• New consumer credit regime starts tomorrow

Ashley Kovas, Head of Funds at Bovill, the specialist financial services regulatory consultancy, comments on the FCA’s risk outlook and business plan.

The FCA has set out a number of key risks that it plans to monitor in the coming months.

Heavy focus on firms’ culture, such as failing to monitor and control staff, how firms use management information and failing to make regulation a board level issue

“The FCA expects firms to act as their own regulator – being ready to identify potential risks and respond to them before the FCA comes knocking on their door.  It thinks that firms are repeatedly falling short of changing their culture to meet this approach.”

“The FCA wants to see staff objectives and appraisals take account of potential risks to customers.”

Bovill says that the kind of behaviour the FCA now expects to see from firms to demonstrate that their customers’ interests are at the heart of their approach might include:

• Making sure that board level meetings always include discussions about risks that their conduct will lead to unfair outcomes for their customers.
• Producing management information about potential emerging risks for customers and analysing this fully.

FCA concerned that firms not acting in existing customers’ interests

“The FCA is worried that regulated firms are relying on income from existing clients to subsidise products to entice new customers.  Firms can allay this concern by ensuring that when they launch a new product they review whether this impacts unfairly on their treatment of their existing customers.”

FCA expected to be a much tougher regulator of consumer credit – new regime starts tomorrow

“With the FCA taking over regulation of the consumer credit industry, growing levels of consumer debt are going to be put under the microscope.”

“Lending that can be classed as sub-prime or near-prime is expected to attract the closest attention.”

“The industry should be in no doubt that the FCA will be a much stricter regulator on consumer credit than the OFT was.”

“It is going to be keeping a very close eye on any signs that lending criteria are deteriorating as the economy starts to improve.”

Terms and conditions may be excessively complex

“Consumers are already protected against unfair terms and conditions by the Unfair Contract Terms Act, but the FCA is worried that most consumers aren’t able to challenge financial service providers’ terms of business because they are so complex, so it may step in.”