Bank of England, FCA, PRA and PSR conduct review of Memorandum of Understanding for payment systems in the UK

On 28 March 2024, the UK Financial Conduct Authority published a statement about the joint-authority Memorandum of Understanding which is in place between the FCA, the Bank of England, the Prudential Regulation Authority and the Payment Systems Regulator.

The statement confirms those authorities have carried out their eighth review of the MoU in 2023.

The key points are the authorities:

– consider their co-operation is “working well”;

– continue to exchange “expertise, information and data related to regulated activities”;

– continue to “work together closely on issues of common regulatory interest and seek to avoid duplication in their requirements and engagement with industry”;

– have “identified areas for future co-operation and co-ordination, including revisions to the MoU regarding proposed stablecoin regulation, embedding the reforms from the Financial Services and Markets Act 2023 (FSMA 2023), as well as further enhancing the sharing of information and data”; and

– will continue “to work, as needed, with the Treasury in its preparation of a National Payments Vision”.

Firms will therefore need to be acutely aware of the overlap, and co-operation, between authorities throughout their engagement and interaction with those authorities.

FCA publishes finalised guidance on financial promotions on social media

Earlier today, on 26 March 2024, the UK Financial Conduct Authority published a press release and finalised guidance on financial promotions on social media.

There’s much in the guidance but some headline points for now are:

– The FCA has repeated its guidance that it expects financial promotions to be standalone compliant. While promotions of complex financial products “might require additional supporting information or disclosure“, the “initial promotion needs to remain compliant in and of itself“.

– The requirement for prominence in the FCA’s handbooks is “media-neutral“. Firms should consider the existence guidance on prominence. Firms should ensure information which is required to be displayed prominently “is displayed without needing click-through or any other optional action to view it“.

– Social media may not always be appropriate to promote financial products.

– There are some examples of how an unregulated BNPL financial promotion could be published.

– Firms are reminded of the consumer duty and how it could apply to social media.

– There is a real focus on influencers (or finfluencers).

– There’s guidance for firms on what ‘in the course of a business‘ means. The FCA makes it clear that this includes any level of commerciality. There are also some examples in paragraphs 4.20 to 4.27.

FCA publishes a portfolio letter to consumer lenders

On 20 March 2024, the UK Financial Conduct Authority published a portfolio letter to three portfolios in the consumer lending market: high-cost lending, ‘mainstream’ consumer credit lending and credit unions.

The FCA says it priorities to ensure markets function well are:

– reducing and stopping serious harm;

– setting and testing higher standards; and

– promoting competition and positive change.

For its promoting competition and positive change priority, the FCA has a focus on providing access to affordable credit. The FCA says firms should consider ways they can support customers (for example, using effective signposting) but not compromising standards. The FCA encourages firms to think about innovating and providing greater access to affordable credit.

For its reducing and preventing harm priority, the FCA says:

firms must lend responsibility and sustainably: The FCA says it’s “more important than ever to ensure your firm makes sound affordability and credit-worthiness assessments”. Whilst the FCA has “seen some improvements, we remain concerned about sludge practices” (ie unreasonable barriers). Firms using artificial intelligence need to test its effectiveness. Re-lending most be done affordability, responsibility and sustainably.

firms must ensure the price paid for a product or service is reasonable compared to the overall benefits: The FCA’s price and fair value requirements in consumer duty is a key development. The FCA acknowledges lending to certain cohorts can be greater and may lead to increased prices but firms should not “capitalise by increasing prices unfairly and offering products that do not provide fair value”. The fact that there is a price cap for high-cost short-term credit does not mean the cap provides fair value: it is a maximum rate.

firms must support customers in financial difficulty: The FCA says “many firms were not considering or taking sufficient account of consumers’ individual needs or circumstances or providing appropriate tailored forbearance”. The FCA encourages firms to ensure it is acting in compliance with its rules and the Tailored Support Guidance (and new changes are likely to happen by the end of June 2024).

firms must handle complaints and redress requirements effectively: The FCA says it remains “concerned” and expects “to see more widespread improvements in how firms handle complaints”. The FCA is currently processing a complaints multi-firm review involving a small number of high-cost lenders.

firms must have appropriate systems and controls in place to mitigate risks of financial crime: The FCA acknowledges that the current market conditions increase the risk of illegal money lending and domestic financial abuse. Firms should improve their processes, procedures and practices.

firms must have robust governance practices, ensuring effective oversight and risk management: The FCA says firms must have “robust governance practices guaranteeing effective oversight and rigorous risk management protocols to identify, monitor and manage operational risks”. The FCA says there are issues across the consumer lending market but failures are “particularly acute” in parts of the credit union and high-cost portfolios.

For the setting and testing high standards priority, the FCA reminds firms about the effect of the introduction of the consumer duty. The FCA says it is not “a once and done exercise”. The FCA also reminds firms of policy changes including the proposed reform of the Consumer Credit Act 1974, the introduction of product sales data returns and changes allowing credit unions to offer hire purchase, conditional sale and insurance distribution services.

FCA joins with other regulators to warn firms about debt collection

On 18 March 2024, the UK Financial Conduct Authority published a news story calling on firms to improve debt collection practices. All of the regulators feel that this is particularly important given many consumers continue to feel cost of living pressures.

The news story also includes links to:

– a joint press release; and

– a copy of the joint letter dated 18 March 2024.

This joint letter follows on from a letter published on 28 June 2023 (see the press release and the joint letter dated 28 June 2023).

The latest joint letter makes the following points for financial services firms:

– firms should start from the position that customers in collections are highly likely to have characteristics of vulnerability and should follow FCA’s expectations under the consumer duty (including its finalised guidance) and its vulnerable customer guidance;

– the consumer duty strengthens existing requirements;

– there is foreseeable harm if a debt collection communication sent the customers are perceived to be intimidating or unsupportive (and communications should be tested)

– firms may want to encourage ‘warm’ handovers between frontline and specialist teams; and

– the FCA aims to publish its policy statement before June 2024 on its response to Consultation Paper 23/13.

The FCA reminds financial services firms (and this point should not come as any surprise) that debt collection rules and guidance apply to both debt collectors and to lenders taking steps to recover payments due under credit agreements or consumer hire agreements.

FCA decides to investigate the use of personal guarantees given for certain small business lending

On 5 March 2024, the UK Financial Conduct Authority published a press release announcing it is investigating the use of personal guarantees given to lenders to support loans made to certain small businesses. The follows the Federation of Small Businesses making a ‘super-complaint’ to the FCA.

The FCA’s perimeter is, in fact, fairly limited for business lending. It only applies to such lending where (in broad terms):

– the borrower is an individual or a relevant recipient of credit (being a partnership of two or three persons not all of whom are incorporated, or an unincorporated body of persons which does not consist entirely of bodies corporate and is not a partnership); and

– the amount of credit is no more than £25,000.00.

The FCA will:

– collect data between April 2024 and June 2024 to understand when lenders entering into a regulated credit agreement are asking for guarantees;

– review samples of firms’ policies and procedures;

– work with the Financial Ombudsman Service to monitor the level of complaints; and

– consider whether lenders need further guidance in CONC.

The FCA has also published its response to the super complaint.