Consumer Credit & Insurance Newsletter - July 2024

Consumer Credit & Insurance Compliance Newsletter June 2024

Welcome to the very first edition of our compliance newsletter aimed at Consumer Credit and Insurance (CC&I) firms. This newsletter contains a round-up of regulatory articles that provide the latest insight into compliance issues and developments relevant to the CC&I industry over the past few months.

What’s the latest?

As “Change Begins Now” rings through the streets of Whitehall, the forming of a new parliament could kickstart a number of legislative changes affecting financial services. Specifically for the Consumer Credit sector is the reform of the Consumer Credit regime and the previously expected but now stagnant regulation of Buy Now Pay Later (BNPL) credit.

Still dominating conversation is the Consumer Duty and the industry delivering good outcomes and being able to demonstrate this. The FCA, in January, moved quickly to intervene within the GAP insurance sector with a complete ban on sales until firms were able to demonstrate fair value. The sale of GAP has very recently been reintroduced. In addition, the work on everyone’s mind in motor finance sector is the outcome of the FCA skilled persons review expected in September, relating to discretionary commission models.

As always, if you have any questions about the content in this newsletter, then please contact us here and we will be happy to help with your enquiry.

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PS23/4 – Consumer Credit Lending Product Sales Data

For many years now the FCA has been clear it is a data-led supervisor, so it comes as no surprise that Consumer Credit Lending data reporting is being enhanced significantly. This type of granular reporting is already in place within the Mortgages sector; however, the enormity of the task is not to be sniffed at by firms. Whilst the lead-in time for implementation compared to other changes to regulation is longer than most, firms will need to undertake a review of the data it captures and the format in which it is captured to ensure that when the reports are implemented, they are able to report accurately. This affects all lenders with new lending or existing lending books in excess of £2m so it is expected that the vast majority of lenders will be captured by the reporting.

Read more on this topic in my article here.

Consumer Duty – the latest chapter

As the FCA has repeatedly said, Consumer Duty is not a ‘once and done’ exercise for firms. My colleague, Jennifer Cahill, recently hosted a webinar in April – joined by Tim Hogg, from Fairer Finance – where we explored the current Consumer Duty priorities and offered insights into achieving comprehensive customer understanding. The webinar held a particular focus on the board report, the FCA's review on vulnerable customers, and what firms need to do to ensure readiness.

As discussed during the webinar, Cosegic have produced a Consumer Duty board report template for firms to use as a guide when writing their own. When appropriately adapted, this template will help firms demonstrate and evidence compliance with Consumer Duty rules, setting out a framework to help you document the risks and issues identified in delivering good customer outcomes and the actions the firm has taken, or will take, to address them.

To download a copy of the board report template, or watch a recording of the webinar, please click here. Please note, the FCA expects that the production of this board report is not a simple attestation. It should be a comprehensive internal governance exercise where firms challenge themselves on whether they are delivering good customer outcomes for each of the three cross-cutting rules and the four Consumer Duty outcomes.

If you would like guidance or assistance in adopting, adapting the template to suit your business, or support relative to the types of management information and data your firm can use to evidence delivery of good customer outcomes, please contact Jennifer Cahill our Consumer Duty Lead, or a member of my team to learn more about our various different support offerings, including a more holistic review of your Consumer Duty arrangements through an external ‘Consumer Duty Audit’.

Change in Control

In May, we published an article on the approach to acquiring an already regulated firm as, potentially, a quicker and easier route to gaining authorisation. As with most things though, the devil is most definitely in the details. The first and, arguably, most important consideration is choosing the right firm to acquire.

Then, you need to do proper due diligence; not just financially, but also from a regulatory perspective; in addition to the permission profile, what is the firm’s regulatory history, and is it on the FCA’s ‘radar’? You don’t want to be sold a pup!

You might not be acquiring a firm outright, but making changes to the ownership structure, such as creating a holding company structure or introducing a trust. Whilst the ultimate beneficial ownership is not changing there are scenarios whereby the change of structure will need to be approved by the FCA.

To read more about what is at the core of a successful s178 notice, click here.

Artificial Intelligence

The FCA is currently taking a pragmatic approach to the regulation of artificial intelligence (AI) by applying and adapting existing rules and principles to manage AI-related risks. This strategy aims to ensure effective governance of AI technologies while fostering innovation in financial services, without the need to develop a separate regulatory framework exclusively for AI.

The FCA has interpreted the government's five pro-innovation principles for AI and issued a preliminary framework for firms to follow in its "Approach to AI" document. My colleague, Rabih Zeitouny, wrote a helpful article in May, summarising the FCA’s recommendations and considerations for integrating AI into existing regulations. This creates a provisional framework for firms, to ensure compliance and the adoption of best practice, which may yet evolve as AI technologies and their applications grow.

Appointed Representatives – Feedback on Consumer Credit Firms

Back in April, the FCA released some very useful guidance to Consumer Credit Principal firms having assessed the key driver of harm caused within the Credit Broking sector. Whilst this was not issued as a Dear CEO letter, as would normally be the case when addressing a specific portfolio of firms, all Credit Broking principal firms should take stock of the guidance and address any shortcomings in their own controls and processes. You may have already read my If not, take a look here for a full picture on how the increased regulatory scrutiny of principal firms with credit broking permissions has affected the sector, as well as an indication of the key harms and the drivers of harm for firms therein. This article will help you to address shortcomings in your controls and processes to align with the FCA’s expectations.

Long Form A changes

The FCA has introduced a new Form A for Senior Manager Function (“SMF”) and Controlled Function (“CF”) applications (the latter applicable to appointed representatives) and has updated its webpage highlighting the changes. This is part of a wider review/update of its forms accessible via the Connect system and follows industry feedback. Having recently completed a form under the new system it does appear to be slightly quick; however, firms should not underestimate the need to have completed all checks and implemented induction/training & development plans as a result of a thorough skills gap analysis prior to sending in an application.

My colleague Martin Lovick has written a more in depth article covering the changes.

Multi-factor authentication for FCA systems

You may have seen a message on the FCA’s website at the end of May, informing firms of its intention to introduce multi-factor authentication (MFA) to its core systems.

This needs little additional commentary from me, other than to highlight the key systems affected:

• Connect
• Reg Data
• Online Invoicing (Fees Portal)

Also, if you need to contact the FCA’s Supervision Hub (Firm Contact Centre) you are now subject to MFA, with a one-time passcode being sent by SMS text message. Helpfully, there are a number of guidance tabs on the FCA’s page, which should anticipate most questions, including how to add your consultant as an authorised user for your firm. What could possibly go wrong?!

Final thoughts

As ever, if you would like to discuss consumer credit regulation any other aspects of your compliance, then please contact any member of the team. Additionally, if there is any topic you would like us to cover in future editions of the newsletter, then please let me know.

Yours,
Ben