From the desk of Kevin Still
There has been a lot of coverage in the last week around low-income households not taking advantage of social tariffs, which extends to broadband tariffs. IE Hub and others have been drawing attention to this, which DEMSA actively encourages. According to Ofcom, millions of low-income families are missing out on a £144 annual broadband saving. This is intended to apply to 4.2m households claiming universal credit, but only 55,000 have applied. Another one for the debt solution review checklist in terms of understanding eligibility criteria and why families are not applying.
6 broadband providers – BT, Community Fibre, G.Network, Hyperoptic, KCOM and Virgin Media O2 – offer at least one of these specially discounted deals. These packages are priced at between £10-£20 a month for broadband speeds ranging from 10Mbit/s to 67Mbit/s.
According to Ofcom’s report on affordability, around 1.1m households (5%) are struggling to afford their home broadband service, which has become an essential expenditure item through the pandemic with hybrid working and home schooling. More than 80% of surveyed firms had adopted hybrid working, most since the pandemic, a survey for the Chartered Institute of Management (CMI) found. The survey polled 1,237 managers, with 41% working in the private sector, and 59% the public and non-profit sectors. Working from home does not appear to have significantly impacted the UK’s productivity, with estimates from the ONS showing that output-per-hour exceeded pre-pandemic levels for the first time at the end of 2021.
I responded to an IE Hub post (link below) posing the question “What is the likelihood that we find that low-income households usage of broadband and mobile (e.g. O2 and Virgin 10%+ costs increases just announced) disqualifies them from these ‘social tariffs’?”
There is a risk that household priorities may mean that spend analysis disqualifies some households from social tariffs or other schemes targeted at those with limited surplus incomes. This highlights the value of tools from IE Hub, Paylink Embark, Cerebreon, Policy in Practice and others around how non-priority costs are budgeted for. The pandemic has, however, highlighted that the majority of broadband costs are a priority cost for many households with hybrid working and studying. DEMSA has discussed this at the SFS governance meetings chaired by MaPS, with the new SFS figures being deployed in April 2022.
Gemma Cryan, Marketing Director of IE Hub, has confirmed their commitment to offering free usage of their budgeting tool to all UK customers. She said: “It’s crucial that households take action now to avoid slipping into a financial crisis.”
Vanessa Northam of StepChange also picked up on this topic.
Link: https://www.linkedin.com/posts/activity-6899645963141472256-7UCh – StepChange
Link: https://www.bbc.co.uk/news/business-60421056 – hybrid working
MAT responded to the latest ONS figures on inflation, with CPI rising from 5.4% in December 2021 to 5.5% in January 2022. We are all expecting this trend to continue along with incremental increases by the Bank of England around interest rate rises. The ONS data also showed that shoppers spent less online in January 2022, seeing a 4.5% fall compared to December 2021, which probably not unexpected. The Bank of England predicted inflation will peak at around 7.25% in April 2022.
Petrol prices have risen to a record high and are expected to climb further in coming weeks. The AA said petrol surpassed 148p a litre last Sunday, rising above the previous record high of 147.72p on 21 November 2021.
A few on the circulation may be interested in the Sara Williams (Debt Camel) response to the news that TransUnion will be including BNPL data into creditor reports from Summer 2022. We will continue to feature developments in this space.
I am monitoring for any updates on the Debt Packager policy notice following on from CP21/30, which DEMSA responded to.
MaPS debt advice commissioning
MaPS has acknowledged in their release on 14 February 2022 that the delays in the Lot 1, 3 and 4 awards has impacted morale across the sector as most debt advice providers have issued ‘red flags’ around increases in debt advice demand from October 2021 onwards. The start of the next tax/benefits year will see more significant drains on disposable income for many struggling consumers.
The stated priority is to make sure that the sector can collectively deliver more expert debt advice that achieves good outcomes for more people, including those in vulnerable circumstances. They have confirmed a maximum annual funding envelope of £76m (£37m pa for Lot1) for the delivery of debt advice services in England.
MaPS will be inviting existing bidders in Lots 1 (national) and 4 (DRO) to re-submit their tenders to make any adjustments they wish to reflect the confirmed contract values.
They will offer current debt advice delivery providers interim grants for a period of 10 months starting from 1/4/2022 at the same levels to the current year. This is to ensure adequate time to evaluate the re-submitted tenders, mobilise new contracts in Lots 1, 3 and 4, and to protect continuity of service for people seeking debt advice. Joanna Elson CBE, CEO of MAT, has confirmed that both National Debtline and Business Debtline are seeing an increase in demand.
January 2022 – Insolvency Statistics
I have posted on LinkedIn a short DEMSA bulletin (attached) on the January 2022 insolvency statistics. Nothing significantly of note other than Standard Breathing Space registrations had risen, which may be a blip after December 2021 or an earlier indicator of more consumer demand. I would be interested in feedback from the debt advice providers on this.
