Consumer and Retail Finance – April/May 2019

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Latest from the FCA, including Business Plan and feedback statement on ‘duty of care’; other sector news.Walker Morris risk series stamp

Financial Conduct Authority (FCA)

On 17 April 2019, the FCA published its Business Plan for 2019/20. The Plan outlines four ongoing cross-sector priorities, including work on firms’ culture and governance, and ensuring the fair treatment of firms’ existing customers by monitoring firms’ practices. There are also three additional cross-sector priorities, including ensuring innovation and the use of data work in consumers’ interests, and examining the intergenerational challenge in financial services. At the same time, the FCA also published its annual consultation paper on FCA regulated fees and levies, and its research agenda. Household finance and consumer behaviour is one of five core research themes. See the press release with a link through to the various documents. The FCA’s Executive Director of Strategy and Competition spoke about the Business Plan and the FCA’s priorities for the coming year in his recent speech ‘Financial conduct regulation in a restless world’.

On 23 April 2019, the FCA published a feedback statement following its July 2018 discussion paper on the potential merits of a ‘duty of care’ and potential alternative approaches. Most respondents consider that levels of harm to consumers are high and there needs to be change to better protect them. There are differing views as to whether a new duty (either statutory or expressed within the Principles) is needed, or whether the FCA should wait to understand the effects of the Senior Managers and Certification Regime (SM&CR) on culture and governance before introducing further change [1]. There are also differing views as to whether any new duty should be on a statutory footing.

In response to some stakeholders’ views that a duty of care created within primary legislation would be more effective than one created with the FCA’s existing rule-making powers, and that such a duty would have greater visibility because it would sit above the FCA’s Principles and rules, the FCA says that it does not consider this to be a sufficient basis for making changes to primary legislation, which Parliament would need to make. However, if, as part of its analysis, it takes the view that there are substantive reasons for supporting a statutory duty, it will consider this further. It says that it has identified the options most likely to deliver a high degree of consumer protection – reviewing how the FCA applies the regulatory framework and new/revised Principles to strengthen and clarify firms’ duties to consumers – and these will be its primary focus. It will now carry out further internal work to examine the options likely to be the most effective and proportionate, and will publish a further paper in autumn 2019 seeking detailed views on specific options for change.

On the following day, the FCA published its final Approach to Supervision and Approach to Enforcement documents. They form part of the FCA’s Mission and follow on from consultations during 2018. In relation to supervision, on the topic of cyber and resilience, firms are reminded that the FCA’s rules require them to have appropriate systems and controls to manage and mitigate the risks of harm.

Towards the end of April 2019, the FCA published a series of videos and accompanying webpages to help consumer credit firms understand what they are required to do under FCA rules and what the FCA expects of them. The topics are: treating customers fairly; product development and marketing; and sales and advice.

On 2 May 2019, the FCA published a discussion paper on intergenerational finance, exploring the changing financial needs of consumers from different age groups – baby boomers, Generation X and millennials. The FCA says that it wants to publicly outline its understanding of the issues different generations face, bring together stakeholders to pinpoint issues that need a response, and identify specific action it can take to help the market meet these changing consumer needs. Comments are requested by 1 August 2019. The FCA will hold a conference on this topic in London on 2 July 2019.

The FCA is consulting until 7 July 2019 on proposals for changes to its mortgage sales requirements aimed at helping to give consumers more choice in how they buy a mortgage. This follows on from the FCA’s Mortgages Market Study published in March 2019. In related news, the FCA is also already consulting on proposed changes to its rules to reduce regulatory barriers to consumers who are up-to-date with payments and not looking to borrow more switching to a more affordable mortgage. Feedback is requested by 26 June 2019.

The FCA published an infographic reminding payment service providers of the changes they need to be making now to comply with the requirements of the revised Payment Services Directive (PSD2). The European Banking Authority has recently published clarifications to the second and third sets of issues raised by its working group on application programming interfaces under PSD2.

A recently published webpage includes links to various materials which set out the FCA’s progress and next steps in promoting innovation in financial services.

The FCA is encouraging firms to complete a short survey so that it can understand the current costs of regulatory reporting as part of its digital regulatory reporting pilot, exploring how technology could make it easier for firms to meet their regulatory reporting requirements and improve the quality of information they provide.

And finally, various FCA High-cost Credit Review papers – on overdrafts, buy now pay later, and alternatives to high-cost credit – are expected to be published in June 2019.

Other sector news

The Financial Ombudsman Service published its annual review 2018/2019 on 15 May 2019, reporting an 89% rise in complaints about consumer credit products and services. The chief ombudsman said in her foreword to the report that, when PPI is excluded, they represented one in every three new cases received this year.

On 13 May 2019, the House of Commons Treasury Select Committee published a unanimously-agreed report on consumers’ access to financial services. It warns that banks “can no longer ignore financial inclusion” and sets out a raft of recommendations for the government, regulators and industry on how consumers’ access to financial services can be improved. See this press release for a summary of the report and this reaction from StepChange Debt Charity.

In a recent speech ‘Less-cash, but not cashless’, the Chief Cashier of the Bank of England spoke about how, although the use of cash in the UK is declining, it is still a very important part of today’s payments landscape. Among other things, she mentioned that, while technological advances in payments have the power to support financial inclusion, they currently tend to be designed for the mass market rather than for vulnerable groups, meaning vulnerable groups are rarely early adopters of new payment offerings.

