FCA shine spotlight on debt management firms: This week in regulation


The speed read

  • FCA turns the spotlight on debt management firms
  • FCA responds to National Audit Office (NAO) report on consumer protection
  • FCA and PRA agree memorandum of understanding (MoU) with the European Banking Authority (EBA)
  • FCA responds to ESMA’s statement on MiFID II share trading obligations
  • Firm fined for MiFID II transaction reporting failures
  • What can consumer credit firms expect from the FCA?

FCA turns the spotlight on debt management firms

The FCA has published its second thematic review into the debt management industry, focusing on non-profit and commercial firms providing debt advice and administering debt management plans.

The review found that more customers are receiving better advice than at the time of the first review in 2015, however two thirds of the firms involved in the review still need to make improvements to the way they identify and treat vulnerable customers.

The quality of advice was a key focus of the review and although the FCA found that firms had taken steps to improve customer outcomes, inconsistencies were found in all firms’ processes, which increased the potential for harm. In particular firms need to improve the consistency of their assessments of personal circumstances to ensure the advice given is appropriate and improve their communications around the features of debt solutions.

The review also highlighted the need for improvements in the way advice is provided for couples or others seeking advice on a joint basis.

In response to its findings, the FCA has provided feedback to those firms involved and taken supervisory action where necessary. The regulator has also opened an investigation into one of the firms involved.


FCA responds to National Audit Office (NAO) report on consumer protection

The NAO has recently undertaken an investigation into how effectively regulators are protecting the interests of consumers in the utilities, communications and financial services markets. Its report, Regulating to protect consumers: Utilities, communications and financial services markets, examined:

  • Whether the regulators have a good insight into the barriers consumers face
  • How effectively they measure their performance against their duty to protect the interests of consumers
  • Whether their public reporting methods enable key stakeholders (including Parliament) to hold them to account.

Its findings, in respect of the FCA, were:

  • The regulator has a good understanding of the key issues consumers are facing, but has not been specific enough in defining the outcomes it wants to achieve for consumers at a practical level, nor does it use this data to assess its own performance against its consumer protection objectives
  • Of the regulators reviewed, the FCA has made the most progress in evaluating the impact its interventions are having
  • Stakeholders believe it would be more beneficial if the regulator’s reports included clear benchmarks and greater consistency year-on-year.

Responding to the report, FCA Chief Executive, Andrew Bailey, said:

“Protecting consumers is absolutely central to the FCA and where we have identified potential harm we have taken decisive action. Our recent work in the high-cost credit market, including implementation of the price-cap in the rent-to-own market, is just one example of this. Understanding the impact of our interventions is an important part of our mission to ensure that financial markets are working in consumers’ best interests. We will consider the NAO’s recommendations when evaluating our work to protect consumers.”


FCA and PRA agree memorandum of understanding (MoU) with the European Banking Authority (EBA)

The FCA and PRA have announced that they have agreed a template MoU with the EBA to ensure there will be no interruption in the sharing of regulatory information and regulatory cooperation in the event of a no-deal Brexit.

Now that the template has been agreed, the regulators will look to sign bilateral MoUs with EU member states which will come into effect in the event that the UK leaves the EU without a withdrawal period.


FCA responds to ESMA’s statement on MiFID II share trading obligations

Both the EU MiFID II and onshored UK MiFID regimes have share trading obligations (STOs) which require certain shares to only be traded on regulated markets, multilateral trading facilities, systematic internalisers or third-country trading venues that have been deemed equivalent by the EU and UK respectively.

A recent statement from ESMA had clarified that, in the event of a no-deal Brexit, the EU’s STOs will apply to the liquid shares of all EU and UK ISINs. This means that EU banks, funds and asset managers will not be able to trade these shares in the UK, even if the UK is the home listing of the British or EU company.

The FCA doesn’t believe that it is appropriate to apply this approach to UK STO obligations as it may lead to firms only being able to trade certain shares in either the UK or EU, or have to comply with overlapping obligations. This could lead to market disruption and negatively impact client best execution. The regulator is urging ESMA to open a dialogue with itself and other EU regulator to minimise the potential impact of this position.


Firm fined for MiFID II transaction reporting failures

A leading investment bank has been fined £27.6 million for failings related to MiFID II transaction reporting.

Between November 2007 and May 2017 the firm failed to provide complete and accurate information relating to approximately 86.67 million reportable transactions. It also erroneously reported on 49.1 million transactions which were not reportable. During the period in question the firm made approximately 135.8 million errors in its transaction reporting. The firm was also found to have failed to properly maintain the reference data used for transaction reporting and ensure its processes for testing the accuracy of its reporting were robust.


What can consumer credit firms expect from the FCA?

Jonathan Davidson, the FCA’s Executive Director of Supervision – Retail and Authorisations, gave a speech at the 2019 Credit Summit on how the FCA supervises the consumer credit sector and what firms can expect from the regulator over the coming 12 months. We bring you the highlights.

Although the consumer credit market has undergone some significant changes in recent months, the FCA’s focus on affordability, business models and culture has remained. In the past 12 months, consumer credit has grown by 6.5% in an uncertain economic climate. While Brexit adds to this uncertainty, it will not change the way the FCA approaches regulation in this sector.

The regulator has seen high levels of relending across all areas of the market and it will be doing some further work in this area to understand the impact of this practice on both firms and consumers. The rising volume of relending raises questions about how effective firms’ creditworthiness assessments are. While this is a cross-market issue, there will also be a specific focus on the home-collected credit market.

The forthcoming extension of the SM&CR also plays a key role in driving the changes the FCA wishes to see in the sector, particularly within firms’ culture. Maintaining an effective culture requires consistency across the business model, purpose, leadership, governance and HR practices. Not only is it a regulatory expectation, it also delivers wider benefits for a firm, its customers and the wider market.

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