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- Robert Bell
Regulatory Round Up: April 2024
The Financial Lives recontact survey, conducted in January 2024, found that the number of people struggling to pay bills and credit repayments has decreased since last year but is still higher than in February 2020 when the current cost of living crisis began.
Around 5.5m people said that they had fallen behind or missed paying at least one bill or credit repayment in the six months before January 2024. This number is down from 6.6m people a year earlier.
The FCA highlights that contact between those in financial difficulties and their lenders remains an issue, with 2 in 5 adults avoiding talking to their lender about their finances.
The FCA is positive about the decrease in customers struggling to repay, viewing it as those customers benefiting from help available in the industry. Firms should ensure that they offer a range of ways for customers to contact them about repayment difficulties, and construct communications to make it clear that customers should feel confident about contacting the firm to discuss difficulties as a range of support options are available.
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Tailored Support Guidance
The FCA has published its final rules, aimed at strengthening protections for borrowers in financial difficulty. In effect, the rules incorporate and build on the Tailored Support Guidance that was issued at the beginning of the Coronavirus pandemic. For consumer credit firms, the changes will appear in CONC.
In short, the new rules will:
Expand protections beyond customers who have already missed payments, to those at risk of payment difficulty
Widen the forbearance options that firms should consider
Enhance expectations around customer engagement and providing information, including on money guidance and debt advice
Require credit firms to consider customers’ individual circumstances when providing forbearance.
The changes also include guidance to help firms determine their necessary and reasonable costs in setting fees and charges, in CONC 7.7.6G(1). The changes come into effect on 4 November 2024; firms should already be compliant with many of the requirements but will need to audit current process and policy to ensure that the amendments to the TSG expectations are also captured and in place by the deadline.
FCA Statement on motor finance firms’ financial resources
While the FCA is reviewing the historical use of motor finance discretionary commission arrangements (DCA), they have found that firms use a range of approaches to “account for the potential impact of previous use of DCA on their financial resources.” As a result, they are writing to firms to remind them that they must maintain adequate financial resources at all times.
The regulator has highlighted that it expects that this would include planning for any additional operational costs from increased complaints and, where applicable, should meet the costs of resolving those complaints.
The FCA also reminds firms that while the review is ongoing, they should continue to investigate complaints involving a DCA and consider the Information Commissioner’s Office guidance on responding appropriately to data subject access requests.
Aiming to set out the next steps by 24 September, the FCA has indicated that it could extend that date if it has not received all of the information it needs to be able to fully review firms’ data.
Travel insurance signposting rules for consumers with medical conditions
The FCA introduced rules in 2020 with the aim of improving access to travel insurance for consumers with more serious pre-existing medical conditions. The regulator has published a review that found that the signposting intervention had a positive, but lower than expected, impact on the market resulting in around 21,000 additional policy sales.
The rules required firms to signpost customers with pre-existing medical conditions to a directory of specialist firms.
The FCA highlighted a number of potential issues in the market. At first glance, the travel insurance market appears to have recovered since the start of the pandemic, but the regulator notes that medical costs have increased since then, making it challenging for consumers to get travel insurance at a price they can afford, potentially reducing demand.
With consumer outcomes in mind, FCA research concludes that directories are helping a higher proportion of consumers with more serious conditions find cover, and that there is evidence that consumers purchasing via the directories appear to be getting comparable value to wider travel insurance for consumers without pre-existing medical conditions.
PRA Business Plan
The Prudential Regulation Authority (PRA) have published their 2024/25 business plan. Sam Woods, Chief Executive, says that the plan includes a range of initiatives aimed at promoting the UK’s competitiveness and growth, including the ‘strong and simple’ project, aiming to simplify the regulatory requirements for smaller banks.
Solvency UK reforms of insurance capital standards will aim to reduce bureaucracy in the regulatory regime, and the Banking Data Review will aim to reduce burdens on firms by focusing on data collection of the most useful and relevant information.
Given the failures of Silicon Valley Bank and Credit Suisse, the regulator will be emphasising the importance of operational resilience, using powers given to it under FSMA 2023.
New EU AI law
The European Union has approved a new EU AI Act that will introduce new regulations on AI developed within the EU. While the new law will undoubtedly impact countries outside of Europe – particularly where firms offer products within the EU – the UK is not likely to introduce similar legislation in the short term.
Aiming to support “trustworthy” AI development and to provide clarity for developers and deployers, the Act aims to “guarantee the safety and fundamental rights of people and businesses.”
The EU AI Act sets a series of risk levels. Systems that are considered high-risk will need to follow transparency requirements and a set of obligations, including maintaining detailed documentation of training methods and datasets. AI that is deemed to pose an ‘unacceptable risk’ will be prohibited, set to include biometric categorisation using sensitive characteristics, educational emotion recognition, social scoring and manipulation of human behaviour, including exploitation of vulnerabilities.
High risk operations will include critical infrastructures, educational or vocational training that may determine access to education and the professional course of someone’s life, safety components of products, employment and management of workers, essential services, law enforcement, migration and border control and administration of justice and democratic processes.
The legislation will apply to firms operating within the EU but will not apply within the UK. The UK government is currently reluctant to create legislation, particularly where it could impact on innovation. Instead, voluntary agreements with governments and companies will continue to support AI technology and development in the UK – at least in the short term.
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