In related news, HM Treasury recently published the summary of responses to its 2018 call for evidence into cash and digital payments in the new economy. Also see this press release which provides a helpful overview of developments. The key points are:

  • the government is committed to supporting digital payments and safeguarding access to cash for those who need it
  • HM Treasury will set up and chair a Joint Authorities Cash Strategy Group to ensure there is comprehensive oversight of the overall UK cash infrastructure
  • the government has no plans to alter the current make up of UK coins and notes in circulation.

The government published a report ‘UK fintech: state of the nation’, which is a comprehensive summary of the UK’s FinTech industry. In her speech at Innovate Finance’s Global Summit 2019 and marking the start of UK FinTech Week, the association’s CEO said that, over the next 20 years, she anticipates the innovative approaches that FinTech is bringing will be embedded in every part of financial and professional services and that all of financial services will be ‘FinTech’. Among other things, she spoke about how she firmly believes the sector has a vital role to play in assisting those who otherwise may be excluded from the financial system: “There are currently 1.3 million unbanked working adults in the UK, 10% of households are still without access to the internet and 30% of people over 65 have never used a computer. Globally, the challenges of financial inclusion, wellness and literacy are felt across societies and economies. Whether it is banking the unbanked, highlighting affordable credit solutions or providing SME loans, these are meaningful and purposeful aspects of delivering the future we all deserve. FinTech has solved some of the most challenging problems facing consumers and businesses today. But we must push ourselves to go further”.

On 3 April 2019, StepChange published its Statistics Yearbook 2018, revealing “the ever-increasing scale of demand for debt help in the UK”. In relation to types of debt, StepChange says that there was a small but worrying rise in the proportion of new clients with payday or other high cost short-term credit debt. This type of debt was primarily among young clients. The incidence was much lower in older age groups. See the press release.

The new Money and Pensions Service was officially launched on 8 April 2019, and called on organisations across the UK to get involved in the development of its strategy to improve the nation’s financial wellbeing. A UK-wide programme of listening events will take place up to the end of June 2019. This ‘listening phase’ will influence the organisation’s strategy to collectively address the five building blocks to managing money and pensions well: savings, credit use, debt advice, retirement and financial education. The press release also sets out a number of key questions to be posed to organisations during this consultation period, for those unable to attend the listening events.

The government is consulting until 10 June 2019 on the steps it is proposing to take to meet the UK’s obligation to transpose the Fifth Money Laundering Directive (MLD5) into UK law. MLD5 contains amendments to the Fourth Money Laundering Directive (which was transposed into UK law largely through the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017) which are aimed at improving transparency and the existing preventative framework to more effectively counter money laundering and terrorist financing across the EU. Assuming there is a post-Brexit transitional period during which common rules remain in place, the UK would be required to implement MLD5 by January 2020. The government says that the consultation will play a key role in deciding how best to transpose MLD5 into UK law in a way that appropriately balances the need for a proportionate approach which manages the burden on business, with the need for regulated businesses to actively discourage money laundering and terrorist financing activity. It intends that the new provisions will come into force by 10 January 2020.

We referred in the March 2019 edition of the Regulatory round-up to a recently published report, in which the House of Commons Treasury Select Committee warns that the UK’s fragmented anti-money laundering system needs re-ordering. The government has since responded to the report. See the press release. Among other things, the Committee Chair says that it is disappointing that the government has chosen not to endorse the Committee’s recommendation for the creation of a register of politically exposed persons.

A voluntary industry code of good practice which aims to better protect customers and reduce the occurrence of push payment fraud comes into effect on 28 May 2019. On 13 May 2019, UK Finance published a blog post on making Confirmation of Payee – a new service that will add an extra authentication step when customers set up payments to new payees – work for all.

On 7 May 2019, a new bill was introduced to Parliament: to make provision to enable consumers to transfer mortgages between providers; to prohibit the sale of mortgage debt to unregulated entities; to prevent the foreclosure of certain business loans; and to establish a Financial Services Tribunal. See the press release from the All-Party Parliamentary Group for Fair Business Banking for details.

The Office of the Public Guardian published a guide to help staff in regulated markets understand the legal requirements when dealing with powers of attorney. As part of the UK Regulators Network, the FCA says that it is encouraging policy makers in financial services and utility companies to use the guide when reviewing how they engage with customers who do not make their own decisions.

On 17 April 2019, the European Central Bank published a report on the current landscape and future prospects for card payments in Europe. It notes that, while the goal of harmonisation in Europe has been achieved for credit transfers and direct debits, harmonisation for card payments is still lagging behind, and a Single Euro Payments Area for cards has not yet been achieved.

And finally, the European Commission is consulting until 2 July 2019 on the EU rules on distance marketing of financial services. The Commission says that the consultation is an opportunity for consumers, retail financial services professionals, national authorities and other interested stakeholders to express their views concerning the relevance, effectiveness, pertinence and coherence of the Distance Marketing of Financial Services Directive.


[1] The FCA will be holding a webinar on 3 June 2019 explaining why the SM&CR is important and how firms should plan for and implement the regime.