FCA Performance – Meeting expectations or requires improvement?

Commentary | 01/07/19

The Financial Conduct Authority (FCA) has come under the cosh of late and this showed no signs of abating on Tuesday when Chief Executive, Andrew Bailey and Chair, Charles Randall appeared in front of the Treasury Select Committee to present a biannual report on the work of the FCA.

Chair, Nicky Morgan crushingly asked if “anyone at the FCA read the papers?” [1] She then questioned Andrew Bailey on why the City regulator didn’t act sooner after a press article reported on Neil Woodford’s use of Guernsey’s stock exchange to avoid breaching fund rules on unquoted stocks.

CM Direct, the firm owned by Gina Miller and her husband Alan, have also called for a “root and branch” review of the FCA in the wake of the Woodford fund scandal [2], and last month more than a dozen MP’s called for Mr Bailey to resign following the collapse of mini-bond holder London Capital & Finance, which went into administration in January owing more than £230m [3].

In spite of all this, during yesterday’s evidence session, Mr Bailey revealed the FCA were “taking seriously” the option of extending their perimeter to help mortgage prisoners by regulating unauthorised and inactive lenders. Mortgage lending is generally regulated but borrowers can find themselves stuck with an unregulated lender if their loan becomes sold on as part of a loan book sale.

Mr Bailey told the committee: “We have to take seriously extending the regulatory perimeter and saying that mortgage lending should be a regulated activity because that would allow us to make rules in that space…I’ve been thinking a lot about it and I don’t know of another solution to this, honestly [4].”

His remarks come hot on the heels of the FCA’s first annual report on the perimeter which was published last week and sets out [5]:

• what the FCA does and doesn’t regulate
• what challenges the perimeter presents and the actions the FCA is taking to overcome them
• what this means for consumers
• whether there are any issues with the perimeter which might require legislative or other changes.

The report resulted from a recognition that the current perimeter boundary is continuously tested by firms and activities who do or don’t require regulation and that some such firms have caused serious consumer harm and reduced trust in regulated financial services markets.

One such example is the claims industry with some claims management companies looking to be regulated by the Solicitors Regulation Authority (SRA), instead of by the FCA. Consequently the two regulators are working together to “keep a level playing field and prevent CMCs arbitraging regulatory requirements” and have agreed a specific Memorandum of Understanding on supervising CMCs.

This will be welcome news to the many consumer credit firms blighted by spurious claims from CMC’s looking for new opportunities as the PPI deadline looms. The CCTA has repeatedly warned about claims companies who have corralled consumers into pursuing compensation and excessive and vexatious demands since August last year following the collapse of Wonga [6] and the effect it has on market exit within the industry. Last week, the This is Money website revealed the latest affected lender – The Money Shop – reported to have ceased trading due to the ‘unprecedented number of customer complaints [7]”.

Therefore it is with some optimism that the FCA’s regulation of the CMC’s, including the fit and proper test, will curtail some of the worst excesses of the claims industry. The first authorisation window has now closed and firms who have not applied for full authorisation should currently be mid-way through the winding down period which lasts for one month.

The recent criticisms regarding the FCA register and the importance of providing updated information will hopefully have been taken on board by the regulator and they are continuing to investigate those CMC’s who were under investigation by the Claims Management Regulator before the transfer.

Only time will tell on the full effect of FCA regulation, but the past, current or future closure of any CMC who submitted vexatious claims has still had a lasting effect on the consumer credit industry.

Greg Stevens
CCTA CEO

[1] https://citywire.co.uk/wealth-manager/news/nicky-morgan-asks-fca-citywire-revealed-woodford-s-guernsey-dealings-why-didn-t-you-act/a1244085

[2] https://www.telegraph.co.uk/business/2019/06/18/gina-miller-calls-root-branch-review-fca-following-woodford/

[3] https://www.ftadviser.com/regulation/2019/05/20/mps-call-for-fca-chief-to-resign/

[4] https://www.ftadviser.com/mortgages/2019/06/25/fca-mulls-expanding-regulatory-scope/

[5] https://www.fca.org.uk/news/press-releases/fca-publishes-first-annual-report-perimeter

[6] https://news.sky.com/story/loan-sharks-could-bite-consumers-after-wonga-collapse-11486092

[7] https://www.thisismoney.co.uk/money/markets/article-7166393/Hundreds-jobs-risk-payday-lender-Money-Shop-shuts-shop.html