UK FCA proposes new credit reporting governance body with broader objectives

The Financial Conduct Authority (FCA) published its Credit Information Market Study final report on 3 December 2023, following its interim report and discussion paper in November 2022. The report sets out a package of remedies, including both regulator-led and industry-led measures.

The FCA has concluded that the current industry governing body, the Steering Committee on Reciprocity (SCOR), is too narrow in focus and representation and is not fit for purpose. It is, therefore, proposing that a new governing body with broader and more transparent and accountable objectives, the Credit Reporting Governance Body (CRGB), replaces SCOR to oversee the implementation of the industry-led remedies.

As an initial step, the FCA will collaborate with a newly established Interim Working Group (IWG) to lay the groundwork for the new governing body. 

The IWG's plans

The IWG will explore the "objectives, governance, constitution, operational model, resources and funding models" for the proposed CRGB. The IWG will also consider whether there should be a Memorandum of Understanding established for the CRGB better to define the relationship between it and other sector regulators and bodies.

The FCA expects the IWG to start development of proposals in January 2024 with a provisional nine-month term, to conclude by the fourth quarter of 2024. The CRGB is then slated to commence its work on delivering the industry-led remedies.

Why a market study?

Credit information, largely provided by credit reference agencies (CRAs), is vital to the functioning of the credit market. There are five main types of participant in the credit information sector: CRAs, data contributors, credit information users (CIUs), credit information service providers (CISPs), and consumers. The three large CRAs in the UK are Equifax, Experian, and TransUnion. 

The sector has been on the FCA's radar for a number of years. The regulator first launched a study into the credit information market in 2019, which was paused at the start of the Covid-19 pandemic and restarted in July 2021, shortly after deficiencies were highlighted in the Woolard Review.

As the credit market has evolved, the market for credit information has become increasingly complex. The FCA has concluded that this creates risks of poor customer outcomes and negative impacts on competition and innovation. The UK financial watchdog has concerns regarding outdated governance arrangements, high barriers to market entry, inconsistent and poor-quality credit information, and poor levels of consumer awareness and engagement.

'Key themes'

In its final report, the FCA proposed a package of remedies that are grouped into four "key themes":

• Reforming industry governance arrangements.
• Improving the coverage, quality and consistency of credit information.
• Improving consumer awareness of and access to credit information.
• Considering potential changes to foster greater competition and innovation.

When designing and timing the remedies, the FCA took into account the potential evolution of the credit information and wider credit market, including the growth of digital products and embedded finance. It also took into account developments that may affect remedy implementation in the future, including proposed reform of the Consumer Credit Act 1974, the proposals for buy-now pay-later regulation, and the rules around the development of open banking. 

Package of remedies

Currently, there is no mandatory requirement for regulated data contributors to share data with CRAs. A fundamental limb of the FCA's proposed reforms is to bring in a mandatory requirement for all firms to report data to all "designated" CRAs (likely to be, at least initially, the three large CRAs) in order to establish a single "core" consumer credit information dataset. The FCA will take this remedy forward using its rule-making powers, subject to further consultation.

The regulator will also introduce:

• regulatory reporting rules applicable to designated CRAs;
• rules that apply to data contributors regarding error correction and reporting satisfied County Court Judgments; and
• rules applicable to both CRAs and CISPs which require them to increase consumer awareness of the availability of free credit information via the statutory process.

While the new mandatory reporting requirements will bring with them costs and implementation questions for regulated firms, they have been largely expected by the industry.

There are some remedies the FCA is expecting to be industry-led, including those relating to data quality, the provision of streamlined access to statutory credit reports, and better processes for dealing with errors and disputes. Its view is that, given the complexity of the market, industry expertise is needed to ensure these remedies are implemented effectively (although it has reserved the right to get involved if necessary).

The FCA will be following up its final report by consulting on new rules with associated cost-benefit analyses, competition assessments and compatibility statements. It is not expecting to consult on new rules until the end of 2024, as it wants to make sure that any new rules interact, and are fully aligned, with the remedies to be implemented by the CRGB. No new rules are, therefore, expected to be in place before 2025.

Osborne Clarke comment

This package of remedies, particularly those aimed at improving data quality, is a positive and important step. However, it is not within the FCA's power to implement mandatory reporting for non-regulated CIUs and data contributors, such as councils and subscription and utility providers. As the FCA acknowledges, the credit information market is expected to evolve rapidly as new technologies take hold and firms turn to open banking for a more holistic data set.

It follows that the design and remit of the CRGB will be fundamental to the achievement of a well-functioning market that protects consumers, improves consumer outcomes and increases market efficiency.  We will continue to monitor developments closely.

If you would like help around any of the issues raised in the report and their impact on your business, please contact our experts.