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FCA issues credit brokers portfolio strategy letter

audit_business_financial_data_credit_Broker Print publication

18/02/2020

In March 2018, the Financial Conduct Authority (FCA) published its ‘Approach to Supervision’ document setting out how it planned to supervise firms. As part of its strategy, the FCA groups the firms it regulates into ‘portfolios’ based on the type of work they carry out and sends a letter every two years to each portfolio of firms, setting out key risks the FCA has identified, and key supervisory priorities for the following two years.

The credit brokers portfolio strategy letter (the FCA Letter) dated 13 February 2020, sets out what the FCA sees as the key risks from credit brokers and highlights the areas of focus for supervision, as Jeanette Burgess explains.

Key risks from credit broking firms

The FCA Letter identifies a number of risks, or key drivers of harm from credit broking firms, based on information and data including firms’ regulatory histories and the type and number of complaints received:

  • many firms did not understand their regulatory requirements, such as the FCA permissions they require and the need to submit accurate returns
  • firms have poor oversight of their staff and/or appointed representatives’ activities, which may increase the risk of mis-selling, fraud or other poor consumer outcomes
  • increased risk of harm to customers from domestic premises suppliers where the sale of goods or services is made in the home
  • misleading or inaccurate financial promotions, leading to risks that consumers will make uninformed decisions
  • firms not explaining important considerations to consumers, such as commission arrangements and whether they are tied agents or make whole of market introductions
  • firms not providing sufficient product information to allow consumers to make informed choices about products or taking reasonable steps to ensure recommended products are not unsuitable
  • firms not considering or managing the risks from technology, cyber attacks and inadequate IT resilience.

FCA supervisory priorities

The FCA Letter also sets out the FCA’s supervisory priorities for the next two years:

  • Ensuring accurate regulatory data – reminding firms that they need to confirm their firm details annually within 60 business days of their accounting reference date
  • Understanding the customer journey and staff/appointed representative oversight – working with third party finance providers to provide further clarity on each stage of the customer journey and examine firms’ oversight of their staff and appointed representatives to prevent the risk of mis-selling. The FCA will also be considering credit brokers’ business models to identify potential harm.
  • Exploring domestic premises suppliers further to identify whether adequate controls are in place to mitigate the potential risks to consumers that the FCA has identified.

Firms are reminded that their systems and controls should be proportionate to the size of the business and the FCA warns that it will consider using the full arsenal of regulatory tools, including enforcement, where firms fall short of the standards expected.

Steps credit broking firms can take

The FCA Letter identifies a number of actions credit broking firms can take in order to help ensure compliance:

  • take note of the areas of concern the FCA has detailed – examine whether your business may need to make changes to reduce harm or potential harm to consumers
  • register for the FCA’s Regulation Round Up monthly newsletter to keep abreast of updates affecting credit broking firms
  • check you hold the correct FCA permissions to undertake your business
  • refresh compliance training for staff and appointed representatives
  • ensure you are registered with the FCA’s ‘Connect’ platform in order to review and confirm your firm details annually.

If you have any queries arising from the above briefing, please contact Jeanette Burgess or any member of Walker Morris’ Regulatory & Compliance Team.

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