Key Regulatory Development in July

See this month's roundup of developments affecting the retail financial services sector.

Creditworthiness and Affordability Policy Statement (PS 18/19)

This statement formalises the changes set out in the consultation paper issued in July last year. 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. In particular firms should consider the most significant changes to the rules, namely:

• 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;
• 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; and 
• The need to demonstrate how the affordability assessment was applied to each individual customer should the FCA ever request the analysis. 

Please see AG client note 

AG FS Update: Extending SM&CR to all FCA firms (PS 18/14)

On 4 July 2018, the FCA published its near-final rules on the extension of Senior Manager & Certification Regime to all remaining FCA regulated firms which will be subject to the rules under SM&CR from 9 December 2019 at the latest. SM&CR aims to increase individual accountability with a view to improving culture and behaviour within financial services firms. The rules are largely unchanged from previous consultation papers, however there are some notable exceptions.

The consultation paper also provides helpful clarification in a number of areas, but particularly in respect to the impact of the regime on groups, required functions and regulatory referencing.

Additional consultation papers were also released in relation to feedback on earlier SM&CR consultation papers, the duty of responsibility for insurers and a new consultation paper was issued on changes to the FCA's public register following the extension of SM&CR. 

Enforcement annual performance report 2017/18

The FCA released its annual report on enforcement cases opened and highlighted that In 2017/18 the FCA issued 269 Final Notices (248 against firms and individuals trading as firms and 21 against individuals), secured 317 outcomes using our enforcement powers (303 regulatory/civil and 14 criminal) and imposed 16 financial penalties totalling £69.9m.

Most interestingly, in the last financial year, FCA Enforcement opened nearly treble the amount of investigations than it did in the year 2015/16. 

Four former directors of online consumer credit broker banned for misleading customers

The FCA has published final notices banning 4 former directors and shareholders of the credit broker, Secure My Money Limited, which has now been dissolved. 

The firm took fees of over £7.2 million from approximately 124,000 online customers by misleading them into believing they had been approved for short term loans. The FCA found that between November 2013 and July 2014 all four lacked honesty and integrity as they had deliberately misled often vulnerable customers, in relation to fees and services. The FCA also highlight the failure of the Directors to deal with the regulator openly and honestly while the FCA were trying to establish how the detriment was occurring.  

In this instance the FCA continued to pursue the former Directors even after the firm was dissolved and its permission cancelled and even assisted the Insolvency Service in disqualifying all four individuals as Company Directors. This case provides a useful indicator of FCA approach and tolerance of poor conduct initiated by individuals.