FCA Regulatory Updates: December 2021

In this article you'll find a summary of recent updates from the FCA and the impact of these on regulatory compliance.

FCA Complaints Data

The Financial Conduct Authority has published the latest bi-annual complaints data, covering H1 2021. The data is published at both firm level - for firms that report 500 or more complaints within six months or 1000 or more for an annual reporting period – and in aggregate, which analyses the total complaints submission for the six-month period. The aggregate data shows that over 3000 firms submit complaints data reporting one or more complaints.

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The data shows that, for H1, submitted complaints to financial services firms were at the lowest level recorded since H2 2016. However this is largely due to the tailing off of PPI complaints, and excluding PPI, the total volume of complaints has actually increased in 2021 H1. Insurance saw the largest decrease in complaints at 13% - likely due to the falling away of PPI complaints - with home finance complaints also showing a noticeable decrease of 11%. There were, however, significant increases in investment and decumulation and pension complaints. Complaints about workplace pensions have been increasing steadily, with a 96% increase since 2017.

Current accounts were the most complained about product – accounting for a quarter of all complaints, with other general insurance products and credit cards making up the next quarter of complaints. Despite the relative decrease in home finance complaints, when compared to the number of products sole, home finance actually has the highest level of complaints, with around 8.6 complaints per 1000 balances outstanding in H1.

The total redress paid to complainants decreased from H2 2020 by 61%, down to £559m – however, excluding PPI the total increased by 27%. The total redress paid per upheld complaint rose from £180 in H1 2020 to £221 in H1 2021.

Decision making reforms confirmed

The FCA has confirmed that it will go ahead with its plan to shift some types of decisions from the Regulatory Decisions Committee (RDC) to the FCA’s senior managers. Contentious cases will continue to be heard by the RDC, but senior managers will now make decisions on:

• Firm authorisations

• Approvals of individuals

• Cancellation of firm permission in straightforward cases

• Starting civil proceedings, e.g. seeking an injunction

• Starting criminal proceedings, e.g. prosecutions

• Varying or limiting a firm’s permissions

• Imposing requirements on a firm

The FCA hope that this new ‘streamlined’ approach to decision making will allow for more timely and assertive decisions that should be more proactive in preventing and stopping harm to customers and within the market. A 6-month review will assess the effectiveness of the reforms.

Mortgage Prisoner Review

The FCA has published their review of data on the circumstances of mortgage prisoners for the UK Government. The aim is to provide a basis from which to work together, along with the industry, to look for reasonable solutions to help borrowers switch to an active lender.

Mortgage prisoners are those who are up to date with payments, but who have characteristics or circumstances – for example, job loss - that move them outside the lender’s appetite, leaving them without the ability to switch to a new mortgage deal.

The FCA found that there are likely to be around 66,000 customers who may be able to switch, but have not yet tried, 30,000 who can’t switch but are in any case unlikely to benefit by switching, and 47,000 mortgage prisoners.

The FCA is publishing the review so that “lenders can consider whether they can adapt their lending criteria (or use the flexibility in the rules) to lend to closed book borrowers who are close to meeting their standard lending criteria at a lower rate or at a rate that enables them to fix their payments if they want to.” The FCA estimate that there are around 6,000 mortgages that might be close to the risk appetite of lenders.

Attesting compliance with General Insurance Pricing Practices rules

The FCA will send a survey to premium finance providers and firms with GI permissions in January for the senior manager annual attestation that their firm has complied with the FCA’s General Insurance Pricing Practices rules and requirements in ICOBS 6B.

The aim is to hold firms and individuals accountable for ending price walking for home and motor insurance.

The FCA acknowledge that some firms may receive the survey but are not subject to the rules – these firms should submit a nil return as confirmation that the firm does not undertake any pricing activity in relation to all products in scope.

Firms must respond in full or provide a nil return by 31 March 2022. Firms will then need to confirm annually via RegData.

Debt Packagers Consultation

A reminder that the proposed ban on debt packager firms being paid to refer customers on to other firms is under consultation, which closes on 22 December, with any new rules due to come into force in April 2022.

The proposals for new rules would ban debt packagers from accepting referral fees. The Consultation sets out the differences in referral fees which can present a conflict of interest for the packager firm – IVAs and PTDs command average referral fees of between £930 and £1340, referrals to DMPs or DAS between £240 and £260. No referral fees are paid, however, for other solutions such as DROs or MAP. Many debt advice firms offer advice for free, but make income through these referral fees which creates a significant conflict of interest.

Appointed Representatives – New Consultation

The FCA is consulting about proposals to change the Appointed Representatives (AR) Regime, following regulator identification of potential harms. The FCA say that harm can occur when the principal firm does not undertake sufficient due diligence before the AR is appointed, or, once the AR has been appointed, or does not conduct adequate oversight and control. The proposals will require principal firms to provide more information on ARs more often and explain how they are overseen. There will also be updates to the responsibilities and expectations of principals to strengthen these requirements.

The consultation is also seeking views on the risk where ARs are larger in size than the principal. The FCA hope that the updated requirements will ensure that principals monitor, oversee and manage their ARs more effectively – particularly in ensuring that products and services offered are fit for purpose, represent fair value and that they deliver good customer service.

The consultation closes on 3 March 2022, with a follow up Policy Statement and final rules expected in H1 2022.