Bank of England rate increase and inflation warning – review of SFS figures
At its meeting ending on 4 May 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.25%. Several economists have speculated that continuing to increase interest rates will not work where the underlying reasons for rising inflation are not in our control. The press release reflects that the global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK growth. CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4. This all points to having more dynamic mechanism for assessing household affordability when making affordability assessments, which are generally forward looking (e.g. is it sustainable over the next 12 months or the duration of a debt solution). The SFS governance group meets next week (11/5), where it is clear that the revised inflation figures will require a rethink on approach, with the most recent SFS guidance figures having only just been implemented by many of you on the circulation.
The Bank of England has also published its monthly Money and Credit statistical release for March 2022. Consumers borrowed an additional £1.3 billion in consumer credit, of which £0.8 billion was new lending on credit cards. This supports the view that many consumers are using revolving credit to prop up their monthly finances as household costs rise.
The annual growth rate for all consumer credit increased to 5.2% in March from 4.5% in February, the highest rate since February 2020. The annual growth rates of credit card borrowing and other forms of consumer credit were 10.6% and 3% respectively.
UK Finance has confirmed that the cost-of-living is dominating headlines. The May 2022 report shows that the percentage of interest-bearing card balances has been trending down for a number of years. As Covid-19 lockdowns reduced opportunities to spend, UK Finance saw a sustained period of repayments outstripping new credit card borrowing through much of 2020 and 2021 taking the percentage of interest-bearing balances to a series low in November 2021. There was a subsequent uptick, but this is a seasonal effect of consumers increasing card purchases in the festive season and paying off bills in subsequent months, but the proportion of interest bearing balances resumed its downward trend in the most recent data for March 2022. Probably worth monitoring relative to the Bank of England data as the report says that ‘consumer sentiment’ has continued to nosedive. Insight from the ONS Opinions and Lifestyle survey provides further evidence of concern among households, with key findings showing 87% of adults had seen an increase in their cost-of- living in March 2022 compared with 62% in November 2021.
FCA – Supporting consumers in challenging times
The FCA has published a speech by Sheldon Mills, FCA Director of Consumers and Competition, that was delivered at the Building Societies Annual Conference on 5 May 2022. The speech was on the same day that the Bank of England increased the base rate to 1% and provided an update on the level of inflation going into 2023, which make some of Sheldon’s number out-of-date as of today. The key points emphasized by the FCA are:
- Many consumers are feeling the impact of the cost-of-living crisis and the Financial Services industry has a key role to play in helping consumers manage their personal finances
- Firms that are diverse and inclusive will deliver better outcomes for consumers and markets. The FCA expect to see greater diversity in terms of gender and ethnicity in the building societies sector
- Open Banking will bring opportunities for building societies and their members, for example by enhancing members’ experience or improving greater data access – firms should unlock these benefits to consumers through innovation
- Later life lending is growing – to serve older borrowers well, suitable advice and responsible lending are key
As was the case with the Brian Corr speech at the Credit Summit 2022 in March and the CCTA conference in April, the Consumer Duty is a key plank of the FCA 3-strategy.
Given the audience, Sheldon said that all financial institutions, including building societies, should consider the base rate rises and how they balance their mortgage and savings rates. In particular, they should ensure that they are providing fair value to savers. He focused on people reliant on savings in later life and the risk that they are tempted into higher-risk investments or scams. He reinforced that regulated firms should monitor and be ready for cyber risks and for sudden ‘hikes’ in the volume of consumer contact. Operational resilience and scenario testing to ensure that core processes and systems & controls are fit-for-purpose was the next theme. This included withstanding any increase in distressed borrowers or defaults, operational failures and fraud.
He said “No one knows how long or how deep the cost-of-living crisis will be, but I think the old adage applies, we should hope for the best, plan for the worst”.
The FCA has also outlined their concerns with how lifetime mortgages have been sold, for example, insufficient personalisation of advice; insufficient challenging of customer assumptions; and lack of evidence to support the suitability of advice. They want to see improvements in this area and Sheldon encouraged the audience to consider if firms could do more to support consumers through the sales journey. He reflected that this market previously served older consumers looking to unlock property value for higher living standards, but increasingly provides for a broader range of needs, such as repayment of secured and unsecured debt, supplementing poor retirement income and supporting family members.
