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A positive shift for the FCA, but firms need to be more prepared 

Last month the FCA took another step towards achieving its aim of becoming a more data-driven regulator by releasing its latest consultation paper, CP24/19, in which the introduction of a new regulatory return was proposed for credit broking, debt adjusting, debt counselling and providing credit information services. These changes include a new format, covering mandatory “core” and discretionary “branching logic” sections. The discretionary information will be dependent on a firm’s specific permissions and will require firms to provide more specific data that is relevant to their model. The FCA is particularly interested in supply chains, consumer understanding of products and services, suitability of products and consumer support, and monitoring that firms are acting to deliver good retail customer outcomes in line with the Consumer Duty.  

In addition to introducing these new returns, the FCA has developed a prototype which will allow firms to get a better understanding of these changes. Firms with the relevant permissions will be sent a link to this prototype and are encouraged to test it. These changes will make the effective collation of data imperative as the FCA has raised the bar in relation to the quality and comprehensiveness of data that is returned.  

The introduction of these changes will bring a significant shift to the current more generic question format, calling for more engagement of firms from the outset. Although this will be a positive update for the FCA to gain important insight upfront, it does put more pressure on firms to be ready to answer the details requested.   

The proposed changes set out in CP24/19 are expected to come into immediate effect following the release of a policy statement in early 2025.  

What is the FCA looking to achieve with the proposed reform?  

The FCA want to better understand how firms are utilising its permissions and more accurately and quickly identify emerging risks and drivers of consumer harm. The new returns are designed to better reflect the diverse business models that operate within the consumer credit space, making it less likely that data is misinterpreted.  

The upside of this new approach for low-risk firms will be a potential decrease in ad hoc questions from the FCA as they will have the information already; but obviously this can only happen after the initial questions have been answered.  

Here’s what to expect from the new return cover 

All firms will begin by answering five mandatory questions, after which the ‘branching logic’ mechanism will be used for customised follow-up questions.  

The five mandatory sections will focus on: 

• Marketing Expenditure 

• Employee Information 

• Permission 

• Business Model 

• Revenue 

Firms with credit broking permissions will then be asked additional tailored questions that focus on the type of finance offered, its sales channel, its relationships with its top 5 lenders, intermediaries (if applicable) and owner relationships (if applicable, for example consumer hire), and how the firm is remunerated.  

Similarly, firms operating with debt adjusting and counselling permissions will be required to clarify the service it offers, with specific follow-up questions based on whether they offer debt advice or debt solutions. The FCA will also require information in relation to the firms call centre and web chat demand and clarity on whether the firm is part of any networks or trade association as well as how consumers are referred to the firm. Firms must also explain how client money and assets are held and also demonstrate that it meets relevant prudential requirements for the business, as prescribed by CONC 10.  

Additionally, firms with PCIS permission will be required to explain its fee and subscription models and detail the charges and total revenues received from consumers.  

So, how can you prepare? 

We have seen firms struggle with data collation in the past, and these changes can further increase the pressure due to the increased detail being requested. To prepare, firms should develop an action plan to collate the required information that will need to be submitted. Additionally, participating in the prototype test will offer a clearer understanding of these changes as it will clarify which questions are relevant to its business model and test the capability of its legacy infrastructure.  

Request for feedback 

The FCA is asking for feedback on the consultation paper. Specifically, they are seeking industry insights into the practicality of these changes as well as firms’ feedback about the proposed timeline and frequency of submissions The FCA’s deadline for responses to the consultation paper is 31 October 2024. Forms to provide comment can be found here. 

How can Thistle help?  

For any assistance you may need building out data collation strategies or preparing your firm for this change, Thistle Initiatives can support you through this process. For enquiries, please contact us at 0207 436 0630 or via email at info@thistleinitiatives.co.uk .