Connect with us

Global Banking and Finance Review is an online platform offering news, analysis, and opinion on the latest trends, developments, and innovations in the banking and finance industry worldwide. The platform covers a diverse range of topics, including banking, insurance, investment, wealth management, fintech, and regulatory issues. The website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website. .

Business

From Profit Police to Strategic Imperative: the Changing Face of Credit Compliance
From Profit Police to Strategic Imperative the Changing Face of Credit Compliance

Published : , on

For any FCA regulated firm, the risk and compliance function is an essential and integral part of the business – but it wasn’t always that way. Martin Kisby, Head of Compliance at Equiniti Credit Services, explores the motivations behind the evolution of compliance functions in consumer credit firms.

Risk and compliance departments, once held in low esteem by other business units, have evolved into a crucial function for protecting profitability. This is still a controversial statement in the consumer credit industry, but it’s easily justifiable. To do so, let’s take a look back.

It’s 2008. The consumer credit market is regulated by the Office of Fair Trading (OFT). Firms have a set of guidelines they are required to adhere to, but in reality can interpret or even circumvent them entirely. Business objectives are often, if not always, placed ahead of consumer needs.

So what was the role of the compliance function back then? Well, it provided some assurance to the OFT that firms were not ignoring its guidelines in their pursuit of profits.

This often led to compliance functions being derided as the ‘Business Prevention Unit’ or ‘Profit Police’ and being allocated minimal resource.

Martin Kisby

Martin Kisby

Fast forward to 2014: the financial crash has altered the consumer credit landscape dramatically. Trends in mis-selling, together with poor consumer outcomes, have highlighted the need for fundamental change. The creation of the Financial Conduct Authority (FCA), by merging the OFT and Financial Services Association (FSA), is intended to add more stability and oversight to the sector, ensuring better service delivery for consumers.

Big changes ensued.

The FCA developed a more robust and detailed handbook, which not only provided guidance on how firms across the sector should be operating, but also changed what was previously ‘advice’ into hard and fast rules.

Firms were given only interim permissions and needed to complete an approval process to gain full FCA authorisation. This required firms to demonstrate strict adherence to the new and updated rules and guidelines.

From this point onwards, the role of compliance was transformed. Firms began to allocate significant resource to this function to ensure they could provide continued assurance to the FCA that its rules and guidelines were being followed. It became imperative to demonstrate that mis-selling, unreasonable collections practices, affordability issues and poor customer service were being eliminated.

The compliance department evolved from the ‘Profit Police’ into a pivotal function in every FCA regulated firm.

Risk management also became more prevalent under the new regulatory body, as the System and Controls section of the FCA’s handbook requires firms to assess and manage their risks, and have a Chief Risk Officer as one of their Approved Persons – individuals the FCA has approved to undertake one or more controlled functions[i].

These complimentary objectives meant that compliance and risk departments were consolidated. Compliance plans were established to monitor specific elements of the FCA handbook and verify adherence to them. Any identified control inadequacies could be migrated onto a firm’s risk register for monitoring and remediation.

Back to the present. Four years on from the introduction of the FCA, firms have, overall, implemented the necessary oversight to demonstrate that they are meeting their regulatory requirements and treating customers fairly.

But let’s be honest – there are selfish motivations too. A strong compliance department, empowered to change processes as best practice dictates, reduces the risk of both regulatory fines and exposure to defaults. This increases revenue and protects profit margins.

In a sector competing on cost at a scale never seen before, and where consumer brand loyalty is decreasing by the day, protecting a firm’s margins is crucial.

As compliance has increased in importance, technology has kept pace and evolved to reduce the time and cost burden regulation could otherwise have imposed. Now, best-of-breed credit management solutions seamlessly integrate compliance monitoring and reporting into their sourcing, approval and collections processes.

Happily, this combination of motivations and technological developments has created a win-win for lenders and borrowers alike: an established and proactive risk and compliance function that not only protects consumers but also contributes to the strategic objectives of the lender’s business.

[i]https://www.fca.org.uk/firms/approved-persons

Uma Rajagopal has been managing the posting of content for multiple platforms since 2021, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune. Her role ensures that content is published accurately and efficiently across these diverse publications.

Global Banking & Finance Review

 

Why waste money on news and opinions when you can access them for free?

Take advantage of our newsletter subscription and stay informed on the go!


By submitting this form, you are consenting to receive marketing emails from: . You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

Recent Post