January is traditionally a period when early arrears rise on credit agreements and then begin to settle down going into the second quarter of the year. With anticipated reductions in disposable income from April 2022 (e.g. Household budget pressures from energy costs, broader cost of living and NI tax rises) then the ability to repay missed payments may be more difficult, even over a period of time with tailored forbearance. This is likely to increase demand for debt advice and potentially informal (e.g. DMP) and formal debt solutions (i.e. DRO, Bankruptcy, IVA). Whilst informal debt solutions like a DMP are not captured by The Insolvency Service, the AiB does capture statistics on DPP/DAS in Scotland.
DEMSA has been monitoring DRO and Bankruptcy numbers in England & Wales since the DRO eligibility criteria changed in June 2021. IVA numbers have remained fairly stable at around 6,000 to 7,000 per month over the past 12 months.
Debt Respite Scheme in England & Wales
Between the launch of the Breathing Space scheme in England & Wales on 4 May 2021, and 31 January 2022, there were 46,406 registrations, comprised of 45,710 Standard breathing space registrations and 696 Mental Health breathing space registrations.
ISO 22458 (consumer vulnerability) kitemark
As discussed in last week’s bulletin, we have been having a number of discussions with ISO around the emerging ISO 22458, which is due for publication on 4 April 2022. I have downloaded a draft of this and spoken with several firms that have been accredited for BS18477. I had a really productive session with Equifax/TDX Group/Indesser earlier this week and they really value the standard, which is used by their vulnerability specialists on the Indesser panel which are part of the Debt Resolution Service framework. I have also engaged with South East Water, who were a case study provided by ISO (attached).
Colin Trend has provided some really useful feedback on inclusive design and the work of parties like Capital One in this space.
We are looking at a pilot cohort of 4-5 firms to work through ISO 22458 accreditation. The Vulnerability Registration Service (VRS) has put their hand up already and I am hoping to find others that are interested where they have consumer engagement. Please drop me an email and I can get the ball rolling. I have also spent some time with support firms, like the ones that helped TDX Group.
You can find a webinar here on BS 18477: https://page.bsigroup.com/l/73472/2019-08-05/kp44nd?&_ga=2.61150508.18326809.1644827598-1698218720.1607351309 (you’ll have to sign up to access it).
Link: https://www.linkedin.com/posts/matthew-hooper-mcips-chartered-83947346_social-value-corporate-responsibility-manager-activity-6899398590607736832-Npxp – TDX Group post on Social Value Manager role and feedback from Matt Hooper at CCS
On a related note, it was nice to see Perch Group post on ISO 27001 and ISO 9001 accreditation.
FCA Consumer Duty (CP21/36) responses
I have submitted DEMSA’s response to CP21/36 and this has been acknowledged by the FCA. I have also issued a bulletin and published on LinkedIn. I am now tracking other response. Proportionality is key and the FCA must listen to industry feedback around the level of concurrent activity regulated consumer credit firms are facing in 2022-2023 along with major tailored forbearance requirements from April 2022 with pressures on disposable income for millions of households in the UK. This is strongly reinforced by UK Finance in their response.
For the debt solution sector, this includes planning for new products like Statutory Debt Repayment Plans (SDRPs) and how regulating BNPL will impact the sector. We have explored ‘fair value assessments’, notably where services are free-to-consumer.
The Consumer Duty is a “fundamental shift” in approach to regulation, and UK Finance has supported the intent behind the Duty since its inception. Like DEMSA, they welcome changes the FCA has made since its first consultation on the Duty, which have reduced the risks of unintended consequences. This includes dropping the private right of action and the general requirement for firms to take “all reasonable steps”. These align with DEMSA’s response.
As with the DEMSA response, they have confirmed that the proposed implementation period is simply too short given the need for firms to review current products, prices, policies, systems, processes and documentation and to amend and supplement them where necessary, all at a time of significant regulatory change and the ongoing Covid-19 pandemic, which continues to preoccupy firms and their customers. According to the UK Finance, the FCA’s intention is that the Consumer Duty prompts firms to gather the evidence on the big questions around customer behaviour and outcomes. The real question for firms is now “what evidence should we collect, and how?”
Further to their Blog on the Consumer Duty (link below), it will be interesting to see which approaches firms take when recording identification of vulnerability and the customer journey that ensues. I suspect a range of approaches will be taken in recording outcomes, especially around ‘sludge audits’.
UK Finance has obviously had more legal input to their CP21/36 response than the DEMSA one. They have also expanded on the wider capture of special category data, notably in the diversity space. I suspect that this will overlap with the Amplifi work and any assumptions on what data may be gathered or volunteered on the journey that may influence personalised journeys in the customer’s best interests.
