Regulatory Round Up: November 2022

A speech by the Financial Conduct Authority’s Chief Executive, Nikhil Rathi, delivered in late October, set out some of the context behind the regulator’s shift in regulatory approach.

In part, the watchdog believes a new regulatory landscape is needed to manage what will likely be a broadening remit, given new technologies and services. To keep up to date with technological and social changes, the regulator has to stay on its toes to make sure it won’t get waylaid by new challenges or fails to adjust through relying on old norms; something that contributed to the demise of the previous regulator. The impact of two fairly major events over the past three years – the coronavirus pandemic and the cost-of-living crisis – has required the regulator to act quickly and decisively to guide firms and consumers through tough patches. Rathi is pleased with the FCA’s response to both, highlighting focused engagement with firms and continuing research to make sure they’re spotting any potential issues as they arise as particular successes.

This all leads to one thing: the Consumer Duty. The FCA hopes that the Duty will mean “fewer rules down the line” as the onus is placed on firms to decide what good outcomes look like and then act to achieve them. This would then give the FCA the ability to focus oversight where it is needed. Marking our own homework doesn’t only apply to firms, however. The Regulator is also changing how it measures its own success. The idea is that the FCA will also be held to account against the outcomes and metrics it creates for itself. A shift in outcomes should signal where the FCA is likely to move in the near future.

---

RELATED ARTICLES:

How the Consumer Duty Applies to Debt Collection and Purchase

The Consumer Duty: Value Assessments

Your Journey to Consumer Duty Compliance

RELATED RESOURCES:

Consumer Duty Compliance Resources

The Consumer Duty Course

---

PRA issue a £9.7m fine for governance failures

The Prudential Regulation Authority has issued a fine of £9,695,000 to MS Amlin Underwriting Limited for failing to comply with regulatory obligations relating to governance and oversight of underwriting management information, data quality and risk management strategies between 2014 and December 2019.

The PRA’s investigation found the firm had failed to:

• embed a strong or effective risk culture within the business;

• clearly delineate responsibilities between the first and second lines of defence;

• put in place appropriate and/or effective risk mitigation strategies;

• establish an effective system of governance underpinned by an adequate and transparent organisational structure that allowed for effective challenge, management and decision making;

• ensure management information was adequate, consistently available and appropriate so as to inform the MSAUL Board’s discussions and form a reliable basis for decisions;

• operate an adequate data repository system and consistent data quality controls; and

• embed sufficiently effective controls over underwriting

New Rules to tackle greenwashing

The FCA is proposing the introduction of a range of measures to clamp down on greenwashing. The aim is to protect consumers – through making products more transparent and introducing disclosure rules – and improve trust in sustainable investment products.

Noting a significant growth of ‘green’ investment products, the regulator is concerned that exaggerated or misleading claims could damage confidence in products. The mooted introductions include:

• Sustainable investment product labels to make it simple for consumers to choose the right product for them

• Restrictions on sustainability-related terms, including ‘ESG’, ‘green’ or ‘sustainable.’

• A new general anti-greenwashing rule covering all regulated firms

• Consumer-facing disclosures around key sustainability-related features

• More detailed disclosures, suitable for institutional or retail investors

• Requirements for distributors of products to ensure labels and disclosures are accessible and clear to consumers.

Updates to UK GDPR delayed

Post-Brexit legislation to update the UK’s data protection regime has hit further delays, with a consultation launched around the nature of the proposed reforms. There has been concern that the adequacy agreement with the EU could be put at risk if the Data Protection and Digital Information Bill differs too much from EU law, putting businesses at risk of not being able to share data between the UK and EU. The delay also affords financial services firms some additional resource and cost breathing space before needing to consider any changes involved in a significantly different regime.

Millions struggling to pay their bills

The FCA has warned that 7.8 million people are finding it difficult to keep up with their bills, with around 4.2 million people having missed bill or loan payments in the six months to H1 2022. Unsurprisingly, this figure has increased by 50% since 2020.

For firms, this means reviewing the Regulator’s expectations in supporting customers in financial difficulties, and those who are likely to face financial difficulties over the coming months. For lenders, the June 2022 Dear CEO letter set out expectations around care and support, including tailored forbearance, proactivity around borrowers showing early signs of struggling by making them aware of help, and a review of fees and charges to make sure they are fair and only cover costs. Crucially, the FCA expects lenders to build the financial pressures facing customers over the coming months into the affordability assessment. The Regulator also expects to see evidence that customers circumstances are explored fully to understand which support options will be most suitable, and efforts to understand the needs of vulnerable customers, and then act on those needs. Given the focus on these actions, a review of frontline staff training needs to ensure customer circumstance assessment is fresh is a key option.

Our online training course on the Fair Treatment Of Vulnerable Customers takes learners through techniques that have been tried and tested, covers questioning skills, what to say, when to say it, and how to support customers.

A new regulatory framework?

Both the FCA and the PRA have expressed concerns about an amendment to the draft Financial Services Bill that would allow the Government to overrule regulators where it deems there is “significant public interest.”

Concerns revolve around the impact on the independence of regulators under the current framework, which the Chief Executives of both bodies claim could undermine the credibility of the UK’s financial services regulation, potentially introducing politics into an currently apolitical framework. Sam Woods, Chief Executive of the PRA said that the amendment carried the risk of creating a system “in which financial regulation blew much more with the political wind – weaker regulation under some governments, harsher regulation under others.”

Discussed at a Treasury Committee meeting in early October, it was said that the amendment would be used sparingly and only as a “safety valve” where there is significant public policy interest. The definition of significant public policy interest has yet to be decided.

Given the Consumer Duty’s focus on improving service delivery and ensuring good customer outcomes, this exercise is now more important than ever.

Our range of Consumer Duty resources, including free webinars and downloadable items including a roadmap, checklists, templates and more can be found here. It takes staff through the background to the Duty, explaining what the regulator wants to achieve, setting out the Principle, the Cross-Cutting Rules and the Four Outcomes from a practical point of view.

Priced at just £20 per user, the courses are accessible at the delegate’s convenience and provide a certificate upon successful completion, allowing firms to track and record each user’s progress.

For large groups, we can offer several corporate packages.