Regulation by the FCA; six months on
Date:
28 October 2014
In relation to authorisation, the FCA was keen to stress the culture of an organisation is crucial. The firm must have an adaptive approach - a purely technical policy driven approach won't work if there isn't evidence to support that these policies and procedures are adopted, understood and followed throughout the business. In terms of applications for authorisation received so far the FCA have dealt with over 2000 applications, of which 75% have obtained full authorisation, 24% withdrew and 1% were refused authorisation. 28% of firms ended up with permissions which they didn't apply for. The FCA stressed firms should only apply for permissions that the business actually needs and will use - they should not be speculative. The FCA warned delegates not to underestimate the time it takes to prepare for authorisation - they suggested preparation of supporting documents now even if your landing slot is many months down the line. The quality of the application will undoubtedly make the process easier for the firm involved.
Some examples given by the FCA of what they will look for when you are called forward include:
- Basic information about your firm; How your firm is set up, who works there; Who owns or influences your business;
- How you make your money (business plan);
- How you make sure your business keeps to the FCA rules? Are senior managers really aware and in control of what is happening to consumers?
- Does your firm keep proper records? Are you making the right use of management information?
- Do your IT systems help control risks or are they creating them?
- Do targets and incentives drive the right staff behaviours?
- Does your firm have appropriate oversight of outsourcers and contractors?
On the supervision front the FCA confirmed that since 1 April they have frozen 7 firms' bank accounts to protect client money and they have entered into arrangements with 14 firms so that they don't take on new business. It's clear that the FCA has the resources and capability to take action against regulated firms should they consider that necessary.
Other themes coming out of the conference included:
- The requirement of firms to review any financial incentive schemes to ensure fair outcomes for consumers. Firms are advised to take appropriate action now to ensure that they are assessing target and incentive policies and managing the risk of mis-selling;
- The question of how you determine affordability and whether a consumer can reasonably afford to continue to make repayments during the term. There was a suggestion that certain asset finance firms intended to obtain detailed income and committed expenditure from consumers at point of sale in addition to any CRA search, notwithstanding that some of these searches have other 'affordability' elements. They take the view that you cannot determine affordability without that income and expenditure information.
- Doing business with third parties. A poll of delegates found that this was the most challenging issue for firms with an acknowledgement that the CONC rules here are complex, and not particularly clear especially in relation to what is expected when firms are dealing with intermediaries. It was stressed to the FCA that the industry needed more guidance on this.
- Vulnerable customers and the possibility that any customer who cannot pay could become a vulnerable customer. One firm spoke of their novel approach of recovery of the asset being a last resort with each case managed on its own merit with staff trained to deal with best solution for the consumer. Incentives for staff were also turned on their head, with reward being based on how many vulnerable customers have been put through the vulnerable customer programme and are now back on track with repayments;
Should you need any advice on compliance with the FCA rules, or assistance in making your application for full authorisation, please contact a member of the Asset/Invoice Finance Team on the details below.
