Consumer Credit & Insurance Newsletter - October 2024

Consumer Credit & Insurance Compliance Newsletter October 2024

Welcome to the latest edition of our compliance newsletter for Consumer Credit & Insurance. The traditional quiet summer season for regulatory developments – extended this year by the UK General Election campaign, is well and truly over and some might say the FCA are making up for it. Indeed the remainder of 2024 in the Consumer Credit and Insurance sector will be interesting for at least a number of reasons.

What’s the latest?

In the Consumer Credit sector, the FCA have consulted on an increase to the amount of regulatory reporting from all firms showing their drive to being a data led regulator.

In the Insurance sector, the FCA continue to challenge the fair value of products. Whilst Guaranteed Asset Protection (GAP) sales are returning slowly, the FCA has announced it will carry out further work in the general insurance and life sectors following concerns raised with product governance processes in a recent market study.  

The motor finance review continues to loom over the industry with very little being made public as to the progress and likely outcome. However, it is very likely  that lenders will have to draft in resources, at the very least, to handle the complaints which are piling up, as a result of the publicity surrounding this issue.

Recently, Consumer Duty has highlighted the importance of treating vulnerable customers fairly and appropriately, as it is woven throughout the Duty's framework. Currently, the FCA is conducting a review of how firms manage their vulnerable customers, with findings expected to be published later this year. In anticipation of the publication of the FCA’s findings, we hosted a webinar about vulnerable customers which provided practical guidance on how firms can take on board and to manage their regulatory expectations. Click here to view a recording of the webinar.

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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Proposed enhanced data reporting requirements: FCA Consultation Paper CP24/19

The FCA released a consultation (CP24/19) which aims to increase the level of detail received from consumer credit firms. At present a typical secondary credit broker will provide six pieces of data to the FCA on annual basis within the Consumer Credit (CCR007) report. The latest consultation, in a long line of increased data reporting requirements implemented by the FCA across the whole sector, sets out to scratch beneath the surface and understand a firm’s regulated activity in more detail.

In the main, this is a welcome change given the very little information currently held by the regulator for credit brokers. However, it will require all firms affected to review the data they currently hold regarding their activity and ensure they are ready to meet the reporting details when it is implemented. Given the data-led supervision strategy the FCA has implemented in other sectors, it is unlikely that there will be any wholesale changes to the consultation, albeit a few minor amendments in relation to the practical application of the reporting. To read our article which lists all the new reporting requirements click here.

The Consumer Duty one year on: the FCA reports inadequate implementation in many areas

The Consumer Duty, which came into force on 31 July 2023 and for closed products and services one year later, was always as much a holistic philosophy for firms in their treatment of retail customers, as it was a set of prescriptive rules and guidance.

Firms subject to the Duty were required to make their first board reports on the subject by the end of July and will have to continue to do so annually. Jennifer Cahill looked at some of the common mistakes firms make in this important aspect of their governance, some of which have been already identified by the FCA.

Identifying and supporting vulnerable customers is another key requirement of the Consumer Duty and again Jennifer Cahill has looked at ways in which firms should seek to do this.

In September, the FCA published examples of good and bad practice in Consumer Duty price and value outcomes following a review of firms’ fair value assessment frameworks.

What does the temporary complaint handling extension mean for the motor finance industry?

On 30th July 2024, the FCA (‘the Regulator’) issued an update extending its temporary complaint handling rules for discretionary commission arrangement (DCA) complaints, in the motor finance industry. The Regulator is proposing to extend the current complaint handling pause it originally imposed on 11th January 2024 to now end on the 4th December 2025. This is to allow ample time for the FCA to collect and review the data from its initial review.  

As part of this pause, the FCA intends to set out the next steps in its review of past use of DCAs in May 2025. By then, the FCA expects to have analysed the data collected from firms and assessed the outcome of the Barclay’s judicial review of the Financial Ombudsman’s decision to uphold a DCA complaint. As a result of this, the next steps could involve consulting on a redress scheme.

Consumer Credit – are you captured by the Money Laundering Regulations?

In March, the FCA sent a Dear CEO letter to firms they supervise in relation to Money Laundering Regulations (MLRs), otherwise known as “Annex I firms”. 

Most firms in the Consumer Credit sector will not be captured by MLRs. Only those which meet the definitions of a Credit or Financial Institutions under the regulation 10 of the MLRs, which typically would only be lenders.

However, I am raising this because a number of authorised firms with credit broking permissions might also undertake unregulated or exempt business lending or financial leasing. If your firm does, then it will be captured under the MLRs as it would be considered a “Credit Institution” which can be defined as “an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account.”

So then, if indeed the above is the case and your firm does undertake unregulated or exempt business lending or financial leasing, then you are expected to adhere to the MLRs and the Dear CEO letter is relevant to your firm.

The letter gave firms until September to undertake the above actions. As well as Annex I firms, any authorised firms which meet the definition of a Credit Institution should be able to demonstrate what actions they have taken, as a result of the aforementioned Dear CEO letter.

Findings from the FCA’s Insurance multi-firm review

On 26^th June 2024, the Financial Conduct Authority (FCA) published the results of its insurance multi-firm review of outcomes monitoring under the Consumer Duty.

The results come from a review undertaken in December 2023, when the FCA contacted twenty of the larger insurance firms – general insurers, life insurers, insurance intermediaries and regulated third-party outsourcers which service insurers – and asked for their most recent board and/or committee reports. The reason for the request was to see how these firms monitor, assess, and test the outcomes customers are receiving, along with any actions firms had taken after identifying poor outcomes.

The review highlighted a wide variety in the quality of responses by firms, including a number of good and poor practices. The review showed that some firms showed good progress in developing a clear and comprehensive firm-wide approach to monitoring customer outcomes. However, it also showed that many firms need to make improvements in their monitoring to enable them to determine whether they are delivering good outcomes for retail customers, as required by the new Consumer Duty. While inadequate monitoring itself would not necessarily result in poor customer outcomes, monitoring is essential for firms to identify and remediate them. To read our full article on the findings from the multi-firm review click here.

Criminal background checks on owners and controllers of FCA regulated firms

As is often the case, the FCA’s CP24/11: Quarterly Consultation No 44 contained a significant reform measure, namely criminal background checks on owners and controllers. This new requirement will apply both to new authorisations and change in control (“CIC”) applications. Applicants will have to confirm to the FCA that a DBS check has been undertaken within the past six months. Applicants from outside England and Wales will have to undertake an equivalent check in their own jurisdiction. If adopted, the new requirement will apply from January 2025.

Whistleblowing matters

The recent case involving Ashley Alder, Chair of the FCA, amply demonstrates that even regulators can make mistakes in the handling of whistleblowers. Even within cultures that are less hostile to the concept, it is sometimes hard to anticipate how senior individuals will react to being “called out”.

We view whistleblowing as a vital element of good governance and risk management for a regulated firm. It is crucial therefore for firms to review their suite of policies and procedures and keep them up to date so that they reflect the latest legislation and market developments.

This article, by Edward Vincent from our Payment Services team, concentrates on one element in particular, the whistleblowing policy, and sets out why it is especially important that it is kept up to date, and that staff and management are familiar with its key principles.

Finally…

As regulatory consultants, Cosegic takes a lot of firms through the FCA authorisation process. Having successfully negotiated over this hurdle, a very common question from the client is “so what do we need to do now?”

You can download our free guide which provides some of the basics that firms must do in order to maintain a healthy relationship with the FCA. 

Yours,
Ben