Consumer and Retail Finance – February 2020

person passing over a credit card Print publication


Latest from the FCA, including sector views analysis; important business immigration changes; other sector news.

Financial Conduct Authority (FCA)

On 18 February 2020, the FCA published its annual Sector Views document, analysing the way the financial environment is changing and the impact of those changes on consumers and market effectiveness.

Chapter 1 covers drivers of change – looking at common cross-sector themes with a focus on those that are having the greatest impact on the sectors the FCA regulates. In relation to the labour market and household finances, UK households’ debt to income ratio stood at 126.6% in Q3 2019. Although it has declined over the past decade, it remains high relative to historic UK levels. Some consumers remain vulnerable to economic shocks and their debts may become unaffordable. The FCA says that it is important that firms are aware of consumers likely to become vulnerable and that they treat them appropriately.

Consumer credit lending is increasing at a slower rate than in previous years but total amounts outstanding have continued to grow since 2013. As of November 2019, the overall annual rate of consumer credit growth was 5.7%, lower than the peak of 10.9% in November 2016. The FCA says that some households will find an increase in consumer credit is sustainable as debt servicing ratios are low due to low interest rates. However, other consumers could risk taking on unaffordable debt if some firms lend without sufficiently considering individual circumstances. An economic downturn or slowdown could amplify these concerns, including the risk that consumers in arrears are not treated fairly.

Technology is identified as a key driver of change across financial services, with the potential to increase efficiency and improve access to products, but also to create harm for consumers.

Chapter 2 of the document covers retail banking and payments. In relation to payments, the FCA is concerned that consumers may not know that some products and services have limited protections, especially if firms are not properly safeguarding customers’ funds. Poor value in overdraft and cash saving products are seen as key issues in retail banking.

Chapter 3 covers retail lending. Here are some of the key points, particularly concerning consumer credit:

  • Drivers of change include: challenging economic conditions are reducing some households’ resilience and the number of consumers becoming over-indebted is increasing; home ownership continues to decline, particularly for younger generations, with the gap between earnings and house prices continuing to stretch affordability for first time buyers; overall borrowing amounts continue to increase but the rate of growth has slowed; overall growth in individual debt is being driven by non-credit debts (just over a third of the average person’s unsecured debt is consumer credit debt – the growth in debt is being driven by other types of debt, including council tax and utilities).
  • Consumer credit firms are facing increasingly challenging trading conditions, particularly in the high-cost markets. This has led to some firms leaving the market and others facing existential difficulties. It has also led to an increasing number of firms lending to consumers with poor credit scores.
  • Guarantor lending remains an area of concern, given the number of guarantors who make at least one payment and the rapid growth in the sector since 2016.
  • From a consumer perspective, there are signs that a growing number are facing financial difficulties and that household resilience for some is reducing. Younger borrowers, renters and those with low credit scores are most likely to be in financial difficulties. Lending to higher-risk consumers is growing. An increasing number of consumers are seeking advice about their financial liabilities, particularly about smaller and typically non-regulated debts.

The analysis will contribute to the FCA’s Business Plan 2020/21 and the decisions it makes affecting consumers, market integrity and competition.

On 13 February 2020, the FCA issued a credit brokers portfolio strategy letter, setting out what the FCA sees as the key risks from credit brokers and highlighting the areas of focus for supervision. See our recent briefing for details.

The FCA has written to credit card firms, telling them to review their approach to persistent debt customers. See the press release.

The FCA carried out a review of how retail banks provide information about Basic Bank Accounts. It found examples of good practice and areas for improvement, including in relation to treatment of a customer showing potential traits of vulnerability.

The FCA and Bank of England are establishing a forum to further constructive dialogue with the public and private sectors to better understand the use and impact of artificial intelligence (AI) and machine learning, including the potential benefits and constraints to deployment, as well as the risks associated with their application.

In related news, the FCA and the Alan Turing Institute are working on a year-long collaboration on AI transparency. See this blog post for details.

On 12 February 2020, the FCA’s Executive Director of Enforcement and Market Oversight delivered a speech on penalties, remediation, and the FCA’s General Principles: “The Principles are the foundations of good conduct and should be an integral part of the operational process of planning or decision-making at all levels and as a way of overseeing and assessing whether the firm’s conduct remains appropriate. If firms and their senior management approach a business activity from the outset using the Principles as a foundational guide, as part of the organisation of activities and as a way of monitoring execution of activities, I am sure we would see considerably less unintended harm caused by misconduct. In short, what we need is less hindsight and more foresight.”

