Regulatory Roundup: April 2023
The Financial Conduct Authority have published their business plan for 2023/24. The plan sets out how the regulator will continue to drive its longer-term strategy, supported by four key priorities designed to guide the regulator through the economic uncertainty and rapid changes of the coming 12 months.
The FCA notes that key uncertainties in this period include interest rates and inflation, potential unemployment increases, further decline in household disposable income and further market volatility. Going into its second year, the Strategy’s three key themes – reducing and preventing serious harm, setting and testing higher standards and promoting competition and positive change – will continue to drive the bulk of the FCA’s work.
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Four key priorities for 2023/4 will support the ongoing strategy: Preparing financial services for the future, putting consumers’ needs first, reducing and preventing financial crime and strengthening the UK’s position in global wholesale markets.
The FCA acknowledges that its resources are finite – although it has made significant increases in staff numbers over the previous year – and so it will concentrate efforts on responding to the challenges and opportunities that have arisen over the previous 12 months.
In ‘preparing financial services for the future,’ the regulator will work with HMT to review Handbook rules in line with legislative changes over the coming year. It will invest just under £13m and says it will be a key project in driving advances in UK finance.
Unsurprisingly, the Consumer Duty forms the foundation for the regulator’s plans for the year. The Duty will shift the focus squarely onto the prioritisation of consumers’ needs, and the FCA has calculated that this should also have knock-on effects on competition and innovation.
Financial crime remains important to the FCA, with continued investment in technology and other efforts to identify and disrupt financial crime. A focus on raising standards in authorised firms should support the detection and prevention of financial crime, which in turn will help customers who could be more vulnerable to fraud attempts. It is one of the FCA’s most critical commitments for the coming year.
Finally, ‘strengthening the UK’s position in global wholesale markets’ is behind a “significant investment” in the regulator’s technology and data capabilities helping to reinforce the UK’s position and enable the markets to adapt to global changes and market volatility as well as new technologies and innovation. More information can be found here.
SMCR – PRA and FCA joint discussion paper
A discussion paper published jointly by the PRA and the FCA aims to review the “effectiveness, scope and proportionality” of the Senior Managers and Certification Regime. HMT, separately, has launched a call for evidence to consider the legislative aspects of the Regime. Those who wish to respond are asked to do so via an online survey by the deadline of 1 June 2023.
Overdraft and Pricing Rules Guidance
The FCA have announced that overdraft rules – brought in during December 2019 - and pricing rules - brought in during April 2020 - have resulted in around £1 billion in savings. The evaluation of the measures found that every customer who had an overdraft saved on average £17.40 in charges due to the new rules.
The review has led to the publication of a good practice and areas of concern guide for firms that provide overdrafts to personal account customers, particularly in light of the findings and of continued cost of living pressures. The guidance builds on the rules in CONC 5C and 5D, as well as Principle 6 and Principle 7.
The guidance focuses on four areas and arising concerns:
Identifying and monitoring of overdraft repeat customers: Some firms used limited criteria to define repeat use, and a few firms assessed customers on an ad hoc basis and without a clear framework.
Communicating with customers and gathering information: Some firms were overly reliant on customers contacting them following an initial communication, and some firms did not communicate differently with customers in financial difficulties.
Interventions to support customers: A few firms did not provide information on the types of forbearance that could be available, and some did not provide evidence of how they tailored their approach for customers in vulnerable circumstances.
Monitoring the effectiveness of repeat use policies and procedures: Some firms did not provide evidence of any systematic review, and a few firms waited for FCA intervention before considering whether they should review their approach.
Sustainability Disclosure Requirements – delayed final rules
The FCA has confirmed that the final rules and policy statement – due to be published by July 2023 – won’t be out until Q3 2023. As a result, the proposed implementation date will also move from 30 June 2024 to a corresponding date 12 months from the date of publication. The implementation of the ‘anti-greenwashing rule’ will come into effect from the date of publication.
The consultation, which closed on 25 January 2023, received around 240 responses and broad support for the proposed regime, along with some constructive feedback on the details. The extent of the response is behind the adjusted dates.
The proposed rules aim to help consumers understand and engage with increasingly complex sustainable investment products, with a particular emphasis on protecting consumers from greenwashing. More can be found here.
Cost of Living and Consumer Credit
The impact on the UK public from the cost-of-living crisis is a subject the FCA is taking very seriously in 2023. They have signalled intent to take early action where they think that activities have the potential to cause harm.
For consumer credit firms, the Consumer Duty offers an opportunity to audit current services and processes with customer needs in mind. Unsurprisingly, the FCA has clear expectations that those in financial difficulties and those with characteristics of vulnerability, in particular, are well supported in achieving their financial objectives.
Audits and reviews work best when supported by qualitative and quantitative research; difficult for all but the largest firms to undertake. Drawing on research conducted by reputable bodies is encouraged.
A new guide from the Money and Mental Health Policy Institute, for example, shows that one in five people living with a mental health condition are also in problem debt. The guide helpfully offers six ways that creditors can support these consumers, outlining practical techniques alongside relevant FCA requirements.
The report highlights just how impactful the connection between mental health problems and financial wellbeing is; 74% of those experiencing mental health problems will struggle with credit commitments compared to 50% of all UK adults.
Ensuring that financial difficulties are identified and supported at the earliest opportunity is one of the primary metrics by which the FCA will measure firms’ compliance over the coming 12 months. The key building block is regular, up-to-date training for all staff working with or for consumers.
RB Compliance can help firms here, we have a range of e-learning courses which can be reviewed here, including our Financial Difficulties Course.
You may also find our range of resources on The Consumer Duty helpful.
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