Regulatory Update – November 2023
A new proposal to introduce three new Product Sales Data returns has been published by the FCA. The regulator suggests that the collection of more detailed and regular product sales data will help them to identify and assess risks more quickly and will lessen the burden of ad-hoc requests to firms.
Under the proposals, three new returns – sales PSD, performance PSD and backbook PSD – will be collected quarterly from in-scope firms. Data items will be fairly detailed, including lender features, transaction data, agreement details, sales details, purpose of borrowing, borrower detail, information about fees and charges, and so on.
The requirement will apply to lending firms reporting more than £500k in outstanding balances for relevant credit agreements at the end of the previous annual reporting period and/or more than £500k in new advances for relevant credit agreements. Once a firm first meets that threshold, they will be expected to continue reporting.
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Diversity and Inclusion
The FCA and PRA are consulting on proposals to introduce a new regulatory framework on Diversity and Inclusion in the financial sector. Aiming to reduce ‘groupthink’ and to support healthy work cultures, as well as improving provision for diverse customer needs, the regulators suggest that a new framework will help to speed up improvement of diversity and inclusion in the sector. Acknowledging that good work has been done to date, the regulators want to establish minimum standards that will support consistency and transparency.
The FCA’s proposals set out the FCA’s framework, briefly:
Introducing a minimum standard for all FMSA firms with Part 4A permission with the aim of reducing discrimination and misconduct.
All FMSA firms with Part 4A permission will need to report their number of employees annually.
Introducing additional requirements for firms with 251 or more employees:
D&I Strategies (not Limited Scope firms)
Data Reporting (not Limited Scope firms)
Data Disclosure (not Limited Scope firms)
Setting Targets (not Limited Scope firms)
Risk and Governance (not Limited Scope firms)
The updated ‘non-financial misconduct’ threshold conditions will apply to all firms. In short, they would mean that staff are held to high levels of fitness and propriety via the Conduct Rules.
Larger firms would need to:
Develop and maintain an effective D&I strategy
Set appropriate diversity targets
Collect demographic and inclusion data from staff, reporting this to the FCA and disclosing it on an aggregate basis.
Recognise a lack of D&I as a non-financial risk.
As a result of its proposals, the FCA hopes to see improved diversity and inclusion at all levels of firms in the financial services sector, through positive culture change and the removal of barriers. The FCA suggests that changes in financial services firms would support wider cultural changes via the design and provision of products and services through input from individuals with underrepresented characteristics, which could increase the proportion of those from minority ethnic backgrounds who hold pension provision and savings accounts and those with disabilities who have access to financial products.
The PRA’s proposals are published separately; the regulators have worked closely together to “develop a consistent and coordinated set of proposals for consultation.”
The FCA aims to bring the rules into force 12 months from the publication of the policy statement, due in 2024.
FCA reviews approach to secondary brokers
A regulator review of their interpretation of the consumer credit legislation for Limited Permission secondary credit brokers, and how it applies to credit broking firms whose main business activity is the supply of non-financial services, means that firms that were authorised as a Full Permission credit broker may now be eligible to become authorised as a Limited Permission firm.
Firms that could be affected should review the publication and use the decision tool on the FCA’s website for more information.
FCA enforcement action
The FCA has banned Geoffrey Armin for failures in advice given to British Steel Pension Scheme Members. The regulator found that Armin was “seriously incompetent” when advising on defined benefit pension transfers. He “routinely failed to obtain the necessary information he needed to assess the suitability of a pension transfer” and 174 Members transferred out of the scheme following his recommendation. The FCA found that in some cases, Mr Armin only informed customers of the consequences after they had already transferred out of the scheme. As a result of the advice, Mr Armin’s firm received around £1.2m in fees. The FCA has banned him from holding any senior management function in a regulated firm.
In early November, Southwark Crown Court imposed a Confiscation Order of over £355,000 against Timothy Coleman, who was convicted in February 2022 of false accounting and making misleading statements to the market. Coleman inflated the firm’s cash position to the Board and used the same figures to assure investors about the firm’s financial position, as a result of which share prices were inflated, meaning that investors paid more for shares than they were worth. The confiscation order represents the value of Coleman’s financial benefit from the offences.
Contract changes for buy-now-pay-later customers
The FCA has used its powers under the Consumer Rights Act 2015 to make changes to potentially unclear contract terms in the BNPL sector. The FCA does not have regulatory oversight over BNPL products. As a result of the agreement with PayPal and QVC, both firms have voluntarily made their continuous payment authority terms easier to understand. PayPal has made terms relating to what happens when a consumer cancels the purchase funded by the loan “clearer and fairer.”
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