The FCA published an updated webpage on Directory Persons. Firms must submit their data using the FCA’s Connect system as part of the Senior Managers and Certification Regime. The submission deadline for banks, building societies, credit unions and insurance companies is 9 March 2020. The deadline for all other solo-regulated firms is 9 December 2020.

The FCA has decided to recognise the Lending Standards Board’s Standards of Lending Practice for business customers for unregulated activities. See the feedback statement.

The FCA has also confirmed that it will take into account guidance from the industry body for commercial radio on ensuring financial promotions for motor brands on radio are clear, fair and not misleading, when it exercises its regulatory functions.

The FCA updated the tables of collected metrics from current account providers on speed of service and major incidents.

In relation to payments, the Strong Customer Authentication online banking adjustment period comes to an end on 14 March 2020. The FCA’s updated webpage sets out the measures firms are required to take.

And finally, the FCA, Information Commissioner’s Office and Financial Services Compensation Scheme issued a joint warning to insolvency practitioners and FCA-authorised firms to be responsible when dealing with personal data.

Other sector news

An impact assessment for the government’s ‘Breathing Space’ scheme was published on 6 February 2020. See the commentary with a link through to the document. The scheme will be introduced in early 2021.

The founder of is funding a new study which will look to find solutions to help free 170,000 mortgage prisoners.

The Joint Money Laundering Steering Group is consulting until 3 April 2020 on proposed amendments to its Guidance, taking account of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 which came into force on 10 January 2020.

On 24 February 2020, HM Treasury published an updated advisory notice on money laundering and terrorist financing controls in overseas jurisdictions, following recent publication by the Financial Action Task Force (FATF) of two statements identifying jurisdictions with strategic deficiencies in their anti-money laundering/counter-terrorist financing regimes.

On 19 February 2020, the House of Commons Library published a briefing paper on cryptocurrencies – what they are, how they work, the benefits and challenges they offer, and how regulators have reacted to them. Among the benefits and challenges, the paper highlights that the decentralised nature of most cryptocurrencies has made them attractive to organised crime and tax evasion, but the public ledger can enable audit and tracing of criminal transactions; and cryptocurrencies can present major risks to consumers – there is little or no guarantee for protecting investment and there is a wide range of scams that take advantage of the mystique of the cryptocurrency. It says that cryptocurrency exchanges must register with the FCA and follow anti-money laundering regulations, but the FCA can offer little further consumer protection.

In related news, the FATF has issued global, binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing. See this webpage for details.

On 19 February 2020, the independent Access to Cash Review issued a press release calling on the new Chancellor to introduce legislation at the Budget “to protect cash access for as long as people need it, enabling the UK to move forward to a digital future without leaving millions behind”.

On 24 February 2020, the Lending Standards Board published a summary report of the Access to Banking Standard, which aims to help minimise the impact of bank branch closures on customers and local communities.

Pay.UK is consulting until 31 March 2020 on the next generation standard for UK retail payments.

On 14 February 2020, the Payment Systems Regulator gave a revised specific direction to members of the UK’s six largest banking groups to fully implement Confirmation of Payee by 31 March 2020.

A note on important business immigration changes

On 19 February 2020, the government issued a policy statement on the much-talked-about UK points-based immigration system. This reaffirmed the commitment to ending free movement for EU nationals and the introduction of a new points-based immigration system that will apply from 1 January 2021 to both EU nationals arriving in the UK from this date, and citizens from the rest of the world.

Notably, all employers wishing to employ such individuals following the end of the Brexit transition period on 31 December 2020 will need to obtain a sponsor licence from the Home Office, and only roles that meet certain skill levels and minimum salary thresholds will be capable of being sponsored. This is a significant departure from the current regime, under which EU nationals can be employed without the need for sponsorship into any role, regardless of the skill level and applicable salary.

The government is encouraging organisations who do not currently have a sponsor licence but who may need to recruit from the EU or beyond from January 2021 to apply for one. Sponsorship can be a time-consuming, bureaucratic and expensive process, but is something that many more employers will need to get to grips with going forwards due to its proposed extension to EU nationals.

Additionally, EU nationals already in the UK as at 31 December 2020 need to take active steps to register under the EU Settlement Scheme to secure their long-term entitlement to continue living and working in the UK. There will also be significant changes to the current sponsorship rules, which employers who already operate a sponsor licence will need to be aware of. Finally, UK businesses that rely heavily on low-skilled, low-paid EU labour will need to plan for alternatives once the new points-based system is in place.

We have an experienced business immigration team here at Walker Morris, who can advise on the forthcoming changes and assist with sponsor licence applications. We are also holding a business immigration seminar on 12 March 2020, in which we will explain the new rules and give employers a practical guide on how to prepare. Please click here for further details.