Author: Russell J Kelsall

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FCA speech on supporting customers through tough times

Earlier today, on 23 March 2022, Brian Corr, Interim Director of Retail Lending at the UK Financial Conduct Authority, delivered a speech to Credit Summit 2022 on the FCA’s priorities for credit regulation.

The key points from Mr Corr’s speech are:

– Consumers are “facing significant pressure from the rising cost of living” and the credit industry will need to “respond again to these new circumstances – and be ready for future challenges when they come“.

– The FCA’s key focus will be on “the outcomes consumers get from credit markets, underpinned by our more adaptive, more assertive, and more innovative regulatory approach“.

– The FCA needs “credit markets that are innovative, competitive, and focused closely on delivering the right outcomes for the consumers they serve“. Credit “matters greatly for consumers” but “also brings significant potential for harm – so firms needs to be cautious and diligent“.

– Firms should focus “ever more closely on delivering the right outcomes for their customers“.

– The proposed consumer duty is “intended to be flexible to allow us and you to respond to circumstances. That means you don’t need to wait for us to give detailed rules – you can get a head-start now by making sure you have the right mindset, culture and data in place, and looking for gaps between where you are now and where you’ll need to be“.

– Firms need to understand their customers and how they’re affected  by the products and services firms provide. Products must be suitable. Information must be clear and transparent so customers can properly assess what is being sold. Firms need to be responsive.

– The FCA will continue to maintain its focus on helping borrowers in financial difficulties. The FCA is “running a comprehensive programme on how borrowers in financial difficulty are treated so that we can ensure those who need help are getting it“. The FCA expects to issue a full report in “the second half of 2022“.

– There is ongoing work to help people who struggle to access credit.

– The FCA has “seen nothing to indicate that FOS’ approach to assessing affordability complaints, including loans involving relending, is out of line with our expectations. Our own experience is that firms have too often failed to meet our expectations on affordability, including relending. We see no case for lowering these standards – we won’t help consumers one bit by making it easier for firms to lend them money that they can’t pay back“.

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House of Commons European Scrutiny Committee starts inquiry into the future of EU retained law

On 31 January 2022, the House of Commons European Scrutiny Committee started an inquiry into the future of EU retained law. The Committee has published a call for evidence, which is open for submissions until 14 March 2022.

The Committee says it will look into the following and other issues:

– In what ways is retained EU law a distinct category of domestic law? To what extent does this affect the clarity and coherence of the statute book?

– Is retained EU law a sustainable concept and should it be kept at all?

– Do the principles and concepts of EU law continue to provide an acceptable and suitable basis for legislation in post-Brexit UK?

– How has the concept of retained EU law worked in practice since it came into effect and what uncertainties or anomalies have arisen, or may yet arise in the future?

– (a) In light of the doctrine of parliamentary sovereignty, what was the rationale for retaining the principle of the ‘supremacy of EU law’? (b) What is the most effective way of removing the ‘supremacy of EU law’ and other incidents of EU law from the statute book?

– Should retained EU law be interpreted in the same way as other domestic law? Should the case law of the Court of Justice of the European Union have any relevance in the interpretation of retained EU law?

– Should a wider range of courts and tribunals have the ability to depart from retained EU case law and should it be binding at all?

– To what extent has retained EU law affected devolved competence?

– Are there issues specific to the devolved administrations and legislatures that should be taken into account as part of the Government’s reviews into retained EU law?

This inquiry follows the UK Government’s proposal to bring forward a Bill to allow EU retained law to be more easily changed or repealed (possibly by secondary legislation). The Government has published a press release and a policy paper.

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FCA publishes final report on strategic review of retail banking business models 

On 20 January 2022, the UK Financial Conduct Authority published its final report following its strategic review of retail banking business models, together with a webpage and press release.

This report follows the FCA’s progress report from June 2018.

The key points from the final report are:

– large banks have a strong position but are facing challenge from others;

– low levels of consumer engagement have historically contributed to high barriers to entry and expansion;

– digital challenges have rapidly gained a share of the personal current account and business current account markets

– competition in the mortgage market has increased (causing yields to come down)

– yields for consumer credit firms have fallen too (particularly on unarranged overdrafts);

– large banks did proportionately more micro-business lending under the government schemes than most other banks; and

– increased competition and innovation have improved outcomes for many consumers and some small businesses.

The FCA says it will be “discussing the points raised in our 2022 Final Report with firms and consumer organisations but are keen to hear from other stakeholders”. The FCA has invited written submissions by 31 March 2022.

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FCA updates its webpage following meeting of implementation group on switching options for mortgage prisoners

On 27 January 2022, the UK Financial Conduct Authority updated its webpage following a meeting of the implementation group on changes to deliver switching options for mortgage prisoners.

The FCA’s website says the group met on 7 December 2021 for its final meeting.

– The group discussed the analysis undertaken for the Mortgage Prisoner Review Report which the Government laid before Parliament on 29 November 2021.

– The group noted that “regulatory data had been used to give a factual assessment of the reported characteristics of the wider population of borrowers and mortgages in closed books with inactive firms compared to reported characteristics of borrowers and mortgages with active lenders“.

