DEMSA update: QA Frameworks / MaPS / Financial Crime / Insolvency Stats / Events…

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General update

Retail sales appear to be falling as the rising cost-of-living bites. Volumes fell by 1.4% in March 2022 following a fall of 0.5% in February 2022. Food store sales volumes fell by 1.1% in March 2022 and have fallen each month since November 2021. Car fuel sales volumes fell by 3.8% in March 2022 with other data sources indicating that some non-essential road travel had been reduced following record high petrol and diesel prices.

Figures from UK Finance have indicated that credit card balances have started to creep up as outstanding balances on credit cards have started to creep up again with balances up 3.8% year-on-year. It will be interesting to determine whether transactions include more purchases for everyday goods and services.

Link: https://www.ukfinance.org.uk/data-and-research/data/cards/card-spending (updated 20/4/2022)

The ONS announces in March 2022 their ‘basket of goods’ and confirmed plans for “scanner data” in headline the Consumer Prices Index (CPI). This “virtual basket” contains over 700 carefully selected items representative of the goods & services that consumers typically spend their money on. Inflation is being discussed at the MaPS SFS governance meeting on 11 May 2022 that DEMSA is attending.

As a sign of the times for us middle aged men, the rise in homeworking has seen the demise of the suit from the consumer basket. A new men’s formal jacket and blazer item is being introduced to ensure men’s formal and business wear is still represented in the basket. Also of note, the doughnut is leaving the shopping basket. This maybe a sustainability or wider ESG matter, but coal has dropped out of the shopping basket. Female sports gear (e.g. crop tops) are in.

ONS will be launching a ‘personal inflation calculator’, which can be used to calculate your own personal inflation experience based on your spending patterns.

Link: https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/march2022

Link: https://www.ons.gov.uk/news/news/ringingthechangescapturingconsumerexperiencewithinourinflationstatistics

Economising starts with the easy to cancel services (e.g. Netflix)

Shares in Netflix have slumped by 35% after it revealed a sharp drop in subscribers and warned millions more are set to quit the streaming service. This has wiped more than $50 billion off the firm’s market value. They have also highlighted the widespread practice of password sharing between multiple viewers. It is probably that we will see more and more cost saving/sharing activity where ‘loop holes’ exist to be exploited by consumers. As we have seen historically, people start under insuring assets and there is usually a rise in lower value home and motor insurance claims.  

Streaming services like Netflix and other similar services are likely to be some of the first cost savings that struggling UK consumers are likely to make when faced with enormous increases in energy, fuel and other cost-of-living increases. Extended warranties and other standing orders and direct debits that don’t seem essential come next.

For many, this may be just scratching the service and DEMSA has encouraged consumers to review their household budgets, cashflow and future reductions in disposable income. IE Hub is heavily promoting this and I am hoping that other ‘financial wellbeing hubs’ will start to promote directly to consumers to encourage them to assess the resilience to future cost shocks and reductions in income. The LinkedIn post is gathering some interest.

Link: https://www.linkedin.com/posts/debt-managers-standards-association-limited_costoflivingcrisis-debtadvice-moneymanagement-activity-6922922848856543232-EdwM?utm_source=linkedin_share&utm_medium=member_desktop_web

MaPS event on 4 May 2022 – Digital Services – Debt Advice Outputs for 2022

The flagship output of this MaPS work is the creation of a white label, customisable tool for customers to be able to gather in their data ahead of a debt advice session. This tool has apparently been designed with flexibility in mind so that any advice agency adopting the tool can embed it into their own customer journey. This tool comes built with an API to be able to transfer the collected information easily into an agencies CRM software.

Alongside this, they will be releasing ‘Exploration documents’ on a variety of other opportunities identified throughout the programme including Chatbots and Document Vaults.

The public webinar will be on 4 May 2022 between 11:00am and 12:00.

Qualco UK partners with Ecospend, Themis Global and Experian to launch Open Banking (OB) solutions

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Qualco UK has gone live with 2 new solutions using OB technology.

They have partnered with Ecospend and Themis Global. Qualco UK introduced account-to-account payment options, under a white label model for a new client. The approach includes letters, emails and SMS being sent to customers, containing a unique QR code, which, when scanned, opens up a simple and secure payment journey. Customers with mobile banking apps or online banking are now able to make a safe and secure OB payment by selecting their preferred bank account, use their normal login protocols and authorise payment, without the need to input card details or reference numbers.

The second feature makes use of Experian’s Affordability Passport, which uses OB technology to understand the customer’s financial situation by intelligently analysing the activity of their chosen bank account(s). Subject to the customer giving consent, the Affordability Passport removes the need for manual financial assessments, saving time and effort for both the customer and client.

Link: https://www.openbankingexpo.com/news/qualco-uk-partners-with-ecospend-themis-global-and-experian-to-launch-open-banking-solutions/

Quality Assurance Frameworks

My thanks to a number of people for reviewing this before circulation. These include; Bruce Turnbull (VRS/TelRock), Chris Warburton, Dave Lanning (Snowchicken), David Hoare/Chris Jones (VCX), Guy Statter (Qualco), Ian Wilson (Triline GRC), Martin O’Donnell (Debtstream), Matt Hooper (Crown Commercial Services), Mehmet Akseki (Ceverine.com), Rachel Curtis (Inicio), Richard Bartlett (Auden) and Sam Manning (Hope Macy). I would also like to welcome Garry Gormley of FAB Solutions. We managed to discuss QA during our call on Thursday.

