[INSIGHTS]: Consumer Duty & Illegal Money Lending – [FULL INTERVIEW]

With Consumer Duty deadlines pressing, Kevin Still and I caught up on the latest developments, with a special focus on outcomes, vulnerability and how this relates to some new research regarding Illegal Money Lending.

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Interview Transcript

So hi, everyone. I’m here with Kevin still today. And we’re just gonna have a bit of an update, I suppose around the consumer duty and where do we sit with that? So Kevin, Kevin, thanks for joining me. Where do we sit with consumer duty? Because I think the deadlines are pretty close now, aren’t they?

Yeah, Chris, we’ve obviously been doing a running update on this over the course of time and the 30th of April the next checkpoint is really fast approaching, and the regulator’s been providing podcasts particularly around including distribution chains, which are a critical part of the customer journey. So I’ve got a couple of slides if that’s helpful in just setting out where we’re at. So I’ve put a little marker down the bottom there where we are today, we’re on the fifth of April, and the 30th of April is fast approaching us so most firms would have some form of distribution chain. So in the database world, many debt solution providers regard is the manufacturer, but they would have a number of channels in depth various providers are feeding in where a particular recommendation is made, let’s say for a debt management plan, or an Individual Voluntary Arrangement, the time is approaching very quickly. And as I said, these FCA podcasts shouldn’t really be ignored in relation to the regulator’s expectations. They’re also simultaneously conducting more discussions with smaller firms to find out how far they’ve actually progressed. And one of the key element here, Chris, I think, is today

the FCA had published their business plan for the next year, which clearly builds on a number of elements they put into the plan for last year, where the consumer duty represents a flagship of their overall strategy. But overlaid with that is the cost of living crisis. And that is a very acute factor here. So whilst they’re discussing involving a number of stakeholders, other regulators, which is really important, in the space we’re discussing today, most consumers that require help have problem debt would have multiple creditors regulated by different framework. So it could be public sector debt, HMRC, DWP, could be utility debt could be water debt. So it’s really important, there’s a consistency in the customer journey. And I think the FCA are trying to take a leading line on that, but there does need to be consistency in a supply chain, where it could easily be a public sector firm, pushing a case to a debt recovery company, who is actually FCA regulated, who then refers to a debt advice provider don’t consistency, and things like affordability and vulnerability assessments remain really important. And some of the glue here they’re talking about debt advice charities, like stepchange, and other free to consumer providers like Pay Plan, who have a really important role to play in this whole ecosystem. Just going back to the previous page, Kevin, what you’re saying is on this is that we’ve got a month now until the 30th of April, to basically that’s when the reviews have to be completed. So if you’re an issuer of loans has to be completed by the end of by the end of this month. And then you got a few months of them implemented, basically, you’ve got to get the reviews done within less than a month now. Yeah. So if you’ve got a credit broker involved, they need to understand what your risk appetite is, are you changing your fair value assessment, so anything to do with your contract, your pricing, target market, all of that needs to be pushed down to the people that are actually engaging with the customer. Okay, so it doesn’t need a lot of time to go. Does it all know. So and again, I think the regulator said that they saw some elements of complacent or introspective views where people were just looking at their own operations, rather than up and down the supply chain, or the customer journey, whichever your view is. Right, right. And at the same time, hear throughout this business plan. There are a number of key references to activities interventions, that the regulator’s taking, so one of those is building on the consultation around debt packages, but it’s also evident in here they are looking to update probably their consumer credit source but concrete around what good looks like in debt advice, right.