I was very interested in Matthew Conway’s point in the executive summary:
“The conflation of vulnerability considerations with diversity, inclusion and socioeconomic factors makes interpreting these concepts challenging and prejudges their proper consideration by the public authorities later in the year. The overlay of vulnerability considerations in several areas may also mean that firms design, price, communicate and support to the requirements of the least able/capable customer in the target market, not the average customer”
I have sent Matthew and Ian Fiddeman at the UK Finance a copy of the DEMSA response.
We have a few on the circulation list that are actively involved in the financial advice sector (e.g. VCX, MorganAsh).
The Personal Investment Management & Financial Advice Association (PIMFA) has responded to CP21/36. They are a trade association for firms that provide investment services and financial advice, which includes individuals and families. As with the UK Finance and DEMSA responses, they feel strongly that the implementation window is too short and that there are many areas of clarification required. They have also supported the absence of a Private Right of Action and the removal of ‘all reasonable steps’.
On the common concern around FOS interventions, Liz Field, Chief Executive of PIMFA, commented:
“The inherent subjectivity of the proposals does remain a concern especially with respect to the application of the Duty by the Financial Ombudsman Service (FOS). We already have long-standing concerns about the lack of alignment between the FOS Handbook and that of the FCA”.
The Chartered Institute for Securities & Investment’s (CISI) chief executive Simon Culhane has said the FCA is always “playing catch-up”, arguing the “lack of consistency” at the regulator is to blame. It comes as he is stepping down from the role. Whilst I suspect that the FCA executive will refute the remarks and point to interventions like the BNPL action below or their new data-driven approach, they may find it hard to defend the comments below that are echoed by other trade bodies like UK Finance. Culhane said:
“The only way you can really [change] that is to make sure you involve and work with the practitioners,”
“The point is you’ve got to work in collaboration and involve the practitioners rather than just dictate. It has to be a common regulation otherwise you are forever destined to catch-up and it becomes antagonistic and it doesn’t really work.”
“Members tell us their biggest problem is the lack of consistency amongst the FCA people, they don’t stay long enough and they don’t understand the subject,”
“If you talk to any group of CEOs in a room, they’ll tell you that’s the fundamental problem.”
Certainly, the talent drain at the FCA would support some of the comments above.
At a more granular level, DEMSA has echoed this in terms of listening to the industry around scheme like Breathing Space and Statutory Debt Repayment Plans (SDRPs). It is clear that industry feedback is strongly stating that the Consumer Duty timetable is too aggressive and that was a key message from CP21/13 responses.
My thanks to the IE Hub team for their post on Consumer Duty, which has taken a less legal approach than others.
DEMSA Consumer Duty LinkedIn post: https://www.linkedin.com/feed/update/urn:li:activity:6899653850454659072
FCA drives changes to contract terms of leading BNPL providers
Clearpay, Klarna, Laybuy and Openpay have all fully cooperated with the FCA in amending their contract terms in advance of being subject to FCA regulation.
These firms must comply with consumer protection legislation, which the FCA has powers to enforce. This includes the Consumer Rights Act 2015 for contracts entered into from 1 October 2015.
The 4 firms have agreed to make contracts fairer, easier for consumers to understand and to better reflect how they use them in practice. DEMSA welcomes these changes, which reflects positively on a potentially smooth transition to FCA regulation by the major players.
As link to the next topic of digital collections, I found the link below of interest in looking at the emergence of BNPL where the author discusses reimagining ‘debt collection processes’. He makes the point that financially vulnerable customers lack control throughout the debt collection process due to inflexible repayment options, an absence of digital tools for managing their debts and antiquated communication methods used by traditional collectors. Faith Reynolds has been looking at the language in use in these processes and problems with legacy issues from the Consumer Credit Act which were extensively covered in the BNPL consultation responses from creditor trade bodies (e.g. CCTA, UK Finance). How blending behavioural science with AI/ML will help businesses identify and manage vulnerable customers is a key challenge, especially if it is designed to allow customers to devise their own bespoke payment plans. Many of the Consumer Duty responses are teasing out some of these challenges.
Focus on digital collections
One of the headlines this week was that open banking had passed the 5m user milestone in the UK based on data by CMA9 in January 2022. This represents the 9 banks and building society mandated under the CMA Order to implement open banking in the UK. The Open Banking Implementation Entity (OBIE) is the entity set up by the CMA9 as ordered by the CMA in 2016 to deliver open banking. Its trading name is Open Banking Limited.
This important milestone follows January’s celebration of the 4th anniversary of PSD2 making open banking a regulatory requirement in the UK, when more than 4.5m people and businesses were using open banking services. A significant factor in this payment growth was HMRC’s incorporation of a ‘Pay by bank‘ option into its annual self-assessment process, which took the total number of payments made via open banking to 3.86m in January 2022. This is an increase of 19.3% on December 2021.
