Regulatory Outlook | Consumer Finance | January 2018

Current issues

Brexit

The FCA plans to look at whether there is a need to introduce a new “duty of care” for all regulated firms. In other words, it will look at whether its rules (which have the force of law) should impose an obligation on firms to exercise reasonable skill and care in the provision of services to consumers.  There also appears to be an acceptance on the part of the FCA that many of the mandatory consumer disclosure requirements that are derived from EU law actually hinder effective communication, have a negative impact on consumers and should be reviewed.

Overdrafts

The FCA plans to consult in spring 2018 on proposals to change the regulatory regime applying to overdrafts. It is concerned about the long-term use of arranged overdrafts at levels which can be persistent and unsustainable and has broader concerns about unarranged overdrafts – that their use is often inadvertent, and charges appear high and complex. It has even gone so far as to say that there is a case for considering the fundamental reform of unarranged overdrafts and whether they should have a place in any modern banking market at all.   This may open up opportunities for alternative lenders to innovate and increase competition in this space.

Exploratory work on the motor finance industry

The FCA is currently looking at the motor finance sector, which has grown significantly in recent years. It is considering whether firms are taking the right steps to ensure that they lend responsibly; whether information about hire purchase and hire products is sufficiently clear and transparent; whether there are conflicts of interest arising from commission arrangements between lenders and dealers, and whether risk is being adequately priced.  Following its review, the FCA will assess whether and how to intervene in the market.  It plans to publish an update in the first quarter of 2018.

Open banking initiative

Open banking is tasked with delivering Application Programme Interfaces (or APIs), data structures and security architectures that will make it easy and safe for customers to share their financial records by the end of January 2018. This date is aligned to the implementation of the Payment Services Regulations 2017, which will allow authorised third parties to be given consent by the account holder to access their bank accounts to extract statement information and to initiate payments, without having to use their bank’s online services. It is envisaged that this capability will then lead to far-reaching innovative services being created by new entrants and technology companies.

Extension of the Senior Managers and Certification Regime (SMCR)

The SMCR replaced the approved persons regime for individuals in banks, PRA investment firms and some insurers in March 2016. This is to extend to all other regulated firms from 2018. The FCA has proposed to take a proportionate and flexible approach; splitting SMCR requirements into ‘limited’, ‘core’ and ‘enhanced’ categories. The applicable category will depend on a firm’s size, complexity and on the potential impact on consumers.

Review of retained provisions of the Consumer Credit Act 1974 (CCA)

The FCA is required by law to review the remaining CCA provisions and report to HM Treasury by 1 April 2019 on whether their repeal (in whole or in part) would adversely affect consumer protection. The FCA has not yet published a summary of the input received from industry stakeholders, nor has it outlined the scope for the review and the approximate timelines through to 1 April 2019. A contributing factor to the delay could be Brexit, as some of the CCA provisions implement the European Consumer Credit Directive.  We do, however, anticipate further regulatory activity in this space over the course of 2018.

Dates for the diary