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Okay, that that, as we’ve discussed before, Chris is evidence through things like the dear CEO letters, which was sent out to each sector. And what was critically important within that was the annexes in each one of them, which were very much sector specific. But nonetheless, it starts right at the beginning. And that is that you the CEO of the firm should have this as one of your top priorities in terms of implementation. So there’s no ambiguity about that and then going in and drilling down into this a little bit more detail. What we see is specific references within the annexes

And today, I think we’re focusing a little bit more on that drill down, particularly in relation to tackling illegal money lending or probably more colloquially known as loan sharks. So the drill down starts by, can you do more to help complex and vulnerable clients and their circumstances, reference again to the vulnerability guidance from February 2021 fg 21, one, and then drill down again into specific use cases. And what the regulator’s highlighted here is a very substantial cohort of individuals over a million that could be affected by loan shark intervention. And as a result of that, almost all other relationships get subordinated. So even if it’s, you know, your rent, or other priority expenditure, they’re likely to prioritise dealing with the loan shark because of potentially the threat of violence, or other intrusions, bullying, etc, that are symptomatic of these participants involved in these people’s lives. Right. So they’ve highlighted here that there is training available, and that data providers should be routinely looking at this when they’re engaging for customers, either new debt advice sessions, or on reviews for solutions, like debt management plans, or Individual Voluntary Arrangements. So something that in my trade body Dempsey, we very much support, but also trying to get the message out to, you know, the whole sector is really important, both those dealing with policy and service delivery, but also to frontline staff. And the Recent reports have come out recently haven’t they’re so around illegal money laundering? Yes, we’ll just come on to that in a second, Chris. But I think point I just wanted to make this a build on previous discussions we’ve had around being in an outcome based approach, knowing your target audience is key. So if you’re dealing with people that may be in sort of council tax bands AMB, or there’s a higher propensity to be vulnerable, than the likelihood of a loan shark engagement is likely to be proportionately higher. So I would expect in that scenario, that embedding that within your key vulnerability policies, and operationalizing some of those policies is really important.

So the report you’ve just referred to, as from the Centre for Social Justice, which has been sponsored by a number of parties, including the debt advice sector, and technical providers like Arizer, and those involved in engaging between the creditor community and the debt recovery community like TD X and Equifax, that this is an industry wide issue that we need to build awareness of this both with consumers, but also with advisors themselves. And what the findings of the report showed still, there was a level of unawareness, though, generally speaking, most advisors were familiar with what a loan shark was. But the level of training and the lack of policy around this was quite significant and worrying. So I would suspect, if you looked at this from a regulatory perspective, one of the early questions would be Have you got a policy sitting underneath your vulnerability policy that deals with loan shark activity, that they’ve highlighted very strongly that even where they’re detecting evidence or suspicion of loan shark activity, that many debt advisors don’t have the confidence to tackle it and progress that and drill down a little bit further, which would then make the next stage even more challenging, which is, do we want to transfer a client to an illegal lending team? And what are the consequences of that rather than just signposting?

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But from a system systematic point of view, there were some strong recommendations about updating the standard financial statement in relation to this type of category of debt, which is then getting into challenges around flagging vulnerability, which historically, the governance group hasn’t entertained. But there is a recommendation for a new framework for investigating an illegal lender. And that really requires the widest participation from the lending community itself all the way through down to the debt advice sector. You know, we’re talking about legal money laundering here. But when we talk about it in context of consumer duty, and I suppose in customer outcomes, are we going to see the similar kind of approaches across other types of vulnerability almost like as we spread it, I mean, of which this is was like an egregious sort of vulnerability or harm has been created. I mean, do you think this approach is a good sort of like litmus test of Do you have the right outcomes in place? You’ve got to get this right, but he could expand it across the broader aspect of his interaction with the firm. I think it already has to a degree but I think one of the challenges here is fatigue, so gambling

