Implementing the Consumer Duty in credit brokers

What has happened?

In March 2023, the FCA issued five Dear CEO letters to credit sector firms concerning the implementation in 2023 of the Consumer Duty. 

What are the key points of the guidance for lenders?

The letters were issued to firms in the credit broking, mortgage intermediary, credit union, retail finance provider, and motor finance provider sectors. They set out;

• A reminder of the implementation timeline, the key elements of the Duty, and how it applies to firms in these sectors,
• The FCA’s expectations of how these firms should embed the Duty,
• Feedback from a recent FCA review of firms’ implementation plans, and
• The FCA’s updated view of the key risks of harm posed by these firms, and its expectations of them.

On 25 January, the FCA published feedback for firms on the implementation plans reviewed. This feedback contains examples of good practice, and areas for improvement, which will be useful for all firms to review as they implement the Duty. Many of the plans reviewed showed that firms have understood and embraced the shift to focus on consumer outcomes, established extensive programmes of work to embed the Duty, and are engaging with the substantive requirements. However, the FCA did also identify plans that suggested some firms may be further behind in their thinking and planning for the Duty.

The FCA has identified three key areas where credit firms should particularly focus their attention during the second half of the implementation period (to 31 July 2023):

• Effective prioritisation: The FCA saw a number of plans where it was not clear what the basis was for prioritising some implementation work ahead of other aspects. It expects credit firms should make sure they are prioritising appropriately, focusing on reducing the risk of poor consumer outcomes and assessing where they are likely to be furthest away from the requirements of the Duty.
• Embedding the substantive requirements: The FCA saw some plans that suggested credit firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate. It has reminded firms to carefully consider the substantive requirements of the Duty so that when they are reviewing their products and services, communications and customer journeys, they identify and make the changes needed to meet the new standards.
• Working with other firms: To implement the Duty on time, many firms need to work and share information with other firms in the distribution chain. However, some firms may need to accelerate their work on this important aspect of implementation.

The FCA is developing a strategy to supervise credit firms and to tackle key harms, as well as metrics to measure the impact of the Duty in the market. Firms of all sizes in the credit sector should be prepared to discuss the Consumer Duty with the FCA and to provide information on the reviews and assessments they have conducted as part of the embedding process. These additional engagements will be carried out through a variety of means, likely to include bilateral engagement, continued close engagement with the trade bodies, and industry events.

How can we help you?

Thistle Initiatives has supported wealth management firms and payment services firms with compliance for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as and when, our team of specialists can serve as your right hand in a meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your FCA credit supervision, implementation of the Consumer Duty or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 0207 436 0630 or sending an email to info@thistleinitiatives.co.uk.