Consumer and Retail Finance – March 2018

Print publication


Latest from the FCA, including recent speeches, consultations, final rules and guidance; other sector news.

Financial Conduct Authority (FCA)

The FCA is marking four years since taking on responsibility for consumer credit regulation.

On 15 March 2018, the FCA’s Director of Supervision – Retail and Authorisations gave a speech on ‘Getting affordability right in consumer credit’. He discussed the warning signs of future problems that the consumer credit sector might want to consider strategically as an industry, the key issues that the FCA is still seeing in relation to creditworthiness and affordability, and how firms can pre-empt issues by fostering a healthy, sustainable business model and culture. On the same day, the FCA published an update on motor finance, setting out the main findings of its review so far and the particular areas of concern it now intends to focus on. The review is due to be completed by the end of September 2018.

On 20 March 2018, the FCA’s Executive Director of Strategy and Competition gave a speech ‘Beyond regulation: thinking creatively about consumer credit’. He spoke of how there are over 24 million people with debt on credit products across the UK and regulation of the credit sector “is not a cold academic exercise…A market like this, where the consequences of our decisions are so acute, requires us to get under the skin of a series of complex problems and think creatively about the solutions we apply to them”. He discussed how the existing rules are being upheld, looking beyond existing regulation to identify and fill any gaps (for example, the new rules on persistent credit card debt), working with others to address failure in the market and influence demand, and the role of innovation in securing better outcomes for consumers. Among other things, the FCA hopes to see the emergence of more business models that can provide commercially sustainable, mid-cost lending.

The FCA recently published a discussion paper on transforming culture in financial services. It considers what a good culture might look like, the role of regulation and regulators, how firms might go beyond incentives, and how to change behaviour for the better. The FCA says that as a regulator it has “long gone beyond having the mindset that simply complying with rules is enough” and it wants “to promote a discussion and consensus on the essential features of a healthy culture and how firms, regulators, employees and customers can help deliver that culture”.

In a speech on the same subject, the FCA’s Chief Executive referred to “positive culture”, which “goes right to the heart of what firms and their staff are, what values they represent and the positive ethical customs. It also requires that we all…, as regulator and employer, are prepared to pursue cultural change for the better, in our own world and as part of society more broadly”. He concluded that the role of regulation in culture “is not to attempt sweeping rules, but rather to use rules and supervision to create the right incentives and to provide tools to diagnose the key characteristics”.

Changes to the FCA Handbook were published in Handbook Notice 52, including to align the Financial Crime Annual Return (REP-CRIM) to the Money Laundering Regulations 2017 (MLR) and politically exposed persons guidance.

Further changes were published in Handbook Notice 53, including to the Consumer Credit Sourcebook in relation to problem credit card debt (consultation feedback and final rules were published in February 2018) and in relation to staff incentives, remuneration and performance management (see the recently published policy statement and finalised guidance – these rules come into force on 1 October 2018 and no substantial changes have been made to the content from the July 2017 consultation).

Citizens Advice is calling on the FCA to extend its definition of high-cost short-term credit to include home credit loans. See the recent press release and Doorway to Debt publication.

Rent-to-own firm PerfectHome has agreed a redress scheme of over £2.1 million, after customers were issued with unaffordable loans. See the FCA’s press release. Citizens Advice is calling for stronger protections for all rent-to-own consumers.

The FCA’s latest quarterly consultation paper includes proposed changes to its rules and guidance under the Payment Services Regulations 2017.

Payment service providers that offer payment accounts must report certain data to the FCA by 30 April 2018. See the FCA webpage for details.

At the beginning of the month, the FCA wrote a Dear CEO letter to firms that enter into regulated second charge mortgage contracts, asking them to review their mortgage lending processes and confirm to the FCA, by 1 May 2018, that they are lending responsibly and that their processes, systems and controls ensure that they are doing so. See our recent briefing for more details.

The FCA and Bank of England released the latest mortgage lending statistics, covering the period to the end of Q4 2017, on 13 March 2018.

On 21 March 2018, the FCA published its Approach to Supervision paper (which shows how it aims to be more forward-looking and pre-emptive in its supervision of firms) and its Approach to Enforcement paper (which outlines how the FCA conducts investigations and its powers). These are the latest in a series of documents that the FCA committed to publish following the launch of its Mission. Consultation on the two papers closes on 21 June 2018 and final documents will be published later in 2018. See the FCA’s press release. The FCA recently finished consulting on its approach to authorisation, which was the subject of a speech given by the FCA’s Director of Authorisations on 14 March 2018.

Upcoming publications:

  • A policy statement on regulatory fees and levies: policy proposals for 2018/19 is expected in April 2018 and a two-month consultation on FCA regulated fees and levies: rates proposals for 2018/19 will be launched in April 2018.
  • A policy statement setting out the FCA’s final rules and guidance on assessing creditworthiness in consumer credit is due to be published in Q2 2018.
  • A policy statement on reviewing the funding of the Financial Services Compensation Scheme is expected in Q2 or Q3 2018.
  • An interim report on the FCA’s review of the retained provisions of the Consumer Credit Act 1974 will be published in summer 2018. There will be a series of roundtable discussions and other stakeholder engagement in the second half of 2018 with a final report due by 1 April 2019.
  • As reported in previous editions of the Regulatory round-up, the FCA consulted towards the end of last year on extending the Senior Managers and Certification Regime to all firms authorised under the Financial Services and Markets Act 2000. The FCA aims to publish a summary of responses and a policy statement in summer 2018. It expects that the regime will commence from mid-to-late 2019 (HM Treasury sets the timetable for implementation).