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On 4 April 2022, Jessica Rusu (Chief Data, Information and Intelligence Officer of the FCA), presented at the Innovation Finance Global Summit 2022 with a speech entitled ‘Building a digital regulator: how the FCA is riding the innovation wave’. She reflected that technological innovation is a powerful force, with the ability to disrupt existing structures at speed and scale. This is a key to maintaining competive advantage.

Having worked on a number of ‘digital first’ strategies, established industry QA Frameworks and recently been a delivery lead on a major ‘Quality Management’ tender involving new contact engagement technologies, I recognised that the financial services sector is at the heart of this digital transformation. Innovation is required throughout the product/service lifecycle and this is strongly reinforced in the draft Consumer Duty (implementation April 2023), which is a key plank of the FCA 3-year strategy and Business Plan for FY 2022/23. Arrears management is a critical part of this lifecycle.

This thought paper explores some of the challenges for firms involved in digital debt resolution. I hope that you find it of value as we plan for the Consumer Duty and the wider challenges of monitoring outcomes and reporting on them.

Quality Assurance in debt advice

I hope to produce another document that builds on previous work we have done around QA Frameworks in the debt advice sector and that we can use some of the work undertaken by MaPS in this space as they evolve the requirements for MaPS funded firms to demonstrate compliance with the new quality framework.

The current MaPS Debt Advice Quality Framework can be found at:  The Money Advice Service: Debt Advice Quality Framework – May 2015 (debtquality.org.uk)

CompyPort webinar on FCA Authorisation on 21/4/2022

This event was recorded and I hope to be able to share the recording in due course. It was entitled “Key changes to the FCA authorisation process – A practical guide for firms planning to submit an FCA authorisation application in 2022”. The pre-amble stated that 1 in 7 authorisation applications are being refused, rejected, or withdrawn by firms. Previously, this proportion was 1 in 13. The backlog is very significant, as being experienced by several on the circulation list.

These stricter conditions are in line with the FCA’s Strategy for 2022/23 core goals of:

  • Dealing with problem firms
  • Reducing harm from firm failure
  • Improving oversight of Appointed Representatives (covered in the DEMSA bulletin last week)
  • Reducing and preventing Financial Crime (see below)

You can add ESG and diversity & inclusion to the list. I have summarised some of the key topics raised relative to consumer credit and FCA regulation (rather than PRA). For those firms that have reported through the pandemic, financial stability and operational resilience remain to the fore.

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Highlights:

  • The FCA won’t coach a firm through the application process – it needs to be complete at the point of application
  • Higher level of scrutiny taking ‘full account’ of downstream principles and rules (e.g. Consumer Duty, PRIN 12 – applicability to your business model)
  • Scrutiny applies to the firm elements of the application around Threshold Conditions (e.g. business model – hybrid working) and the SM&CR component
  • Need to think about diversity & inclusivity in an application relating to senior managers
  • ‘Wind-down’ plans important (i.e. Financial Resilience)
  • Be mindful of regulatory initiatives (45-page document on FCA website)
  • Take heed of recent regulatory expectations documents (e.g. SMF16/17 roles – covered by DEMSA around competency requirements for these roles)
  • Application bottleneck won’t start to ease until H2 2022
  • Long delays in getting case officer appointed, but varies by permission and portfolio (FCA team)
  • 9k+ applications in process ranging from new applications & variations (e.g. VoP, change in control)  

The FCA don’t seem that keen on firms using some of the larger consultancy firms (e.g. those on the ‘skilled person’ panel) to substantially support applications, though ComplyPort didn’t say this out loud.

Financial Crime update

Having previously reported on the FCA 3-year strategy and Business Plan 2022/23, Financial Crime featured as one of their priorities. They have confirmed that financial crime prevention, such as money laundering and sanctions evasion, remains a key priority. This includes testing the financial crime controls of new (e.g. FinTech) business models as they enter the UK financial industry. They have just outlined their key findings from a review in 2021 with the ‘Challenger Banks’, including examples of good practice and key areas of improvement. As material issues were found, remedial work may well be required, including terminating some customer relationships.

The FCA sample selection included 6 challenger retail banks, which primarily consist of digital banks (i.e. over 50% of the relevant firms) and the sample covered over 8m customers. E-money issuers and payment services providers (PSPs) were excluded from the sample.

The review of financial crime controls covered: 

  • Governance and MI (e.g. RegTech dashboards)
  • Policies & procedures
  • Risk assessments
  • Identification of high risk / sanctioned individuals or entities
  • Due diligence and ongoing monitoring
  • Communication, training and awareness  

This probably sounds like a broken record for the RegTech providers on the circulation. I have also been discussing Operational Resilience, Consumer Duty and ESG ‘strategic dashboards’ alongside other board-level agenda items, some of which are flagged in the FCA focus on new permission applications, changes in control and new senior manager (SMF) appointments.

