Consumer and Retail Finance – September 2017

Credit Cards Print publication


Latest from the FCA including customer complaints handling and payment services, and other sector news.

Financial Conduct Authority (FCA)

The FCA has published a Dear CEO letter for the attention of all firms engaged in consumer credit activities, regarding the handling of customer complaints.  The letter follows a review by the FCA into how firms approach and deal with customer complaints.  It found examples of material non-compliance and other concerning practices, details of which are set out in the letter.  The following main concerns were identified:

  • a failure to provide the required information to customers about the Financial Ombudsman Service (including a failure to provide details of the complainant’s right to refer to the ombudsman if they remain dissatisfied);
  • a failure to provide a clear explanation, to the complainant, of the outcome of the complaint and why this outcome had been reached;
  • a lack of management controls.

The letter reminds firms that the FCA’s Dispute Resolution rules (DISP) apply to all sizes of firm. The FCA expects firms to take action now, by reviewing how complaints are identified, recorded, and dealt with, and how this is communicated to customers (considering in particular the areas set out in the letter). Firms are reminded that they must be able to evidence compliance with the applicable regulatory requirements.  There is no requirement to notify the FCA of the outcome of the review, but it is important to note that the FCA may ask for evidence of compliance, which includes details of any review carried out as a result of the letter. Firms are warned that serious failings could lead to formal enforcement action.

In a recent speech, “Culture and conduct – extending the accountability regime”, the FCA’s Director of Supervision for Retail and Authorisations discussed, among other things, the Senior Managers and Certification Regime (SM&CR) and what it aims to achieve.  He expressed his hope that SM&CR would be “a good thing for firms as well as customers and markets. It is the antidote to decision-making by default, fostering clear accountability and thinking”. The FCA is currently consulting on the extension of SM&CR to all firms authorised under the Financial Services and Markets Act 2000 (see our earlier briefing for details).

The FCA has finalised the revised EU Payment Services Directive (PSD2) requirements.  PSD2 will be implemented in the UK through the Payment Services Regulations 2017, which come into force on 13 January 2018.  PSD2 will affect all payment services providers, both firms which are already authorised or registered under the existing Payment Services Regulations, and those that are seeking authorisation or registration.  Firms can apply to be authorised or registered under the new regulations from 13 October 2017.  The FCA has updated its PSD2 webpage and this explanatory press release contains links to the recently published PSD2 Policy Statement and Approach Document.  The Payment Systems Regulator has also confirmed its approach to monitoring and enforcement of the new rules.

We reported in an earlier edition of the Regulatory round-up that the FCA was proposing changes to the Conduct of Business Sourcebook and the Mortgages and Home Finance: Conduct of Business Sourcebook, as part of its ‘Smarter Consumer Communications’ initiative. The FCA confirmed in its Handbook Notice 47 that it will proceed to make the changes consulted on.

The FCA has published an Occasional Paper on the Ageing Population and Financial Services, which considers the public policy implications of an ageing population and the impact on financial services, and what the FCA and the financial services industry can do to better support older consumers.

A reminder that the pre-action protocol for debt claims came into force on 1 October 2017. It applies to any business claiming payment of a debt from an individual.  The protocol is intended to complement any regulatory regime to which the creditor is subject, which includes the FCA’s Consumer Credit Sourcebook.  Specific regulatory obligations take precedence over the protocol where there is an inconsistency.  If a dispute proceeds to court litigation, the court will expect the parties to have complied with the protocol.  See our briefing for further details, with a link to the protocol itself.

The FCA said in its latest round-up that it is increasing its focus on anti-money laundering (AML).  This includes an annual review of AML and sanctions systems and controls in approximately 100 largely randomly selected firms, from sectors which the FCA as supervisor considers present a lower inherent risk of money laundering.

On 26 September 2017, the Competition and Markets Authority published the final report on its digital comparison tools market study, which focused on a number of sectors including credit cards. The report was welcomed by the FCA, which has provided expert input on financial services.  See the FCA’s response for further details and a link to the report.

Other sector news

On 22 September 2017, the Law Commission published the full version of the draft Goods Mortgages Bill, which is intended to repeal the Victorian legislation on bills of sale and enable individuals to use their existing goods as security for a loan, while retaining possession.  The Law Commission previously consulted on draft clauses and has now published the results of that consultation together with the draft legislation.  The Law Commission has described the existing law as “wholly unsuited for modern credit arrangements”.  HM Treasury is consulting on the draft Bill until 13 October 2017.  The consultation includes the government’s proposals for how goods mortgages should be registered.

The Financial Services Compensation Scheme (FSCS) announced the launch of an industry-wide agreement on how deposit-takers communicate to consumers about FSCS protection for bank and building society deposits (up to £85,000 per person per firm). The aim is to enhance consumer awareness of the guarantee scheme and provide reassurance that consumers’ money is protected under it no matter how they choose to bank.  The new agreement covers websites, mobile banking apps and customer information sheets.  Banks and building societies have 18 months to implement the agreement.  There is an infographic in the FSCS press release setting out the new requirements.

The European Commission has published a summary of the contributions to its public consultation on FinTech.  The stated purpose of the consultation was to seek input from stakeholders to further develop the Commission’s policy approach towards technological innovation in financial services.  Respondents considered that there were huge opportunities in respect of access to finance, operational efficiency, cost-saving and competition.  In terms of risk, the major concerns were cybersecurity, the use and control of data and money laundering.  The Money Advice Service is supporting Tech City UK’s “Fintech For All” competition, “an opportunity to showcase how innovation could contribute to help improve the financial capability of people in the UK”.

The Joint Committee of the three European Supervisory Authorities published its final guidelines setting out what payment service providers should do to detect and prevent the abuse of funds transfers for terrorist financing and money laundering purposes. A consultation on draft guidelines ran from 5 April to 5 June 2017.

The European Court of Justice ruled that a contractual term in a foreign currency loan agreement requiring the consumer to repay the loan in that same currency was not unfair, provided it was drafted in plain intelligible language [1].  This meant that the average consumer (reasonably well-informed and reasonably observant and circumspect) would be aware both of the possibility of a rise or fall in the value of the foreign currency in which the loan was taken out, and would also be able to assess the potentially significant economic consequences of such a term with regard to his or her financial obligations. Financial institutions must provide borrowers with sufficient information to enable them to take prudent and well-informed decisions.  Under the UK’s Consumer Rights Act 2015, the term must be both prominent and drafted in plain and intelligible language.


[1] Andriciuc and others v Banca Românească SA (Case C-186/16) EU:C:2017:703, 20 September 2017