Other sector news

On 20 March 2018, the government published a Financial Inclusion Statement of Intent, following its announcement earlier in the year that £55 million from dormant bank and building society accounts will fund financial inclusion initiatives. The Financial Inclusion Policy Forum met for the first time the previous day. Its mission is “to ensure that people, regardless of their background or income, have access to useful and affordable financial products and services”.

The ‘End High Cost Credit Alliance’ was formally launched on 20 March 2018. It was founded in 2017 by the actor and activist Michael Sheen. Members “are committed to working together to deliver greater impact through collective action, campaigns and public engagement”.

The Chief Ombudsman and Chief Executive at the Financial Ombudsman Service has responded to a letter from the Chair of the Treasury Committee following concerns about decision-making and governance raised in a recent Channel 4 Dispatches programme.

On 12 March 2018, the Banking Standards Board (BSB) published its Statement of Principles for Strengthening Professionalism: The role of the firm, following a year-long project “to explore ways of strengthening professionalism in the UK banking sector for the benefit of employees, customers, clients and wider society”. The BSB also recent published its Annual Review 2017/2018, which includes the key findings from the largest ever survey of behaviour, competence and culture in UK banking.

The Payment Systems Regulator (PSR) has responded to UK Finance’s annual fraud figures for 2017, which include information on authorised push payment scams. The PSR also recently published its third annual report on access and governance and annual plan for 2018/19.

In a speech delivered on 22 March 2018 at the International FinTech Conference, the Chancellor launched the government’s new Fintech Sector Strategy, which is “about creating the best possible ecosystem for Fintech to thrive”. Among other things, the government will establish a ‘Cryptoassets Task Force’ comprising HM Treasury, the Bank of England and the FCA, to “explore further the risks of cryptoassets and the potential benefits of the underlying distributed ledger technology, as well as to assess the future response of the appropriate authorities, including around regulation”. It aims to report back in summer 2018. Digital currency exchange Coinbase has recently been granted an e-money licence by the FCA.

In a speech given at the same event, the Deputy Governor for Markets and Banking at the Bank of England discussed the evolving financial sector and the Bank of England’s role: “It is important that the Bank of England is attuned to the needs and challenges of a changing financial sector so that it can translate that to facilitating the infrastructure changes needed to support the UK’s financial sector and fintech development. But how to do this? In my view, by being open. More specifically, by the Bank of England being open minded, keeping an open door, and being open to change”.

The Lending Standards Board (LSB) recently hosted its third roundtable event with its registered firms, FinTechs and the wider industry, on how digital offerings can be developed to help identify and support customers in vulnerable situations. See this link for some of the key messages coming out of the discussion. The LSB has recently been consulting on a review of the Standards of Lending Practice for personal customers.

HM Treasury has issued a call for evidence on ‘Cash and digital payments in the new economy’. Questions are set out on pages 22 and 23 and responses are requested by 5 June 2018.

In a speech delivered to the Innovate Finance Global Summit, the City Minister announced the winners of the government’s Rent Recognition Challenge, “a £2 million competition to develop applications that help renters boost their credit scores, access credit and get on the housing ladder”. At the same event, the FCA’s Executive Director of Strategy and Competition gave a speech ‘Regulating innovation: a global enterprise’, in which he discussed the international dimension of FinTech, the merits of establishing a global sandbox, and the potential power of the sandbox to solve global problems like money laundering.

In Europe, the European Commission recently published its FinTech action plan and the European Banking Authority published its FinTech Roadmap.

On 5 March 2018, the Joint Money Laundering Steering Group’s December 2017 revised Guidance received ministerial approval. The Guidance can be found here.

HM Treasury has published an updated advisory notice on money laundering and terrorist financing controls in higher risk jurisdictions, following the latest publication from the Financial Action Task Force (FATF). The MLR require the UK regulated sector to apply enhanced customer due diligence to high-risk countries.

On 16 March 2018, the FATF published its report to the March 2018 G20 Finance Ministers and Central Bank Governors’ meeting, setting out its ongoing work to fight money laundering and terrorist financing. Particular areas of focus include the risks and opportunities of FinTech, RegTech and virtual currencies.

In relation to cybersecurity, the World Economic Forum published a white paper setting out research-based solutions to address innovation-driven cyber-risk to customer data in financial services, and the Financial Stability Board (FSB) is developing a cyber lexiconto support the work of the FSB, standard-setting bodies, authorities and private sector participants, e.g. financial institutions and international standards organisations, to address cyber security and cyber resilience in the financial sector”.

The Joint Committee of the European Supervisory Authorities has published its final report on Big Data, analysing its impact on consumers and financial services firms. It found that, overall, the benefits of Big Data innovation currently outweigh the potential risks to financial services consumers.