has been focused on a number of times the detection of gambling activity, what do you do about it, if somebody is still gambling candidate advisor genuinely do anything about it. So is it only when they’re in remission effectively, that you can deal with it. And similarly, we saw in January, the government issued their economic abuse toolkit, very important topic. Again, something that’s resulting a lot of training work going on. And we’re just about to see version two of the government vulnerability Toolkit, which this will be referenced in. But again, it’s got to be pushed down to the front line. And there is a danger that, as I say, advisors become fatigued where they have refresher training, but another hot topic then comes up, which could be you know, any one of a number of issues, whether it be mental capacity, suicide prevention, there are any number of topics that highlight significant cohorts of people that are affected. So, so for me, a lot of this relates to things like agent assist, an agent assist tools, which is probably a timely moment, really, for me to, you know, turn the tables on you, Chris, for once, and talk about some of the work that you’ve been doing around this report, which I believe is 38 pages long, and some of the work you’ve been doing very recently. So I think this is your summary. I think, Chris, of CES, obviously, we chatted about the report and the large language model to basically generate this. So I think it’s just quite interesting in terms of the speed in which you can kind of generate it really, I suppose, couple of things that came out for me in terms of the report, and I thought the reports an excellent report, but that advisors, not all being aware of the signs of illegal money laundering definitely came out as a highlight. And then you can see just some of the recommendations that the EU already explained in terms of providing training to death advisors on illegal money lending, the financial statement box came out and being more proactive in identifying illegal money laundering, I mean, a quarter this basic can be extracted from those 38 pages, I mean, so what we’re going to do is, is put this summary findings page and the whole presentation back on the training pack. So you’ll be if you want to log in and have a copy of it, then you’re welcome to have a copy of it as well. But I think what’s interesting, from my point of view, Kevin was the accuracy in which we could quickly come out with some of these findings. Is this the kind of thing that could be useful for businesses? Is this the kind of thing that could be useful for agents as well, just to summarise some of the findings? I think in the context of, you know, consumer outcomes and some of the training that needs to happen, is this a way of sort of getting some of the information across very quickly? That was kind of my question back to you ready, which it seemed like it could be an opportunity? Yeah, I think so. Obviously, a topic for another day. But I think in particular, some of your experimentation with language and literacy levels, came up with some really interesting results that I think, you know, we’re at the discussion in their own right. Yeah.

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I mean, yeah, illegal money laundering is obviously important. A and I know you wanted to just chat about the event you’ve got coming up as well. I’m just a promo this, which is really just trying to help the team there. Because I think we’d all agree that it’s kind of super important, really, for customers as well. Yeah, I mean, this is also very powerful in the sense that the stakeholders, we’ve got involved in it. So Bob Winnington, from the Money Advice Liaison Group is introducing then the money and Pension Service, obviously, you have a big influence over the quality of debt advice, pay plan, who’ve recently been accredited for ISO 22458, around inclusive design and consumer vulnerability, and their experience of working with the illegal money lending team on their frontline training, leading into, you know, we’ve got the British Standards Institute talking a little bit more about inclusive design, and contributions from the likes of myself, Peter Tutton, stepchange, Helen Lord at the vulnerability registration service, and input from IE harp who are one of the sponsors for the event, all of which are very relevant to some of the things we’ve just talked about changes to the standard financial statement, vulnerability, flagging, and this is an explicit sub flag within the vulnerability registration service. So it’s not just awareness, but how do we then embed this into frontline practices. And as we mentioned, just refresher training on its own is probably not going to be sufficient. We need to be able to build some of these tools in the work alongside natural language processing, open banking, database sharing and the like. So quite a big topic. But I think this is really a platform for Katherine, Trish, stop loan sharks England to talk about what they’ve done successfully with a number of firms. So you know, there’s the link there to join. If people want to join, we’ll put the link in the comments as well. So just to encourage people to join if they can, really so.

Yeah, we’re, you know, we’ve got a good attendance at the moment, but there’s never such a thing as you know, enough at the moment, we’re not constrained by space. And again, we are encouraging the great and the good in the sector really to make points a very practical level, you know, in terms of what

all the challenges of doing this and what can we take away and learn from it? Yep. I think if people are also registered, then they’ll get a copy of this presentation as well. So we can certainly do that as well. So that’s very much the case, Chris.

Well, Kevin, thanks very much. I appreciate the overview and the update in terms of consumer duty and obviously, we’ve got this big event that’s coming up next week as well. So what’s the thanks very much for joining me, actually, very, very welcome.

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