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Regulatory update – June 2024

The FCA have fined HSBC UK £6,280,100 for “failing to show forbearance and due consideration to customers when they fell into arrears or experienced financial difficulties.” The regulator estimates that at least 1.5 million customers had suffered, or were at risk of suffering, detriment. 

Breaches of Principles 3 (management and control) and 6 (customers’ interests) were found across secured retail mortgages, unsecured loans, credit cards, overdrafts, and current and savings accounts, affecting HSBC, First Direct, Marks and Spencer Bank and John Lewis Financial Services brands.

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Major issues included:

  • HSBC entered into payment arrangements without conducting appropriate affordability assessments. Some customers were therefore unable to afford the payments.

  • In some instances, HSBC failed to use forbearance to support customers in financial difficulties, or applied inappropriate solutions, such as short-term forbearance options (e.g. token payments) when the customer was experiencing longer term difficulties.

  • Payment default processes were automated or system driven, which resulted in default notices being issued to customers with very low arrears balances and in cases where the accounts could have been brought out of arrears. The result was that adverse information was recorded on some customers’ credit records for up to six years where this could have been avoided.

Identified causes included gaps and weaknesses in the training of front-line agents, who failed to pick up on indicators of financial difficulties or more complex circumstances, gaps and inconsistent application in policies and procedures, inadequate discussion of MI relating to customer outcomes and inadequate quality assurance framework for monitoring customer calls.

A skilled person was appointed in January 2019, with reviews focused on arrears handling, collections and recoveries between November 2017 and October 2018. The review found that in over 40% of the cases reviewed, customers experienced unfair outcomes.

HSBC has also paid around £185 million in redress to affected customers.

GAP insurance

Following FCA action in February, the regulator has announced that some firms are to be permitted to recommence their sales of Guaranteed Asset Protection (GAP) insurance. Initial concerns were that the products weren’t able to provide fair value to some customers. Data collected in 2022 found that there were over 2.4 million GAP policies in force, but that only 6% of the amount customers paid in premiums was paid out in the claims, whilst in some cases, as much as 70% of the value of insurance premiums were paid in commission to parties involved in selling.

The FCA asked firms to provide evidence of value for customers, but on assessing those responses, was not satisfied and so paused sales with affected firms. These firms agreed to make changes to their GAP products “to provide better value for customers.”

The announcement on 24 May confirmed that “a significant proportion of the market is now able to restart sales.” The regulator has made it clear that it will continue to assess fair value in GAP insurance products.

Inflation steady, but unsecured debts rise

UK inflation fell to 2% in May. Lower price growth will be welcome news for those struggling with the rising cost of living. However, TUC analysis suggests that unsecured debt is likely to increase by 9.4% this year on average, per household. This equates to roughly £1600 in additional debts, over loan and credit cards, but excluding mortgage payments and student loans. This would represent the largest rise since 1987 – when records began.

The TUC also notes that polling on its behalf showed that more than four in 10 had to cut back on essentials as the cost-of-living crisis continues.

Analysis by external bodies can be used by firms to support their understanding of their customers and specific target groups. Given this finding, ensuring that customers’ full financial circumstances is understood is vital, as is training to ensure that staff can pick up on indicators that customers may be starting to struggle, so that proactive support can be offered.

Financial Promotions and ‘finfluencers’

Following charges against nine ‘finfluencers’ for issuing unauthorised communications of financial promotions or providing advice when they were not authorised to do so, the FCA has issued a warning that firms must ensure that their social media adverts are lawful.

Financial promotions and their communications are strictly regulated, but the use of social media has meant that some advertisements and communications slip through the net, and are not fair, clear and not misleading, are not balanced, and often do not carry appropriate risk warnings. 

Firms working with influencers remain accountable for the communications those influencers make, and the influencers themselves could be committing a criminal offence if they promote a financial product without approval.

Firms that wish to use social media for financial promotions should follow the guidance published in March 2024.

Whistleblowing quarterly data Q1 2024

The FCA reports that in Q1, it received 298 new whistleblowing reports, which represents an increase on Q4 2023 (249) and when compared to Q1 of 2023 (280). The most popular method of contact was the online reporting form, with 50% of disclosures being made via the form. Email was used in 18% of disclosures, and telephone in 16%.

For firms assessing their own whistleblowing procedures, this shows the popularity of written methods to make disclosures. While the dynamic is different for whistleblowers and larger bodies like the FCA, this data does suggest that having at least one ‘distance’ or written method for whistleblowers to make their disclosures would ensure that individuals who might not feel comfortable using a spoken or face-to-face method are also able to make reports.

Over 150 disclosures were about compliance, with 108 about culture, and 101 about fitness and propriety. Disclosures about the Consumer Duty are becoming less popular, with 30 made in Q1 2024, compared to 49 in Q4 2023, potentially a sign that initial teething problems are resolving.

Data about closed whistleblowing reports shows the regulator took significant action to manage harm in 9 reports, and some action to reduce harm in 138 reports (which may include writing to or visiting a firm or asking it to attest to complying with the rules). 

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