Opportunities for open banking
Matthew Hooper, CCS’s senior category lead for revenue, recoveries, analytics and data, described the Debt Resolution Service (DRS) framework as having been “designed to be forward-looking with innovation at its heart”. He went on to say:
“Suppliers can offer open banking to citizens and businesses directly as an accurate, and efficient way to complete income and expenditure forms,” explained Hooper. “Alternatively, open banking providers can work with public sector customers directly, helping them understand consumer affordability and potential vulnerability. We expect suppliers on the framework to offer citizens and businesses the open banking payment option in the near future.”
HMRC has extended open banking payments to 9 further tax regimes. This is a great case study for Ecospend, who are featured in the article. Yoti and Ecospend have announced a partnership to combine digital identities with open banking for secure next generation payments.
Private/Public sector collaboration
This week’s example is Ascendant Solutions open tender contract win with Erewash Borough Council.
Risk coalition article on ESG
For larger firms this is incredibly topical, but is increasingly becoming relevant to smaller regulated firms. Quote:
“Establishing clear governance and oversight over ESG matters is not purely a matter of good governance and corporate hygiene, it is an enabler of better decision making through ensuring ESG is integrated into existing decision-making frameworks and dealt with in isolation. It also facilitates clearer and more authentic communication of ESG objectives and outcomes to key stakeholder groups.”
BDO has also published a quick read on 10 questions boards should know the answers to.
I am hoping to submit a couple of insights to Risk Coalition in 2022. I have included a link to the previous post from November 2021, which dealt with proportionality in regulation of smaller firms. As is evident from the last DEMSA bulletin on FCA expectations of Compliance Oversight and MLRO senior managers (SMFs), this can be dis-proportionate to the size of the firm. Part of the intention of this bulletin is to connect firms, which includes GRC specialists and experts in areas of firm support like ISO accreditation.
The Artificial Intelligence Public-Private Forum has published its final report. The report explores how financial services firms can address the practical challenges, manage the risks and harness the benefits of AI/ML.
The Bank of England and the FCA launched the Artificial Intelligence Public-Private Forum (AIPPF) on 12 October 2020. The purpose was to further dialogue on AI innovation between the public and private sectors. More specifically, the AIPPF sought to:
- Share information and understand the practical challenges of using AI within financial services, as well as the barriers to deployment and potential risks
- Gather views on potential areas where principles, guidance or good practice examples could be useful in supporting safe adoption of these technologies
- Consider whether ongoing industry input could be useful and what form this could take
Previous work has shown that risks can arise at 3 levels within AI/ML systems: Data, Model Risk and Governance. Issues at the data stage can get baked in as model inputs; but even with the best data, issues can arise in the modelling stage; while complex AI systems create their own governance challenges. The AIPPF meetings and the final report have been structured around these three key topics. We have a few on the circulation that are far more engaged in this than I am and I hope to be able to make use of this expertise for those involved in building AI/ML into their core products and services. The roles of regulated and non-regulated firms in the supply chain has been a key issue picked up by a number of trade body respondents to Consumer Duty. The Shoosmiths response has taken a very legal view and referenced the potential risk of having to terminate supplier agreements, notably cloud providers and other key platforms.
The role of AI/ML has been picked up in the FCA Consumer Duty and separately in the UK GDPR reform, not necessarily consistently, as reflected in the UK Finance response to the FCA.
Create your Cyber Action Plan for small firms
NCSC has been promoting Cyber Aware this week. Learn how to protect your small business online with a Cyber Aware Action Plan. Answer a few questions on topics like passwords and 2-factor authentication, and get a free personalised list of actions that will help improve cyber-security. I will give it a whirl for my consultancy firms and DEMSA.
For larger firms, NCSC has issued warnings around the heightened alert in the Ukraine and the potential implications of this on firms. As ever, measures are proportionate to the business model, however, firms do need to be monitoring these alerts as part of their cyber-resilience strategies.
This comes as the UK’s cyber security firms generated a record £10.1 billion in revenues last year, according to data from the Department for Digital, Culture, Music and Sport Annual Cyber Sector Report.
VRS – 24/2/2022
Collaboration Network – 3/3/2022
I have engaged with Jane Crisp of South East Water this week as part of the wider discussion around BS 18477 and ISO 22458, where South East Water were an ISO case study for BS 18477.
Debt Awareness Week – 21-27 March 2022
Promotions for Debt Awareness week have started and the timing before the start of the next tax/benefit year is very timely. Last year over 170 organisations supported the campaign on social media, in their internal communications and through their websites.
Have a good weekend.
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