Regulatory Round up - November 2024

The end of the year has seen a number of actions taken against firms and individuals.

Volkswagen Financial Services (UK) Limited (VF) was fined almost £5.4m for failing to treat customers in financial difficulty fairly. This is in addition to an agreement to pay £21.5m in redress to around 110,000 customers who may have suffered harm.

The FCA found that VF failed to understand customers’ individual circumstances or to provide support tailored to their needs. Practices, including taking cars away from vulnerable customers without considering other options and sending poor automated communications, risked customers being put in a worse position.

Leigh Mackey was fined £1.1m and prohibited from performing any function in relation to any regulated activities for using money held by his firm, which should have been paid to insurers who provided cover for his company’s customers, to fund the operating costs of his firm and to pay personal living expenses. The FCA found that Mr Mackey breached Individual Conduct Rule 1 (you must act with integrity) and Individual Conduct Rule 3 (You must be open and cooperative with the FCA, the PRA, and other regulators).

In addition to issuing fines, the regulator has started criminal proceedings against three individuals and two firms for allegedly engaging in unauthorised business. The accusation is that regulated credit agreements, hire agreements and contracts of insurance were issued when they were not authorised by the FCA. The FCA is prosecuting for breaches of section 23(1) of the Financial Services and Markets Act 2000 (FSMA).

Research note

The FCA has published analysis of the impact of unexpected changes in income on consumers during the Covid-19 pandemic.

The FCA found that on average, consumers were resilient to negative income shocks, they made sensible financial decisions and efficient use of credit when experiencing income shocks, and that permanent negative shocks led to consumers cutting back on consumption. Importantly, transitory negative income shocks led to increased borrowing, but without increasing the probability of arrears.

In conclusion, permanent income shocks have a significant impact on the customer, whereas transitory shocks have no significant impact. Firms can use this information to inform how they support customers facing financial difficulties and should ensure that staff are able to distinguish between permanent and transitory shocks.

Other findings included that how support is offered impacts consumers’ willingness to engage and follow through with it, for example how easily signposted support is, and the number of steps it takes to engage. Communications perceived as unsympathetic or using negatively associated words (such as ‘debt’) can deter consumers from engaging.

Payments Consumer Duty Review

Published on 9th October 2024, the multi-firm review looked at implementation and gap analysis and mitigation. Of the 23 firms reviewed, just over half were rated as satisfactory, and just under half were found to have only partially implemented the Duty and required significant work to comply with it.

The FCA were positive about firms that had clearly articulated customer-centric purposes and understood what good outcomes and foreseeable harms looked like for their customers. Those that were best able to show compliance had a systematic implementation approach, starting with identifying the target market, defining good outcomes and had a clear governance structure to monitor delivery of good consumer outcomes.

The review sets out good practice and examples of poor practices that need improvement. The FCA have recommended firms read the review and address any shortfalls or gaps in their own approach.

Our Consumer Duty Gap Analysis is the tool you need to assess any gaps in current policies and practices.

REP008: Conduct Rules reporting for solo-regulated firms

A new process for submitting a nil return has been published. If firms have not taken disciplinary action against someone subject to the conduct rules in the last reporting period, then they must answer ‘yes’ to Section 1, must then validate the report, and then submit it from the reporting schedule. The table in Section 2 should not be completed as this will give validation errors – it will disappear once the report has been submitted.

Culture and non-financial misconduct survey

The results of a February 2024 survey, sent to 1,028 regulated wholesale financial services firms are in. The FCA says this is the first comprehensive non-financial misconduct data gathering exercise in the industry and a significant step in understanding the subject matter.

Analysis shows that:

• The number of reported non-financial misconduct incidents increased over the three years.

• The distribution of misconduct types differed by sector, but bullying and harassment (26%) and discrimination (23%) were the most reported types of non-financial misconduct across all sectors.

• Most incidents were reported through reactive routes (grievances or other formal processes). Incidents were also identified through firm-led detection methods (e.g. market surveillance).

• Disciplinary or other actions were taken in 43% of cases.

• Some types of incident, such as violence and intimidation, more often resulted in disciplinary actions than others.

• Discrimination had the highest percentage of incidents resulting in either a settlement or confidentiality agreement.

• Some relevant policies, such as whistleblowing and disciplinary policies, were not in place at all firms surveyed.

Our online training courses introduce new staff to regulatory requirements, key legislation and process, and offer excellent refresher training for established staff, with up-to-date scenarios and soft skills training. Our full range of e-learning courses are available online: Online Compliance Training | RB Compliance Consultancy