– The FCA talked through its analytical approach to give an up-to-date estimate of the number of mortgage prisoners in closed books with inactive firms and their loan and borrower characteristics.

– The group agreed that the regulatory barriers had “been removed“.

– It was agreed that the group had completed its intended work and could be dis-banded.

The next step is for the Government to consider the review and decide if any further steps are needed.

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FCA publishes financial promotion case studies

On 9 July 2021, the UK Financial Conduct Authority published financial promotion case studies (which were updated in October 2021). The FCA said it recognised “the need to provide information for firms to understand the financial promotions rules that apply to particular products and services“.

It has therefore published two short video case studies:

– the first is a case study for a hire purchase agreement which includes common mistakes the FCA often sees firms making; and

– the second is a case study for claims management companies offering their services for financial service products which includes common mistakes the FCA often sees firms making.

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Government publishes consultation on regulation of unregulated Buy-Now Pay-Later

On 21 October 2021, the UK Government published a webpage and a consultation on the proposed regulation of unregulated (or, more accurately, exempt) buy-now pay-later (often called BNPL) agreements.

This consultation follows the recommendations set out in The Woolard Review, and the Government’s announcement on 2 February 2021 that it intended to bring unregulated interest-free BNPL products into regulation.

The consultation asks a number of questions and sets out some of the Government’s thoughts on how the regulatory regime may work for BNPL agreements.

The deadline for responding is 6 January 2022.

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FCA sends portfolio letter to mortgage third party administrators

On 10 August 2021, the UK Financial Conduct Authority published a portfolio letter it had sent to mortgage third party administrators.

This letter sets out that the FCA considers there are three areas of potential harm:

– customer treatment: firms need to particularly focus on vulnerable customers, ensuring appropriate forbearance and giving customers clear information on their complaints and why they are being pursued for debt.

– operational resilience: firms need to have adequate systems and controls, processes and policies in place, and the appropriate governance and oversight, to mitigate the risk of operational events.

– prudential resources: liquid resources are critical for a firm’s survival.

The FCA’s areas of focus for supervision will therefore be on:

– fair treatment of customers;

– vulnerable customers;

– operational resilience;

– financial resilience;

– forbearance and due consideration;

– senior managers and certificate regime;

– the FCA’s supervisory strategy; and

– regulatory reporting.

Whilst the focus of this letter is on mortgage third party administrators, other third party administrators (particularly those involved in consumer credit) read this portfolio letter and consider whether any further steps should be taken.

The FCA also wrote to firms outsourcing their mortgage activities reminding them of their obligations.

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Financial Conduct Authority publishes terms of reference for mortgage prisoner review

Earlier today, on 20 July 2021, the UK Financial Conduct Authority published its terms of reference setting out the steps it proposes to take in its mortgage prisoner review.

The FCA estimates there are around 250,000 borrowers who have mortgages with ‘inactive firms’ (ie firms which are either not lending to new customers, or are not lenders). The FCA accepts that “[n]ot all of these borrowers are mortgage prisoners”. The FCA says mortgage prisoners are “borrowers who are unable to switch to a new mortgage deal despite being up to date with their mortgage payments and, depending on their loan and borrower risk characteristics, could potentially benefit from switching”.

The FCA intends to review two areas:

– a data review: this will review and update the FCA’s data to consider the demographic and loan characteristics of mortgage prisoners; and

– an interventions review: this will review the effectiveness of the FCA’s recent interventions to remove regulatory barriers to switching (focussing on the modified affordability assessments and the intra-group switching rule change).

The FCA expects to undertake its data review and analysis between July and October 2021. It also expects to engage with interested stakeholders between July and August 2021. The FCA expects to report to HM Treasury by the end of November 2021.

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Lending Standards Board consults on its review of the access to banking standard

On 8 June 2021, the Lending Standards Board published a consultation paper on its review of the ‘access to banking standard’ (the Standard).

The Standard aims to ensure that customers are well-informed about branch closures and the options available to them if they do not have a nearby branch. The Standard came into effect in May 2017.

The overarching principle of the Standard is:

“Customers and relevant stakeholders of a bank branch that is closing will be provided with clear, understandable, accessible documentation and information about that specific closure as soon as the bank is able to do so, also what it will mean for them and how they can continue to bank following its closure.”

The LSB wishes to review the Standard’s effectiveness. This will include considering the impact (if any) of Finalised Guidance 20/3: ‘Branch and ATM closures or conversions’ and Finalised Guidance 21/1: ‘Guidance for firms on the fair treatment of vulnerable customers’.

The consultation period ends on 4 August 2021.

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FCA publishes latest mortgage lending statistics

On 8 June 2021, the UK Financial Conduct Authority published its mortgage lending statistics for Q1 2021.

The FCA notes:

– the outstanding value of all residential mortgage loans was £1,561.8 billion at the end of Q1 2021 (3.6% higher than a year earlier);

– the value of gross mortgage advances in Q1 2021 was £83.3 billion (26.5% higher than in Q1 2020, and the highest level since Q4 2007); and

– the value of new mortgage commitments (lending agreed to be advanced in the coming months) was 15% higher than a year earlier at £77.5 billion.