In his focus on innovation, he specifically referenced wider adoption of open banking by BSA members and finished on the growing focus on ESG, green finance and diversity & inclusion. This is also developed in the presentation by CEO, Nikhil Rathi, delivered at the Chartered Institute for Securities & Investment (CISI), where he has said that technology and training are essential in the field of ESG development. I have previously covered the increased focus on ESG and the need to think about ESG policy and strategy. He makes reference to a PwC webpage entitled ‘Enabling enterprise ESG transformation with upskilling’.
UK Finance has also published a Blog on ESG and Financial Crime.
FCA warns businesses to stop misleading credit adverts to protect consumers
On a related topic to Sheldon’s speech, the FCA has written (Sheldon’s letter attached) to almost 28,000 consumer credit firms warning them not to use terms such as ‘no credit check loans’, ‘loan guaranteed’, ‘pre-approved’ or ‘no credit checks’ when marketing loans. Firms’ adverts should not give consumers the impression that they will automatically get a loan if they apply or that they can get a loan without the lender checking they can afford it. This should probably give the BNPL providers a clear steer on the direction of travel as they move into FCA regulation under the Consumer Duty. This letter is addressed to credit brokers and firms providing high-cost lending products.
As reflected in the Bank of England figures, the FCA expect to see greater demand for credit, including short-term credit, particularly impacting consumers in vulnerable circumstances. The FCA is keeping the consumer credit sector under close review to ensure that demand does not result in unsustainable and unaffordable lending. This does require consumers to play their part.
The letter references effective supervision by Principals of any Appointed Representatives in the process and the impending Consumer Duty. For debt advice providers, it is probably worth noting that there needs to be a record of the financial promotions in a range of media that the consumer may have responded to before taking out credit. This may be relevant if it was clearly unaffordable for someone that may already have ‘problem debts’. One of the issues raised is the lack of sign-posting to MoneyHelper or providers of regulated debt advice.
The FCA website is flagging several failed Credit Unions during the course of April and May 2022.
StepChange post on Renters’ Reform Bill
I picked up on a StepChange post where they have joined 32 other organisations in calling for a Renters’ Reform Bill in next week’s Queen’s Speech. This is designed to follow-up on the government’s commitment to reform private renting so the rental sector is fairer and more secure. The graphic is probably best viewed online.
United Utilities campaign
Thanks to Gemma for bringing this post to my attention from United Utilities and the value in completing household I & E assessments, which we have been promoting for a while and we have encouraged more providers to offer their I & E services direct to consumer.
ISO 22458 kitemark launch on 5 May 2022
The new standard was launched in the morning session before moving into the BSI Consumer Forum Conference 2022.
Left to right; Andrew Clowes, Chris Jones, Carolyn Delehanty, Helen Pettifer and Mark Bailey. I managed to catchup with the representatives from the Collaboration Network, with Helen and I in the same work group in the afternoon session. Andy Clowes, Head of Customer Experience & Strategy at South East Water, spoke at the event and we touched base around the Priority Service Register (PSR) and VRS over lunch. Data sharing came up again in the UKRN presentation by Diarmuid Cowan, Vulnerability Lead, in the afternoon.
Andrew Gething, MorganAsh, post after the event:
“Having read the new ISO 22458 on consumer vulnerability and attended the launch event today. Here is my high level take away for Financial Services:-
“ISO 22458 is an international standard, and is being taken up across industries and regulators – notably the utility regulators. FCA FG 31/1 – follows the ISO 22458. So, if anyone thinks vulnerability is just a FCA thing – think again – it is cross industry and from government. FG 31/1 is just how it is to be implemented in Financial Services within the FCA regulatory framework.
“Richard Lloyd (FCA Board chair) presented today and reaffirmed they will be pushing vulnerability and Consumer Duty hard.”
