The Financial Conduct Authority (FCA) published on 31 July 2018 its final rules and guidance on creditworthiness and affordability in PS18/19.
The Financial Conduct Authority (FCA) published on 31 July 2018 its final rules and guidance on creditworthiness and affordability in PS18/19. These rules are now final and firms should now begin to review their creditworthiness and affordability policies to ensure continued compliance. The rules come into effect on 1 November 2018, which allows firms three months to make any necessary changes to their systems and processes.
Click here for our client note, which has been prepared to focus on the key areas of change brought about by the new rules.
The changes brought about in the Policy Statement are not simply a formalisation of guidance into rules. Many of the changes expand a firm's requirements considerably from the previous rules and guidance contained in CONC 5.
The table in the full PDF bulletin analyses some of the most significant changes along with our high level analysis of what firms might consider doing to comply with the new rules. Firms should in particular consider:
- that the FCA has re-iterated that creditworthiness and affordability are two distinct tests that both have to be applied in the lending decision;
- what data is collected from customers at point of sale and whether this is sufficient information to undertake an affordability assessment;
- when a firm may want to verify information that the customer has provided and how reliable those verification points are;
- where statistical population data is used, what the process should be to identify and adjust for any customers who are outliers to this data;
- the governance around the underwriting process, how affordability methodology is deployed (e.g. via a point of sale system or manual underwriting) and testing mechanisms such as periodic reviews and quantitative analysis sampling; and
- the need to demonstrate robust governance surrounding the sign off of creditworthiness and affordability policies, periodic assessment of their effectiveness and sufficient record keeping to be able to demonstrate that these requirements have been carried out and are reasonable.
How we can help
At Addleshaw Goddard, we can provide a unique blend of legal and regulatory risk and compliance advice. We have worked with lenders to help them develop their affordability assessments, review existing creditworthiness and affordability processes and translate rules into practical policies.