DEAR CEO
ARE YOU DOING ENOUGH?

Themis Consultancy

A ‘Dear CEO’ letter is fast becoming the choice instrument of communicating with regulated firms. Such letters serve to focus the attention of a firms’ CEO and accountable senior managers on crucial issues for the FCA. On this occasion, the FCA issued a Dear CEO letter on 6th May 2022 to consumer credit firms demanding immediate action to ensure firms’ financial promotions are clear, fair and not misleading.

While this letter was aimed specifically at credit brokers and firms providing high-cost lending products, this warning letter should also be a reminder to regulated consumer credit firms of the FCA’s expectations in respect of financial promotions.

ENVIRONMENTAL CONTEXT
Driven by the cost-of-living crisis, the FCA expects an increased consumer demand for such products and does not want to see regulated firms exploiting this economic environment by promoting and subsequently advancing unsuitable, unaffordable and unsustainable loans. It has committed to keep the sector under close review by carrying out proactive surveillance and monitoring online credit advertising to check that firms are complying.

What firms need to do in response to this Dear CEO letter:

REVISIT THE REQUIREMENTS
Ensure all relevant staff involved understand the regulatory requirements, including what constitutes a financial promotion, and the basic rules set out in CONC, the Advertising Standards Authority’s Cap Code and associated advice, the Consumer Protection from Unfair Trading Regulations and the relevant data protection regulations governing the provision of opt-out.

IMMEDIATE REVIEW
Undertake a risk-based review of your financial promotions in use and re-assess against the CONC and CAP Code requirements, prioritising those that drive the highest proportion of customers to apply for credit through your firm;

ASSESSMENT OF SYSC
Assess your systems and controls around the design and approval of financial promotions are fit for purpose, including but not limited to a financial promotions policy and procedure, staff training, financial promotions register, an approval form, first and second line of defence checks, etc.

BOARD AWARENESS
Ensure your Board is aware of this letter and the actions to be taken so that sufficient challenge can be raised, and evidence documented.

CONSEQUENCES OF IGNORING THIS LETTER
In the event the FCA identifies shortcomings in a firm’s financial promotion(s), they will consider what further action may be appropriate to take. They have the power under section 137S of FSMA to direct a firm to withdraw an advert (or its approval of an advert), or to prevent it from being used in the first place.

More broadly, non-compliant financial promotions can quite often prompt the regulator to apply more scrutiny to firms, as shortcomings in financial promotions may serve as an indicator of wider deficiencies such as a lack of effective systems and controls, poor governance and/or a weakness in staff competency, capability and sufficient knowledge of the regulatory requirements.

Furthermore, the imminent Consumer Duty will bring an added
dimension, resulting in a greater expectation on firms to demonstrate their communications enable customers to fully understand the features, benefits and limitations of the products and services they offer.