Changes and Challenges for the Financial Services Sector for 2021

Looking ahead over the first half of 2021, there are a number of upcoming changes and challenges that will be of interest to the financial services sector.

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Regulation of pre-paid funeral plans

The FCA launched a consultation on 2 March, which closes on 13 April 2021, around plans to regulate the pre-paid funeral plans sector. The sale and administration of funeral plans were brought within the FCA’s remit in January, as a result of public concern relating to the conduct and financial soundness of some plan providers. The FCA will begin to regulate pre-paid funeral plans from July 2022.

The consultation sets out the FCA’s plans for improving standards, including ensuring that products provided meet the needs of consumers, that plans are sold fairly, that cold-calling in relation to the sale of these plans is banned, that the price of the plans is fairly valued and additional fees and commission payments are regulated, and that consumers have access to the FSCS and the Financial Ombudsman Service.

Firms within this sector should now set out to understand the impact of the upcoming changes on their business and plan for any arrangements or business changes they may need to make. Required changes will include applying for FCA authorisation from September 2021 (bearing in mind that applications made after 1 November 2021 could incur a higher application fee), ensure they meet the FCA’s standards to be authorised and have the necessary plans, processes and procedures to be able to continue to follow the FCA’s rules, and pay an annual fee based on turnover. Funeral plan providers that cannot meet the FCA’s standards or which are not authorised before July 2022 will have to cease trading before FCA regulation takes effect. More information on the proposes changes is available here: https://www.fca.org.uk/publications/consultation-papers/cp21-4-funeral-plans-proposed-approach-regulation

Effects of the pandemic on consumers

A new study published by Pro Bono Economics suggests that the effects of Covid-19 pandemic on the personal finances of the most vulnerable could be that at least 1.5 million households are at risk of problem debt by as early as mid-2021. Almost a third of this total is due to job losses or reduced incomes after being furloughed or having hours reduced. Around half of the impact could be concentrated in the 16-24 age bracket.

The report highlights that unmanageable debt can be closely related to other problems, such as financial exclusion, family breakdown and poor physical and mental health.

The report states that “Citizens Advice are calling on the government to provide financial support for people who have built up debt because of the pandemic”. The FCA, for their part, continue to review and update guidance to firms on appropriate support for consumers who are affected by the pandemic. The guidance that is due to come into force on 1 April will mean – if finalised - that mortgage firms can only enforce repossessions as a last resort and only if all other reasonable attempts to resolve the position have failed, as well as ensuring that firms comply with legislative requirements.

The deadline for applications for new payment deferrals for consumer credit and mortgage customers is 31 March 2021. Only those customers who are still in a payment deferral under the Payment Deferral Guidance on 31 March will be able to extend their payment deferral beyond that date, provided that they cover consecutive payments, and all deferrals under that guidance will end by 31 July 2021.

Support will, however, continue to be available to consumers under the FCA’s Tailored Support Guidance.

Breathing Space Regulations

Changes to the FCA Handbook in response to the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (Breathing Space Regulations) come into force on 4 May 2021.

The scheme gives customers in problem debt the right to legal protections from credit action while they seek debt advice towards entering a debt solution. The Regulations allow two routes for a moratorium. The first where a consumer has been assessed as eligible by a FCA-authorised debt advice firm or by a local authority, and which allows for a 60 day moratorium. The second – the Mental Health Crisis Moratorium - where a consumer has been certified by a Mental Health Professional and then confirmed as eligible by a debt advice firm. This second route does not carry a limit to the amount of time the moratorium can last for.

The FCA is making changes to CONC to clarify how the Regulations apply, and final rules come into force on 4 May 2021.

FCA Review of Statement on handling of complaints during Covid-19

Beginning in April 2021, the FCA is intending to review its statement on firms’ handling of complaints during Covid-19. The initial statement was made in May 2020, and was reviewed again in October 2020. Coronavirus brought with it a variety of challenges for firm operations, and the aim of the Statement was to make clear the Regulator’s expectations. The current statement is available online and until the review in April, the expectations are:

• Handling complaints remains an important function and steps should be taken to ensure this operation continues as smoothly as possible.

• Firms should be aware that current circumstances could mean more customers are becoming vulnerable.

• The FCA does not expect to see a reduction in the quality of complaints handling and communication with and about the FOS, the ability of customers to submit a complaint, and the acknowledgement of receipt of complaints should continue as normal.

Firms should prioritise:

1. Paying, promptly, complainants who have been offered and have accepted redress;

2. The prompt and fair resolution of complaints from customers likely to be vulnerable to harm if their complaint is not resolved swiftly, and micro-enterprises and small businesses, especially where there is risk of financial difficulties;

3. Sending timely holding responses to complainants where complaints cannot be resolved promptly.

Our online Complaints Handling course provides all the skills needed to engage with the complainant and to investigate, resolve and respond to complaints. Covering a refresher of the background to Complaints, soft skills, the basics in DISP – the FCA’s sourcebook for complaints – and how to handle and resolve financial services complaints, the training is accessible online, so staff can complete the training and assessment at their convenience, ideal for those who want to complete the training in their own time, and to come back to it to refresh later on.

For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.bell@rbcompliance.co.uk.