Consumer Credit Regulation: The New Regime Craig Simmons 1
What we do UK s financial services regulator: protect consumers; ensure industry remains stable; and, promote healthy competition Principles based Oversight of Money Advice Service, FOS & FSCS 2
The principles 1 Integrity A firm must conduct its business with integrity. 2 Skill, care and diligence A firm must conduct its business with due skill, care and diligence. 3 Management and control A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. 4 Financial prudence A firm must maintain adequate financial resources. 5 Market conduct A firm must observe proper standards of market conduct. 3
The principles 6 Customers' interests A firm must pay due regard to the interests of its customers and treat them fairly. 7 Communications with clients A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. 8 Conflicts of interest A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. 9 Customers: relationships of trust A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment. 10 Clients' assets A firm must arrange adequate protection for clients' assets when it is responsible for them. 11 Relations with regulators A firm must deal with its regulators in an open and cooperative way, and must disclose to the appropriate regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice. 1 4
What s changed? On 1 April 2014, the Financial Conduct Authority took over Consumer Credit regulation from the OFT: Stronger powers More resources Faster and more flexible response to change The government firmly believes that the FCA will be better equipped to tackle the consumer detriment and malpractice that has taken place under the (existing) regime. The transfer will mean a fundamentally new approach to regulating consumer credit, ensuring that irresponsible firms and bad practice will have no place in the consumer credit marketplace. Government consultation, March 2013 5
Authorisations The Gateway To be able to do business, all firms and certain individuals will need approval from the FCA. only the right firms, run by the right people, and selling the right products, to the right consumers, are approved to do business The FCA will approve individuals who perform certain specified functions. In order to be approved, an individual must satisfy the FCA that he/she can meet, and maintain, the criteria for approval (known as the fit and proper test), and then perform their controlled function in accordance with a set of standards 6
The Gateway : Comparing then & now 7
The journey for firms OFT regulation FCA application FCA interim permission FCA authorisation 8
Supervision Ensuring continued high standards An approach that is pro-active, proportionate and focussed on treating customers fairly (TCF) Three key elements: - Pro-active - Reactive: dealing with current and emerging problems - Thematic: intensive campaigns looking at whole sectors or products 9
Supervision Comparing then & now 10
Enforcement Comparing then & now 11
What does this mean? For firms, that depends For consumers, a market place that meets their needs & firms that treat them fairly (as far as possible!) New rules for some sectors Won t solve some wider social issues rising living costs vs flat income levels, buy now pay later culture, lack of money management skills 12
Payday Loans Limit the number of times a loan can be rolled over to two Limit the number of times firms can seek payment using a continuous payment authority to two and ban on part-payment Inform customers about sources of free debt advice before refinancing a loan Risk warnings on loan adverts Price cap to be introduced 13
Price Cap 14
Debt Management Firms New prudential standards and client money requirements Specific conduct rules (largely based on OFT Debt Management Guidance) Requirement to have an approved person for compliance oversight New rules relating to - Signposting consumers to the availability of free debt advice - Substantial proportion of client money going towards paying off creditors from month one of a debt management plan 15
FCA Credit Regulation: some early outcomes Reviewed more than 1500 financial promotions Opened 227 cases about noncompliant promotions 1 in 4 relate to high-cost short-term credit Secured 25 voluntary commitments from firms 14 firms have agreed to stop taking on new business Issued warning notices and final notices Taken action to freeze the bank accounts of 7 debt management firms Determined 2,231 applications for authorisation Dealt with more than 27,500 enquiries from firms and 11,000 enquiries from consumers 16
What s coming up Firms apply for authorisation Credit card market study Cap comes into force 2 January 2015 Publish thematic review reports in 2015 Ongoing supervision 17
QUESTIONS??? consumeraffairs@fca.org.uk 18