Consumer and Retail Finance – November/December 2017Print publication
Latest from the FCA including recent consultations, other sector news and looking ahead to 2018.
Financial Conduct Authority (FCA)
The FCA is now consulting on how firms and individuals will transition to the Senior Managers & Certification Regime (SM&CR) and on how it will apply the ‘Duty of Responsibility’ to FCA solo-regulated firms. Comments are requested by 21 February 2018 and a policy statement is expected in summer 2018.
This follows the FCA’s recent consultation on extending the SM&CR to all firms authorised under the Financial Services and Markets Act 2000 (FSMA) (see our earlier briefing for details). In its response to the consultation, the Law Society says that it remains strongly of the view that the legal function should be excluded from the scope of the SM&CR.
The FCA is also consulting on its approach to supervising and enforcing the SM&CR rules for authorised firms’ unregulated activities, including those covered by industry-written codes of conduct. At the same time, it is starting a discussion and seeking views on extending the application of FCA Principle for Businesses 5 (“A firm must observe proper standards of market conduct”) to unregulated activities. Comments are requested by 5 February 2018.
On 14 December 2017, the FCA published feedback on its earlier credit card market study consultation on persistent debt and earlier intervention remedies, and opened a further consultation. This new consultation includes a revised analysis of the costs to businesses of the proposed remedies and sets out how the FCA has changed its thinking on aspects of its persistent debt proposals in light of the feedback received. Comments are requested by 25 January 2018 and a policy statement is expected in Q1 2018.
As part of its high-cost credit review, the FCA published a paper summarising the feedback from various stakeholder roundtables held in September and October 2017.
Following the launch of the FCA’s Mission earlier this year, it recently published a Future Approach to Consumers paper exploring the approach to regulating for consumers. This is the first in a series of documents explaining the FCA’s approach to regulation in more depth. The executive summary is found on pages 7 to 10. The paper is intended to broaden the debate started in the Mission document and to set out the FCA’s views so far. It explains how the FCA currently intends to prioritise the needs of all types of retail consumers in its decision-making and interventions. Questions are set out on page 47 of the paper to support the FCA in formulating its Approach to Consumers. Feedback is sought by 5 February 2018 and a final paper is expected to be published in summer 2018.
There is a reference in the Approach to Consumers paper to the potential need identified by some stakeholders for the FCA to introduce a new ‘Duty of Care’ for firms. The FCA says that it will publish a discussion paper to explore this issue as part of the broader exercise of reviewing the FCA Handbook, best done following the UK’s withdrawal from the EU. It is also referred to in the government’s recent response to a House of Lords Select Committee report on financial exclusion. The government’s responses to the Committee’s recommendations are set out in chapter 5.
On 11 December 2017, the FCA published the next two documents in the series – the Approach to Competition paper and the Approach to Authorisation paper. Feedback is sought by 12 March 2018, with final versions expected in summer 2018.
The FCA is consulting on “Regulatory fees and levies: policy proposals for 2018/19”. The consultation closes on 15 January 2018 and a policy statement is expected in March 2018. Among other things, the FCA invites views on whether and how it might refine the definition of credit-related income to take account of the specific circumstances of consumer hire agreements, and is consulting on a revised methodology for calculating the levy which funds the debt advice work of the Money Advice Service (the proposal being to align the levy more closely with firms’ lending activities).
The FCA published a webpage explaining what consumer credit firms need to report in terms of income on their annual consumer credit returns, used to calculate regulatory fees and levies charged for the following year. It also published a webpage explaining that, together with the Bank of England, it is exploring how technology can provide solutions to the challenges firms face in implementing their regulatory reporting obligations.
The FCA published a policy statement and final rules which require providers of personal current accounts (and business current accounts) to make information about current account services available to customers. It has also published a policy statement and final rules implementing various recommendations from the Financial Advice Market Review.
The latest edition of the FCA’s Data Bulletin focuses on trends in regulated mortgage lending over the last ten years. The recently released mortgage lending statistics for Q3 2017 show a continued increase in mortgage lending activity. On 6 December 2017, the government launched its 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”. It says that winning bids will be selected by a panel of leading figures from the FinTech sector.
The FCA announced details of those firms which were successful in their applications to begin testing in the third phase of the regulatory sandbox, part of the FCA’s “Project Innovate”. It is now accepting applications in relation to the fourth phase.
The draft texts of various FCA speeches were recently made available. On 4 October 2017, the FCA’s Director of Retail Banking Supervision gave a speech on retail banking and payments. Topics covered were the increasing rate of innovation, “game-changing” regulation and legislation, the benefits and regulatory requirements of the revised EU Payment Services Directive (PSD2), Open Banking, and the evolving nature of the risk landscape. On 15 November 2017, the FCA’s Chief Operating Officer gave a speech on “Cyber resilience and supplier risk: moving beyond compliance” which highlighted, among other things, that cyber resilience is not a tick box and should be driven from the top down, with Boards asking probing questions. On 28 November 2017, the FCA’s Executive Director of Strategy and Competition gave a speech on the future of competition and regulation in retail banking, looking in particular at PSD2 and Open Banking. He concluded: “This is a challenging time for retail banks and regulators alike. But with challenge comes opportunity. We want the regulatory climate to be open to and foster those opportunities. Innovations that were once ground-breaking become rudimentary, with possibilities to make a genuine difference in the lives of ordinary people and transform businesses. Our focus, as regulator, will be on harnessing the potential of this new age for the good of consumers”.
