The Financial Conduct Authority (FCA) issued its annual business plan setting out its priorities for the next year along with its 3-year strategy. Following on from last year’s tone, the FCA is clearly looking to continue to raise the bar for firms in authorisations and once authorised through bolstering the supervision resource as part of its transformational strategy.
Following in the footsteps of the SM&CR, the FCA will continue to focus throughout the next year on the ‘New Consumer Duty’. Last year we saw the FCA set out a more assertive style within its plan speaking of a “more innovative, more assertive, and more adaptive” way of regulating firms.
This will mean that where the FCA sees customer detriment, even if there is any doubt as to the FCA’s power to act, they will act on the assumption that they have the power and argue about it afterwards. Firms with activities which are on or around the regulatory perimeter need to be aware of this.
Key areas of focus
The FCA has highlighted four key outcomes all which are vital in ensuring financial markets work well:
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Reducing & Preventing Serious Harm
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Setting & testing higher standards
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Promoting Competition & Positive Change Affordable credit available to consumers to smooth their consumption
New Consumer Duty
Implementing the Consumer Duty needs to be at the centrepiece of every firm’s compliance activity within the Consumer Credit Sector during the next 12 months. The changes will introduce a new principle for business, cross-sector, and specific rules and will certainly affect every authorised firm. This will be key within the outcome to promote positive change. The introduction of product governance across both lender (manufacturers) and broker (distributors) will mean all sectors will have to consider whether the products they provide offer fair value and good outcomes to the consumer.
This will also mean that all firms will need to consider the information needs of the consumer and challenge their existing sales processes and collateral, ensuring they have considered how best to serve the consumer’s needs.
As with any new initiative, all firms, even those in the application stages of authorisation, should be challenging the application and business model in ensuring the new duty has been clearly considered.
Buy Now, Pay Later
Regulatory change in this area feels to have stalled with HMT following the closure of their consultation in January 2022. But as quickly as it feels to have stopped, it will no doubt start again in the next 12 months. I think the largest challenge the government and FCA have in affecting change with this section of the Regulated Activities Order (RAO) is very much the unintended consequences of the changes made to Article 60C. This exemption is used far and wide across many sectors far from the realms of a true credit product. The importance of any change here is ensuring it protect consumers form harm whilst not creating regulatory red tape for those who offer or consumer this product in a healthy way.
Appointed Representatives
The FCA has undertaken a significant amount of work in relation to the Appointed Representative (AR) regime in the past year and new rules are imminent. Most Principal firms would have completed a survey in late 2021 which is likely to signal the increased level of reporting principal firms will need to complete moving forward.
The underlying message from the regulator is that principal firms will need to raise the bar in their oversight of ARs and be able to clearly demonstrate they understand the quantitative and qualitative risks that their ARs present.
Conclusion
In summary, the FCA’s trajectory appears to be tougher, more assertive and more active over the coming three years. Firms seeking to apply for authorisation, as well as those already regulated by the FCA, need to have a good understanding of what the regulator’s expectations are and have systems and processes in place to enable them to evidence that those expectations are being met.
Firms offering consumer credit would be advised to review their customer service process to make sure they offer a high level of care and consideration that is focused on delivering fair consumer outcomes.
