In September 2023, the Financial Conduct Authority (FCA) published a consultation paper (“CP23/21”) entitled, “Consumer Credit – Product Sales Data Reporting”.

WHAT?

Under this consultation, the FCA “seeks views on our proposal to introduce three new Product Sales Data (PSD) returns into Chapter 16 of the Supervision manual (SUP 16).” It adds that the returns “will allow us to collect further data about the consumer credit market from providers of consumer credit products”.

The three new returns are: Sales PSD, Performance PSD, Back book PSD. The consultation consists of 40 pages of commentary, and 80 pages of draft handbook text.

The proposals represent a sea change in the FCA’s approach to data, from mainly collecting aggregated data, to requiring firms to provide very detailed data relating to credit decisions (whether resulting in an agreement or not), the sales process, affordability assessments and in-life performance at an individual agreement level.

The FCA intends that collecting such data will enable them to make, “quicker, bolder decisions”, support in their authorisation and supervisory activities and give them a greater understanding of, and ability to, monitor risks in the market and identify harms.

WHO?

The proposed new requirements will impact all lenders in respect of “relevant regulated consumer credit agreements”, if they have reported more than £500,000 either in outstanding balances at the end of the previous annual reporting period, and/or more than £500,000 in new advances. This is a fairly low threshold and by the FCA’s own estimate 749 lenders will be in scope of which 607 (81%) will be small firms.

WHEN?

Responses to the consultation paper were required by 15th November 2023, and the regulator proposes that the new requirements will apply from 1st January 2025.

The proposals stipulate that reporting will be due within 20 business days of the end of the reporting period for ‘sales’, within 30 business days for ‘performance’, both to be reported on a quarterly basis, and that back book data will be required as a one-off submission, all via RegData.

IMPACT?

The FCA acknowledges that “there will be costs to firms in collecting and reporting the enhanced data to [the FCA]”. Throughout CP23/21, the FCA is keen to emphasise that the new rules are intended to be balanced between the FCA’s objectives and the burden on firms to comply with the data reporting; and a cost benefit analysis is included at Annex 1 of the consultation. The regulator anticipates the average cost to firms to implement the reporting to be between £80,000 and £138,000 as a one-off and an average ongoing cost of £2,000 annually (anticipated as up to £20,000 for large firms). Further, the FCA states that there should be a longer-term benefit to firms in the FCA shifting from ad-hoc information requests to scheduled operational reporting.

Such a shift in approach is to be expected, particularly in light of the FCA’s focus on becoming “a data-led regulator”.

However, firms, advisers and industry bodies are expressing significant concerns about the enormous volume of data required and the costs and resources that will be required to comply, given the level of granularity, frequency, low threshold and the use of RegData.

Moreover, it is proposed that once a firm reaches the reporting threshold, even if the firm were to subsequently drop below the threshold, it would continue to be bound to comply with the reporting requirements on an ongoing basis. The FCA states that this is, “to avoid firms coming in and out of the reporting schedule”.

Further, concerns have been raised from a GDPR perspective, as CP23/21 does not make a single reference to GDPR compliance in its 120 pages, despite the prospective reporting requirements including items of customers’ personal data (e.g. customer dates of birth and postcodes).

In addition, as regards the back book-related data, the FCA itself states that, “we understand that some data elements, especially for the oldest agreements, may be more difficult to produce or may not have been collected at the time.” The FCA adds that, “for many of the data elements we have linked these to Handbook rules or terms which may not have been in effect when the agreement was entered into…”. However, the FCA, “believe[s] that even for the oldest agreements these terms may have been included in previous legislation or rules…”. This implies that the FCA intends to judge data demanded of firms against rules that were not in force at the time, and that may or may not have been subject to equivalent or similar standards.

The biggest burden is likely to fall on smaller firms which will need to invest heavily in infrastructure and systems to comply with the proposed rules. Coming on the back of significant investment in Consumer Duty, this may accentuate the trend of lenders exiting the market and the consequent unwelcome erosion of competition.

WHAT ACTION DO YOU NEED TO TAKE?

The impact of these changes if delivered as conceived will be significant and the timescales are short. Given the above concerns, it is crucial that affected member firms carefully consider the proposals and the costs of compliance. CCTA has already reached out to members for input and collated these in responding to the FCA consultation.

Walker Morris will continue to closely monitor commentary and developments on the topic in conjunction with the CCTA and will provide regular updates.