FCA REGULATORY UPDATE
KEY THEMES FROM MARTHA STOKES’ SPEECH TO THE 2023 CCTA CONFERENCE

FCA

Access to affordable credit allows people to manage their money and helps them cope in tough times. It requires a well-functioning market where customers are treated fairly, supported if they get into financial difficulty and are equipped with the information they need to make good decisions.

Ensuring the regulatory framework supports these objectives is key for the FCA.

REVIEW OF THE CONSUMER CREDIT ACT

In July, the Government confirmed its intention to overhaul the Consumer Credit Act – moving much of the Act into the more agile regulatory framework of the FCA rulebook. This provides opportunity for a more coherent, flexible, less fragmented credit regime – a regime that can facilitate innovation as markets evolve. The FCA will be working with Government through the reform process to ensure consumer credit regulation supports a well-functioning and competitive market, whilst maintaining the appropriate degree of consumer protection.

EMBEDDING OF THE CONSUMER DUTY

Another significant regulatory change is the Consumer Duty which came into effect at the end of July.

The Duty fundamentally changes expectations of the financial services industry by setting higher and clearer standards of consumer protection. It asks firms to deliver good consumer outcomes at every stage, placing consumers’ interests at the heart of businesses.

The Duty will enable the regulator and markets to tackle future challenges; to act quicker, without consulting on new rules each time a new problem or opportunity is identified. As markets evolve and new benefits and risks to consumers emerge, the Duty requires firms to act to deliver good outcomes and protect customers from foreseeable harm.

Examples of good practice are already being seen, and as firms continue to embed the Duty, the focus should be on those areas that will have the biggest impact on customers.

Firms should be considering:

• is the product or service designed to deliver good outcomes for consumers?
• what is the target market for this product and are our communications clear to consumers?
• is there any sludge in the customer journey which interrupts or hinders good outcomes? Are there any barriers to complaints, for example, or unreasonable, punitive extra costs?

Firms can expect to be asked to demonstrate how their business model and culture deliver good customer outcomes.

The Duty fundamentally changes expectations of the financial services industry by setting higher and clearer standards of consumer protection.

Complying with Consumer Duty is about adapting business to meet current and future needs. The rising cost of living, for example, is impacting budgets of UK consumers, putting pressure on their disposable incomes, and pushing more into financial difficulty. People who want to borrow, or have borrowed, will in many cases find it harder to pay off their debts. More customers will become vulnerable.

The FCA is therefore asking firms to do more to encourage customers to speak up when they are in financial difficulty, playing a crucial role in engaging these consumers, for example by signposting debt advice services, offering tailored solutions and making sure additional charges are fair.

Getting good outcomes for consumers is what the FCA really cares about. In some cases credit will not be the right answer for consumers who cannot afford to repay. Access to unaffordable credit is harmful to consumers’ financial and personal wellbeing.

ACCESS TO CREDIT

The FCA wants to support the market to provide access to affordable credit. Where consumers can afford to use higher-cost credit and it can work for them, they should be able to access it. Affordable credit can help consumers manage their finances and deal with short-term or unexpected cash flow issues.

There is likely to be a gap in credit provision for some cohorts and the commercial sector has a key role to play filling that gap, through innovation and improving its affordable credit offering.

The FCA continues to work with Government, Fair4All Finance and other stakeholders on initiatives to support access and innovation. The FCA is keenly aware of the risk of harm posed by illegal money lending and is committed to working with industry and UK illegal money lending teams to help tackle this.

A well-functioning credit market requires strong partnerships between government, regulators, trade bodies, industry and consumer organisations. Working together, we can lead the way to a more consumer focussed, healthy and vibrant market.