With the introduction of PSD2 just around the corner, the FCA recently published a webpage for consumers on account information and payment initiation services. On 27 November 2017, the European Commission adopted regulatory technical standards developed by the European Banking Authority (EBA) on strong customer authentication and secure communication in relation to PSD2. See the press release “Payment services: Consumers to benefit from safer and more innovative electronic payments” for details. The EBA recently published its final guidelines on security measures under PSD2.
Other sector news
The Treasury Committee launched an inquiry into household finances, which will scrutinise problematic indebtedness, inter-generational issues, lifetime financial planning, and the effectiveness of the market in financing solutions and products to low income households.
On 24 November 2017, the Law Commission published its report on the Goods Mortgages Bill, which sets out the final version of the Bill and the Law Commission’s recommendations. The Law Commission consulted on draft clauses earlier in the year and HM Treasury ran a separate consultation which closed in October 2017. The intention is that the proposed legislation will replace the existing Victorian legislation on bills of sale to govern the way that individuals can use their existing goods as security.
The Financial Guidance and Claims Bill, which was introduced in the Queen’s Speech and includes the establishment of a single financial guidance body, was recently passed in the House of Lords and has had its first reading in the House of Commons. A number of the amendments agreed in the House of Lords concern the establishment of a debt respite scheme (the government issued a call for evidence on this topic in October 2017).
The Money Advice Service launched a new five-year debt commissioning strategy aimed at ensuring that debt advice services target those most in need.
The Banking Standards Board is consulting on “What do good banking outcomes look like to consumers?”. Responses are requested by 26 January 2018.
The National risk assessment of money laundering and terrorist financing 2017 was published in October 2017. High-end money laundering and cash-based money laundering remain the greatest areas of money laundering risk to the UK. Chapter 4 looks specifically at the financial services sector. The FCA referred to the assessment in its November Regulation round-up. It contributed significantly to the assessment and agrees with the findings in relation to financial services. Firms are encouraged to review the assessment document, the FCA’s financial crime guidance and the guidance from the Joint Money Laundering Steering Group.
A Sanctions and Anti-Money Laundering Bill is currently making its way through the legislative process. It is intended to ensure that the UK can continue to meet its international obligations and to implement UK sanctions and anti-money laundering measures after the UK leaves the EU.
The Financial Action Task Force has updated its guidance on anti-money laundering and counter-terrorist financing measures and financial inclusion, with a supplement on customer due diligence. It also recently published updated guidance on private sector information sharing.
On 15 December 2017, the European Parliament and Council reached a political agreement on the Commission’s proposal to further strengthen EU rules on anti-money laundering and counter-terrorist financing. See the Commission’s press release with a link through to a factsheet. The proposal is for a directive (which will become the Fifth Money Laundering Directive) to amend the Fourth Money Laundering Directive (MLD4). MLD4 was implemented in the UK by the introduction of the new money laundering regulations which came into force on 26 June 2017.
On 14 November 2017, the European Parliament adopted a resolution on the European Commission’s action plan on retail financial services (published in March 2017). This follows on from a report published by the Parliament’s Committee on Economic and Monetary Affairs in October 2017. The Parliament sets out a number of actions for the Commission in relation to (among other things) easier product switching, a deeper single market for consumer credit, fair consumer protection rules, better creditworthiness assessments, FinTech and online selling of financial services (including cybersecurity issues).
The Financial Services Trade and Investment Board published its 2016 to 2017 annual report, outlining the work of government and industry over the past year to drive the UK’s financial services trade and investment priorities, including in relation to FinTech.
Credit reference agencies Callcredit, Equifax and Experian are launching an industry-wide Credit Reference Agency Information Notice (CRAIN) in preparation for the implementation of the EU General Data Protection Regulation (GDPR) on 25 May 2018. See the Data Protection section of this Regulatory round-up for the latest on GDPR.
The Financial Stability Board has published a report that considers the financial stability implications of artificial intelligence and machine learning, which are being used increasingly by financial institutions, including to assess credit quality and to automate client interactions.
Looking ahead to 2018
- 13 January 2018: PSD2 applies
- Q1 2018: Staff incentives, remuneration and performance management in consumer credit – FCA policy statement and finalised guidance expected. Update on FCA’s work on motor finance also expected.
- Spring 2018: Further FCA consultation paper on high-cost credit expected. FCA interim report from its mortgages market study also expected.
- Q2 2018: FCA policy statement and final rules and guidance on assessing creditworthiness in consumer credit expected.
- Summer 2018: FCA policy statement and final rules on extension of SM&CR expected.
- Q4 2018: FCA final report from its mortgages market study expected.
- Late 2018: Extension of SM&CR to all FSMA-authorised firms expected.
- FCA review of the retained provisions of the Consumer Credit Act 1974 – interim report expected during 2018.