Horizon scanning: FCA Consumer Duty regulations

How the NACFB will support regulated Members to deliver positive outcomes

The Financial Conduct Authority continues to drive its vision of outcomes-focussed regulation, with the introduction of rules, guidance, and a policy statement on Consumer Duty which is due to launch on 31st of July 2022.

Consumer Duty will only apply within the FCA’s regulatory perimeter, so it will not apply to non-regulated business. However, the NACFB recognises approximately 94% of the Association’s demographic are regulated by the FCA, meaning the new Consumer Duty regulation will directly impact the day-to-day activities of these Members when the final rules and guidance launch on 31st July 2022. As with any new regulation, the FCA provides firms with a 12-month implementation period, so this should provide Members with a level of comfort that they have time to get it right before supervision goes live.

Regardless of whether a product is regulated or not, if our members engage in the act of credit broking with individuals, sole traders, or partnerships of three or fewer, Consumer Duty will apply. It won’t come down to the product offered but the regulated activity to which the regulated applicant is exposed, so Members will have to implement appropriate measures across their businesses to demonstrate their commitment to good outcomes for their customers when effecting an introduction to a credit agreement.

The potential challenge to Members may come from lenders who choose to reflect the spirit of the rules across regulated and non-regulated activities leading to regulatory scope creep.

Will this be a barrier to your clients achieving their financial objectives?

As mentioned already, with any new regime or principle, the FCA allows firms time to embed appropriate systems and controls to deliver and evidence the FCA’s objective of outcome-based regulation and positive consumer outcomes. As an Association we are now considering how best we can support our members to prepare for this next regulatory journey.

The FCA wants to ensure the products and services offered by firms meet the needs of those to which they are sold and ensure that they represent fair value. The Consumer Duty is intended to overlap the regulator’s Principles for Business, specifically Principle 6 (Best Interests), Principle 7 (Clear Communications) and the 6 Treating Customers Fairly outcomes.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:

“Making good financial decisions is vital to financial well-being and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect. We want to change that. We’ve been working to set a higher standard for firms, to put more of the onus on them to act in their customers’ interests and get their products and services right.

“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do, and we’ll be holding senior managers accountable if they do not. The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumers’ needs.”

The FCA will use assertive supervision and their new data-led approach to intervene quickly when it identifies practices which do not deliver for consumers. The NACFB believes it’s not just about changes to policies or processes. Firms must embed a positive internal culture from the top down and they must be able to demonstrate engagement with their workforce to develop consistent strategies, enabling them to deliver and evidence positive consumer outcomes every time.

Read the FCA’s A new Consumer Duty, feedback to CP21/13 and further consultation.

At the NACFB Commercial Finance Expo 2022 on 15th June, the compliance team will be on the NACFB stand looking to engage with Members to understand how Consumer Duty will impact on interactions with clients and funders, how firms plan to implement the rules, and what approach Members would like to see from the Association to support implementation.

We look forward to seeing you there; however, if you wish to share your feedback or viewpoint prior to the Expo please contact Charlotte Mathieson, Senior Compliance Officer on charlotte.mathieson@nacfb.org.uk.

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