July Regulation Update
By Kyte Ekstrom | Compliance, Consumer Credit, ESG, FCA Regulation, FinTech |
PRA and FCA Publish Joint Paper: Potential Measures to Oversee Critical Third Parties – Operational Resilience
The discussion paper covers potential ways to manage and oversee systemic risks posed by critical third parties (CTPs) to the UK financial sector. These measures focus on material services that CTPs provide and include:
- a framework for identifying potential CTPs, which would inform the supervisory authorities’ recommendations for formal designation by HM Treasury.
- minimum resilience standards, which would apply to the services that designated CTPs provide to firms and Financial Infrastructure Firms (FMIs).
- a framework for testing the resilience of material services that CTPs provide to firms and FMIs using a range of tools such as scenario testing, participation in sector-wide exercises, cyber resilience testing and skilled persons reviews of CTPs.
The proposed measures would complement, not replace, firms and FMIs’ existing responsibilities to manage risks from contracts with third parties. Whether or not firms and FMIs rely upon third parties to support the delivery of important business services, firms and FMIs are responsible, and ultimately accountable for their operational resilience.
Responses to the discussion paper can be submitted on or before 23 December 2022.
Bank of England Webpage
FCA Updates Webpage – Change in Control Notification Delays
The FCA have experienced delays in allocating FCA-led notifications to case officers over recent months and state that there is currently a delay of approximately six weeks between submission of a complete notification and allocation of a case officer. Subsequently the FCA have updated their webpage on how to submit a change in control notification.
The FCA is recruiting additional case officers to tackle the backlog and encourage firms to provide all relevant information and documentation in their initial submissions to avoid delays associated with incomplete notifications. The FCA also reminds firms that it is a criminal offence to proceed with a transaction before the FCA has made a decision or before the statutory assessment period has expired.
FCA Publishes Portfolio Letter – Supervisory Strategy for Mainstream Consumer Credit Lenders (MCCL) portfolio
The letter, aimed at the CEOs of mainstream consumer credit lenders (MCCLs), outlines the FCA’s supervisory strategy for these firms. The letter covers the FCA’s view of the key risks of harm in the markets MCCLs operate in, sets out the FCA’s expectations, providing an overview of the FCA’s strategy and programme of work, including, and among other points, the following:
- the treatment of borrowers who fall into financial difficulty: The FCA expect to see higher demand for credit due to the rising cost of living. Rising interest rates, and lower disposable income, may make borrowing less affordable, or unavailable, for some. The FCA urge that firms must ensure their customers receive fair and appropriate support.
- Inadequate assessments of affordability: The FCA stresses that firms should not be seeking to increase business by lowering the stringency of affordability checks, especially given the context of the wider economic background that currently prevails. When assessing affordability firms need to consider the following:
- Application of reasonable and proportionate checks
- Assessing customer income
- Assessing non-discretionary expenditure
- Performing affordability calculations
- Management information – monitoring the effectiveness of their creditworthiness assessment policy and procedures
- persistent credit card debt: Since introducing rules in 2018, the FCA expects firms to continue engaging with customers in persistent credit card debt in order to discuss the options available to them to pay down their debt within a reasonable period.
- Firms do not deal with their s75 Consumer Credit Act 1974 (CCA)responsibilities appropriately: Following COVID-19, the FCA notes that they have seen growth in section 75 CCA claims, with a growing number of these being upheld by the Financial Ombudsman Service. The FCA requests data from firms on this matter to review how these claims/complaints have been handled.
- Governance and oversight – third party oversight arrangements: Where firms use third party arrangements\administrators (TPA), the FCA note that they should ensure appropriate oversight is in place in order to comply with applicable rules. The FCA will hold firms to account where they find breaches of their rules, including a failure to take reasonable steps to prevent misconduct.
- Data-led regulation The FCA is transitioning towards automated data collection, the aim is that this should enable firms to meet their reporting requirements and submit returns more easily. The FCA expect all firms in this portfolio to be aware of the requirements and guidance in SUP 15, and to submit notifications when an issue or event is identified, and not wait until resolution to notify them.
Additional topics covered in the letter include: poor customer outcomes, raising standards, the fair treatment of consumers with vulnerable characteristics, and ESG. The FCA also refers in the letter to the priorities set out in their recently published 2022-25 Strategy.
The FCA will write again in 2024 with an updated view of the key risks in the MCCL portfolio and their updated supervisory plans for the next cycle.
Portfolio letter: FCA Supervisory Strategy for Mainstream Consumer Credit Lenders (MCCL) portfolio