It was a good event with some great and senior speakers. I have never seen Chris Fitch quite so assertive and ruthless in his role as ‘panel facilitator’ in the afternoon session in keeping the speakers to time (before drinks), including Catherine Rutter, ‘Director for Customer Inclusion’ (previously Director of Group Vulnerability) from Lloyds Banking Group. He even managed to deal with Liz Barclays, Small Business Commissioner, and her ‘3 questions in one’ around supporting the 4.8m sole traders and sole directors as individuals. Some very practical examples of inclusive design in different sectors, with the focus being on essential services.
Alignment of the FCA Consumer Duty with the inclusive design theme was very apparent, strongly reinforced by Richard Lloyd regarding inclusive design at all consumer touchpoints. A message we have been collectively pushing for some time, with scaled examples of good practice. Richard Lloyd OBE was very open, especially around regulators and policy makers spending time at the ‘coal face’. Shani Dhanda provided a personal insight into why identifying and supporting consumers in vulnerable situations is more important than ever.
UKRN also referenced shared best practices, data sharing, more engagement with specialists & the debt advice sector and more pro-active use of social tariffs for the utility, energy and providers. This aspect is not that apparent in the ISO kitemark.
A number of sessions referencing digital exclusion/inclusion and how triage services become more joined up. This included the balance of effort between the referring party and the specialist they refer to. The FCA scam alert hitting the press during the day also reinforced the importance of ‘trust’ around disclosure and transfer of data and data sharing more generally (e.g. Priority Service Register – PSR). Consumers need to be involved in service design, thought Chris made the point that charities can sometimes be the proxy for “lived experience”.
A topic for wider discussion. A number of affiliates are already in dialogue with BSI around the impending pilots in Financial Services, Water and Energy.
CSA article on the value-for-money of funded debt advice
I have undertaken a review of this Credit Services Association report (44 pages) entitled ‘Wide of the mark?’ where Henry Aitchison assesses the delivery and value of free-to-client debt advice. It can be accessed from the link below. I also managed to speak with Henry on Tuesday 3 May 2022 just after it was published.
The report entitled ‘Wide of the Mark? Assessing the Delivery & Value of Free-To-Client Debt Advice’ argues that consistent and high-quality debt advice serves a very important role in helping people navigate financial challenges, especially when the cost-of-living is rising, but also believes it is essential that the questions of value for money, efficiency and accountability are addressed. DEMSA agrees with Henry that consistent and high-quality debt advice (irrespective of channel of advice) serves a very important role in helping people navigate financial challenges, especially during the cost-of-living crisis. Larger providers like PayPlan are definitely seeing a substantial rise in creditor referrals, above pre-pandemic levels. This is not consistent across the sector as yet.
Henry then raises the thorny questions around value-for-money, efficiency and accountability, where the current MaPS debt advice commissioning process has not been without its problems despite clear support in the DWP report in late 2021. Christopher Woolard strongly supported the 3-year awards before leaving the FCA and after when he joined E&Y. Iteration 2 of the bidding cycle closed in April 2022 (iteration 1 closed in October 2021). I have strongly supported the need for the Lot1 awards to be progressed without further delay.
The CSA has recommended greater emphasis on consistent standards and outcomes for customers, in-line with outcome-focused objectives of the FCA Consumer Duty. The MaPS statement-of-requirements for primary national contractors (Lot1) lays this down very clearly (including quality standards) and are very aligned with FCA future conduct expectations. They are also likely to align with the ISO 22458 inclusive design principles. The CSA seems to be focusing on the ‘outliers’ where some of the FCA expectations don’t seem to have penetrated fully. Brian Corr, Director of the FCA, provided clarity at the Credit Summit 2022 and at the CCTA conference in April, where Chris Leslie also spoke in a panel session.
The report covers a number of aspects close to the heart of consumer credit firms, including levies to fund free-to-consumer debt advice and the ongoing role of the ‘Fair Share’ scheme ahead of the introduction of Statutory Debt Repayment Schemes (SDRPs) in May 2024. Henry makes some very strong arguments around the concept of ‘polluter’ pays, including the funding of FSCS. Recent industry events and media coverage of the affordability challenges point to major problems in the energy and utility sectors, where they are benefiting from debt advice providers funded by the financial services sector.
