Welcome everybody to our latest financial services video. I'm joined today by Mathew Gregory, a Senior Associate in our financial services team and also by John Coley who leads our regulatory compliance consulting practice. Both have an avid interest in consumer credit regulation.
As we know in March this year the FCA published its final findings from its motor finance review. Matt, just taking a step back, perhaps more holistic view, the comments that the FCA made in its final findings, what do they indicate as regards to the general direction of travel for consumer credit regulation generally?
Thanks Simon. Well I think the first thing to say is that there's quite a lot packed away in this final review. I mean there are a number of themes in there that will be relevant to both lenders on the one hand and brokers, intermediaries on the other across the market. I think one can see the developing trend of consumer credit regulation from the FCA picking up some of the themes which are going on across the market in other areas such as investment business. So to take one example the FCA talks about the importance of lenders taking steps to ensure that any advice given is suitable in accordance with Principle 9. Obviously regulated advice is a particular category of authorisation and permission but I think one can start to see some of those expectations feeding into the consumer credit market in the brokerage and intermediary space.
There are also quite a number of remarks made in the final findings as regards pre-contractual information and adequate explanation. So for lenders in particular I think it is important that they review their policies and procedures to ensure that adequate explanations and of course pre-contractual information which if done badly or wrong can give rise to enforceability risk, is done in accordance with the requirements of the Consumer Credit Act 1974 and the relevant regulations. But also that where the lender delegates responsibility to brokers in order to give those pieces of information there's adequate oversight of that.
|John Coley||That makes sense to me Matt, I guess the only couple of things I'd add are around stepping back from a governance perspective. So from a conduct and compliance basis and certainly with the onset of the senior managers and certification regime shortly, individual accountability is very much in the spotlight. So, where I think the rubber hits the road in motor finance includes things like the accountability around all this, sales processes and conflicts of interest.
|Simon Lovegrove||Jonathan Davidson from the FCA also published a speech at the time of the motor finance review on consumer credit regulation more generally. He talked about healthy cultures and also healthy business models, re-evaluation of business models what are your thoughts on that?|
I think there are a couple of things I'd point out. So, one is the intrinsic risk of harm in the business model itself. So we all know that consumer credit can be viewed as higher risk. I mean motor finance, I think, from a practical standpoint, firms need to consider which aspects of their product lines, their sales processes, for example, could create more harm. So, for example, when you're looking at lending, where does the money come into the business from? Is it the lending? Is it from people in arrears? And therefore, you know, how are different areas of the business actually potentially subsidising themselves and is it fair?
The second thing I'd probably mention is culture. So, that's a very well used word across the industry at the moment. But I think, again, from a practical point of view in motor finance a question firms should be asking themselves is not just 'can they do something' from a compliance perspective, but critically, 'should they be doing it'?
||To pick up on some of those themes in the final findings around treating customers fairly but also transparency and going back to those disclosures. One needs to consider the way in which they're given, not just sort of the letter of those disclosures and that information but when in the customer journey are they being provided. And there are some particular legal requirements on that, for example with the pre-contractual information being sufficient and for the agreement is made. But I think that wider point about the culture of the organisation looking at these particular processes of the customer journey is particularly important.
|Simon Lovegrove||Just picking up on John's point about culture Matthew I remember that the final findings also spoke about training.|
|Matthew Gregory||They do, yes. The findings in particular speak about the, perhaps, greater level of training which is in place at some of the larger firms that were part of the review and noting that in those cases those firms may have been better prepared to comply with regulatory requirements. Of course you know with the mind to the implementation of the senior managers regime for consumer credit firms in December this year, firms will want to make sure that the new regime is properly embedded and training is a key part of that. In that regard we at Norton Rose Fulbright as you know have a toolkit which is available for firms to assist them with their projects which should by now be well underway and we will have further videos on that in due course.|