On a positive note, they found evidence of good practices (e.g. innovative use of technology to identify and verify customers at speed) that will be applicable to many on the circulation list involved in KYC/AML/CDD checks. Challenger banks and other fast growing firms should apply a risk-based approach to AML controls and also continuously monitor financial crime controls so that they remain fit-for-purpose as their business expands both in terms of volume of customers and product range. This may be applicable to some of the debt buyers on the circulation.

In terms of CDD, the FCA has claimed that most challenger banks did not obtain details about customer income and occupation, resulting in an incomplete assessment of the purpose and intended nature of a customer’s relationship with the bank. These would appear to be standard checks in the debt advice and personal insolvency world whether using more technology or traditional due diligence.

Given some of the messages from the FCA Application webinar, it would appear that some of the FCA findings reflect on short comings in the historic assessment of challenger bank applications. It seems hard to believe that some challenger banks didn’t have ‘customer risk assessment frameworks’ in place and that more generally, they were not well developed and lacked detail. They found weaknesses in the effective management of Financial Crime change programmes. This included inadequate oversight and a lack of pace of implementation which meant that the challenger banks’ control frameworks were not able to keep up with changes to the business models. This final point is illustrative of the feedback that DEMSA provided to the FCA around the timetable for implementation of the Consumer Duty, where many regulated firms are wrestling with multiple regulatory transformation programmes competing for investment and resource (e.g. Financial Crime, Operational Resilience, ISO 20022, Consumer Duty, ESG etc.). Inevitably, they need external resources and we find the challenges of firms reliant on external expertise where the ‘senior manager’ on the FCA register who is accountable needs to have full oversight of all of this and be able to adequately report to board and the ‘internal audit & risk management committees’ that are relevant to growing firms.

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Never fear, there are always trusty helpers at hand.   

Link: https://www.fca.org.uk/news/press-releases/review-weaknesses-challenger-banks-financial-crime-controls

Insolvency Statistics – March 2022

In England & Wales, the number of registered company insolvencies in March 2022 was 2,114, which is more than double the figure for March 2021. 1,844 were Creditors’ Voluntary Liquidations (CVLs). In Scotland, there were 86 company insolvencies registered in Scotland, 100% higher than March 2021, but 11% lower than in March 2019. This was comprised of 9 compulsory liquidations, 71 CVLs and 6 administrations. In Northern Ireland, there were 20 company insolvencies registered, almost 3 times as many as in March 2021, but 35% lower than March 2019. This was comprised of 7 compulsory liquidations, 12 CVLs and one administration.

Despite a return to normal for many economies in 2022, insolvencies are set to rise according to trade credit insurer, Atradius.

For individuals in England & Wales, the number of bankruptcies (633) was 39% lower than March 2021 and 59% lower than March 2019. By contrast, there were 2,512 DROS in March 2022, which is 58% higher than in March 2021 and is now higher than pre-pandemic levels.

There were, on average, 7,136 IVAs registered per month in the 3-month period ending March 2022, which is 12% higher than the three-month period ending March 2021, and 14% higher than the three-month period ending March 2019. IVA numbers have ranged from around 6,300 to 7,400 per month over the past year.

In Northern Ireland, there were 174 individual insolvencies, 5% lower than in March 2021 and 23% lower than March 2019. This consisted of 134 IVAs, 24 DROs and 16 bankruptcies.

Debt Respite Scheme

Between the launch of the Breathing Space scheme on 4 May 2021 and 31 March 2022, there were 58,463 registrations, comprised of 57,555 Standard breathing space registrations and 908 Mental Health breathing space registrations.

Link: https://www.gov.uk/government/statistics/monthly-insolvency-statistics-march-2022/commentary-monthly-insolvency-statistics-march-2022

Trustfolio Debt Solutions Provider Portal

A number of you will have picked up on the Trustfolio partnership with McCambridge Duffy. I have provided the link to a recent April 2022 blog. Southwark Council and Birmingham City Council will soon be the first 2 Local Authorities to use Trustfolio’s Creditor Platform, allowing McCambridge Duffy to engage directly with them.

Link: https://www.trustfolio.co.uk/blog/post/IVA-experts-McCambridge-Duffy-adopt-new-debt-tech-solution

Events

MorganAsh webinar recording featuring VCX

A recording of the MorganAsh webinar entitled Consistency in vulnerability assessment and reporting is now available to view here. Recordings from previous sessions are available to view here.

MaPS SFS governance meeting – 11/5/ 2022

I am attending another SFS governance group meeting on 11 May 2022.

As set out above, inflation has significantly increased since the group last met. We have now reached the warning marker of 3% above the MaPS projections. If it continues to rise to 8.5% then an automatic uprating will take place. When we meet on the 11th, we will consider the current state of inflation in greater detail.

The Vulnerability Registration Service’s next Webinar ‘The Vulnerability Jigsaw’s Next Piece: Identification, Integration & Implementation’ on 14/6/2022

Link: https://www.eventbrite.co.uk/e/the-vulnerability-jigsaws-next-piece-tickets-290293093457


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