I have been in dialogue with MaPS and will monitor whether further sector collaboration is required, as we are doing on 11 May 2022 when reviewing the SFS figures.
FCA variation in Senior Managers form (Form A)
For the FCA regulated firms, standalone Form A submissions to the FCA have historically been without charge to the applicant firm and candidate. From 27 May 2022, the FCA is implementing a new application charge for standalone long Form A applications—for both Senior Manager Functions and Controlled Function for Appointed Representatives (ARs)—which will be £250 per application.
This fee change was first consulted on in CP20/22: Regulatory fees and levies: policy proposals in November 2020 and was referenced by the FCA earlier in 2022 when the application fees for authorisations were changed. As referenced last week, firms need to allow a meaningful period of time for a case officer to be appointed when submitting an application. This can be difficult where a new SMF is being appointed to replace an existing role.
There will be no charge for a Short Form A or a Long Form A if you are submitting it with a New Authorisation, Variation of Permission or a Notification for registration of an Appointed Representative (AR).
Screen sharing scams
New FCA research shows how increasingly sophisticated tactics can fool even savvy investors. In one year, the FCA has seen over 2,000 cases of screen sharing scams and victims have lost £25m. This has been picked up by the BBC and I referenced it at the ISO 22458 launch during Q & A when we discussed the importance of building trust with potentially vulnerable consumers.
The FCA has launched ScamSmart campaign for screen sharing which aims to tackle this and direct investors to the official warnings list.
The LSB’s Business Plan & Budget 2022/23
We need to anticipate the extra protections some customer may need. In the LSB Business Plan & Budget for 2022/23, you can read how LSB is approaching the year to ensure they are consistent in driving fair customer outcomes within Financial Services.
Insolvency Service newsletter – Spring 2022
This year’s Insolvency Live! will be taking place on Tuesday 5 July 2022.
Recording of Hogan Lovells event on Consumer Duty – 28 April 2022
I attended this event and found it very useful, especially different perspectives by sector. I attended Frank Brown’s breakout session and this provided plenty of opportunities for questions. I had a Teams call with Frank on 3 May 2022. The FCA is now engaging with trade bodies and other respondents around their respective CP21/36 responses. An area of feedback I have received is making use of the ‘implementation period’ between August 2022 and April 2023, both in terms of collaborating with the regulator and members being able to evidence progress around changes to contracts, T & Cs and customer communications (e.g. How PRIN12 is embedded in plain English).
As the Consumer Duty aims to change culture, DEMSA was supportive of a phased approach with one implementation period to introduce new processes and a longer period to embed them given the other regulatory changes impacting the sector and that some providers have sizeable back-books (i.e. pre-existing clients). This involves a lot of work around systems & controls, MIS and consumer facing collateral.
Link: https://hoganlovells.qumucloud.com/view/AdosBjeGbp0Uo5nvSl0n1l – recording link
Collaboration Network – The Cost-of-Living Crisis: Utilities & Communities Focus Group – 19 May 2022
This session explores the impact of the cost-of-living crisis within communities and the role Housing Associations, Utility firms and support services can play to increase support for customers.
This will look at areas such as:
- Payment holidays/tailored support programmes
- Outreach schemes
- Awareness of support available across sectors
- Communication Strategies
- Collaboration & Partnerships
- Focus on Mental Health
- Referrals & Signposting
This session will be Chaired by Dr Elizabeth Blakelock, vulnerability and essential services expert.
Cross-Sector Debt Collection Roundtable announced by Flexys – 28 June 2022
Flexys are bringing together Senior Collections Managers from the Water, Energy and Financial Services sectors to share what works in their firms and how best to support customers through the enduring cost-of-living squeeze.
The Roundtable will explore the advantages of a cross-sector approach to finding effective ways to engage reluctant customers and keep them engaged while managing recruitment difficulties and keeping staff motivated.
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