reporting, individual accountability, risk management and customer treatment.
Claims Management Companies – FCA ‘Dear CEO’ letter
The FCA have published a ‘Dear CEO’ letter, setting out its view of the key drivers of harm in the CMC market, outlining its expectations of CMCs, and describing the FCA’s supervisory strategy and programme of work.
The Regulator suggests that, as consumers who opt to use CMCs are likely to have had something go wrong for them already, this can influence their choices and behaviours in a sector where firms are competing for customers who can choose to complain for free, and who may not be aware of this choice.
The FCA are carrying out a reauthorisation exercise for firms intending to continue to provide claims management services, following the regulator’s take over in April 2019, which assesses whether the firms meet the threshold conditions. Issues identified during the FCA’s assessment of applications include misleading, unclear and unfair advertising, poor disclosure of pre-contractual information, unclear fee structures, poor service standards and a failure to undertake sufficient checks and collect relevant information before presenting claims to third parties.
In addition, the FCA found that some firms have intended to use existing data to re-market claims, which has the potential to increase nuisance calls. As a result of these issues, the FCA is concerned that consumers, particularly those who are vulnerable, may be at an increased risk of harm where CMCs do not understand their regulatory obligations.
The FCA reiterates the importance of taking a proactive approach to regulatory compliance in this Dear CEO letter.
Financial Ombudsman Service News
The Financial Ombudsman Service has issued the 154th addition of ‘Ombudsman News’. The issue includes blogs on how the Ombudsman can help small business with life-changing financial disputes, and the impact of Covid-19 on financial service complaints and SMEs.
The FOS notes that since it opened up its service to more small and medium enterprises, Covid-19 has had a significant impact on the financial landscape. They indicate that complaints are becoming increasingly complex, and that many complaints from SMEs relate to loans issued by banks under the Coronavirus Business Interruption Loans Scheme and the Bounce Back Loans Scheme. There have also been an increase in complaints about credit cards and current accounts.
Prior to the pandemic, the FOS conducted research on the impact of making a financial complaint for SMEs, and found that significant potential effects included reducing cash flow, needing to source alternative funding at short notice and incurring fees and charges. There was also a potential for an impact on wellbeing, and for the majority of those complaining, the CEO, managing director or owner would be the one pursuing the complaint. The FOS found that 84% of SMEs were likely to use the service, and this is vitally important given the challenges of 2020 – the extension of the FOS’ jurisdiction to cover complaints from SMEs came at the right time.
Debt Collection Letters changes
In early October, the Treasury announced that debt collection letters sent by lender and debt collection firms are to change, to include less threatening language and to present information in a clearer format. Firms will also be able to replace legal terms and jargon and instead use more widely understood words.
The new rules will come into force in December 2020, with firms having six months to make the required changes.
The current wording used in the letters has not changed in over 30 years, despite repeated calls from bodies including the Credit Services Association. The CSA welcomed the changes, and hope that they will improve customer experience, make receipt of letters less intimidating and more informative on the next steps, including signposting to free debt advice bodies.
Conduct Rules Training Deadline
With the deadline for firms to have trained their staff on the conduct rules fast approaching, now is the time to think about the training format that best suits your firm. We offer two online Conduct Rules courses, which allow Senior Managers and Certification and all other staff to access and complete the training online and at their own convenience, ideal for those who want to complete the training in their own time, or come back to it to refresh later on.
They provide clear and comprehensive training in the Rules, including a mix of videos, small amounts of text and plenty of scenarios to demonstrate how the rules apply practically.