With the end of the final authorisation landing slots looming in early 2016, the majority of firms in the consumer credit market will have now submitted their applications for Financial Conduct Authority (FCA) authorisation.

But what comes next?

FCA approach

Unlike the previous Office of Fair Trading regime, firms under the FCA's jurisdiction will face ongoing scrutiny of their business models and practices. The FCA has pledged to clean up the consumer credit market to ensure that customers are getting fair outcomes and that customers' interests are central to the strategy of the firm. This process of cleansing the market started with the FCA's assessment of authorisation applications (some firms which were unable to meet the regulator's expectations inevitably exited the market) and will continue after authorisation through ongoing firm supervision, thematic reviews and visits.

The level of regulatory scrutiny your firm will receive will depend on the activity you are undertaking. On 18 September 2015, the FCA published two guides to its new approach to supervision. Firms will be classified as either "fixed portfolio" or "flexible portfolio". The majority of firms (bar existing fixed portfolio firms and the very large consumer credit providers) are likely to be classed as flexible portfolio and will be supervised through a combination of market-based thematic work and programmes of communication, engagement and education.

Our experience

We have worked with a diverse range of firms across the consumer credit sector, supporting our clients with authorisation preparation and enhancements to their systems and controls. Through our client interactions we have identified a number of common themes and areas where firms struggle to understand the FCA's expectations and whether their current practices meet its requirements. We have also undertaken a number of skilled person reviews in the consumer credit sector. Our strong and ongoing dialogue with the FCA has provided valuable insight into its interpretation of rules within the Consumer Credit Sourcebook (CONC), its view of good and poor practices across the market and its expectations of firms in terms of them evidencing their adherence to regulatory requirements on an ongoing basis. Over the next couple of months we intend to share these insights with you, to help you assess your firm's readiness for ongoing FCA scrutiny and supervision and to guide your thinking about your key risk areas.

Our blogs

The areas that we will be covering in our upcoming blogs include:

Affordability and creditworthiness:

Affordability and creditworthiness are key areas of focus for the FCA. How you assess whether or not credit is affordable for your customers, on a sustainable basis, is a key cultural indicator. In this blog we will explore the common areas where we have seen challenge from the FCA with regard to affordability assessment processes, proportionality of assessments and other key considerations such as validation of income and expenditure and reliance on third party credit referencing agencies. Read the blog here.

Governance:

Weaknesses in governance structures have long been a recurring theme in FCA enforcement notices. We will explore the characteristics of a robust governance framework, informative management information and effective oversight of your business on a day-to-day basis.

Vulnerability:

How firms identify and deal with customer vulnerability has been a key theme across financial services markets for a number of years. In this blog we will examine key customer vulnerability factors, how a customer's profile with regard to vulnerability may change throughout their relationship with your firm and how you might adapt your processes to deal with vulnerable customers fairly.

Other areas that we will cover in this series of blogs include:

  • Arrears handling;
  • Compliance, including your compliance monitoring plan;
  • Incentives; and
  • Third party relationships.

We hope that you find this series of blogs useful and insightful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.