The last week has seen a number of releases around the increased usage of consumer credit, including card spending and the volume of transactions. Consumer confidence is very low. There is general political uncertainty and some of the proposals made by rival contenders for the Tory leadership are causing concerns in the city, certainly messaging that regulators may be merged.
Inflation in the UK hit a 40-year high of 10.1% in July 2022, according to the Office for National Statistics (ONS). Food and non-alcoholic drinks were the largest contributors to rising prices last month, with energy, petrol and diesel costs also affecting inflation. Fuel costs seem to be slowly coming down.
Ofgem – Energy domestic consumer advice for Autumn/Winter 2022
On 17 August 2022, Energy regulator Ofgem published support guides for bill payers struggling with their energy costs as they continue to rise alongside wider cost-of-living pressures caused by ever increasing inflation and interest rates.
There is considerable government lobbying ongoing around targeted support for those impacted the most and the need to pro-active planning around how debt advice providers can engage with essential service providers when consumers fall into arrears and typically have multiple debts with a range of creditors.
There are 2 documents, one for residents in England & Wales and the other for Scottish residents. They have been produced by Citizens Advice, Energy UK and Ofgem. They are not a quick read and consumers will need to be directed to the most relevant sections by advisers based on circumstances and eligibility criteria.
Priority Service Registers (PSR) are discussed in the document, where there is a likelihood that some consumers may be regarded as vulnerable by several essential service providers (e.g. Energy, Water and Broadband).
This may be a useful support document for debt advisers where priority arrears are identified during initial debt advice sessions.
Link: https://www.ofgem.gov.uk/publications/energy-domestic-consumer-advice-autumnwinter-2022
IncomeMax and Hope Macy collaboration
This post by Sam Manning, CEO of Hope Macy, provides a quick overview of the recently deployed solution for IncomeMax to expedite their advisers’ understanding of their customer’s financial situation. When IncomeMax need to get a full understanding of their customers financial health they use the new platform built on scalable Salesforce CRM technology, open banking and API integration. With the customer’s consent, they can extract a customer’s banking data and analyse it to find the best financial outcome. This enhanced customer journey takes just a few seconds with no need for any paperwork, scanning or emailing statements and bills.
We have previously covered the Family Connect proposition, where the role of carers will become increasingly important under the FCA Consumer Duty.
Specialist debt advice charity Fair Money Advice becomes an independent entity
On 11 August 2022, Fair Money Advice (FMA) announced the spins off from Fair Finance Group. FMA is a specialist pan-London debt advice charity.
FCA Regulatory Sandbox
My thanks to Minesh at Amplifi for picking this up. Amplifi have used the Sandbox to great effect and are listed in the latest batch of acceptances. This builds on the DEMSA bulletin last week where we discussed the ‘pathways’ team.
Amplified Global uses AI-based technology to assess intelligibility, and help companies communicate more simply with their customers, so their customers can understand and act on what they have read. Amplified will test how simplified terms and regulated notices from lenders can improve comprehension, and lead to improved consumer outcomes. Some of this is very relevant to the CCA reform and other digital journeys as the likes of BNPL falls under FCA regulation. The FCA has issued another notice this week around BNPL financial promotions.
Fair4All Finance is also listed. They work with organisations to pilot the No interest Loan Scheme (NILS) to customers in vulnerable circumstances. It is designed to provide an option to customers who have a need, but are unable to access or afford existing forms of credit, and who can afford to repay the capital of the loan. This is relevant to the Credit Union event detailed below. I also spotted Little Steps Financing, who provide a 0% interest financing product that allows parents to spread the payment of monthly nursery fees in small instalments over a maximum period of 4 years. Little Steps Financing aspires to make early years childcare more accessible and affordable for more parents in the UK.
The FCA site has been updated on 16 August 2022 and covers some of the application types:
- Distributed Ledger Technology (DLT) and blockchain
- Artificial Intelligence (AI)
- Open Banking and Application Programme Interface (API)
- Digital ID
- Data analytics
- Crypto and DeFi
- Infrastructure and process innovation
- Environment, Social and Governance (ESG)
- Robo advice
- Embedded finance
- Services aimed at facilitating access to finance
- RegTech
Link: https://www.fca.org.uk/firms/innovation/regulatory-sandbox/accepted-firms
Developing robust ID&V checks
On a related note, I found this UK Finance blog of interest around improving fraud prevention. From my CIFAS days, it has always been apparent that fraudsters aren’t loyal to any one sector, just the ones with the weakest systems & controls. This is relevant to the Credit Union sector featured in the Events section below. The FCA portfolio letter highlighted weaknesses in Financial Crime, AML and KYC checking.
UK Finance has reflected that advances in technology and sophisticated fraud techniques mean that previously embedded ID&V solutions are often out-of-date and require further development to mitigate against today’s financial crime and fraud challenges. For example, the ability to create a fraudulent identity is becoming increasingly easier and is now readily accessible.
The blog focuses on 3 key areas that firms should consider:
- Vulnerabilities within current processes: a firm’s Customer Due Diligence (CDD) processes should be continually reviewed and monitored. Testing should be carried out to identify vulnerabilities against new fraud techniques such as the use of deep-fake technology. By understanding gaps in current processes, firms can identify the right ID&V solutions for their specific needs
- Penetration-testing of ID&V solutions: solution providers should be regularly penetration-tested (pen-tested), considering both technological advances and behavioural changes in criminals. For example, the introduction of new passport styles to incorporate near field chip (NFC) technology or the move towards white collar crime during Covid-19 which saw an increased number of fraudulent loan and grant applications
- Use of behavioural biometrics: by building in behavioural analysis to the process, firms can go one step further in verifying identity. They can utilise technology to identify suspicious patterns of behaviour and creating a profile of the user’s true identity. With specialist ID&V vendors providing sophisticated behavioural analysis, the opportunity to add additional controls to the know-your-customer (KYC) processes is key
As begin to rely on digital journeys at all stages of the customer lifecycle and increasingly push consumers towards self-serve and apps then these factors become increasingly important where single sign-on (SSO) is seen to be important in the customer experience and maintaining engagement to end of particular customer journeys to an outcome. Simplifying and/or removing friction can create opportunities for fraudsters.
This concern is shared by TransUnion, where they have claimed that their quarterly fraud analysis has found that the rate of suspected digital fraud attempts coming from the UK increased by 32% when comparing Q2 2021 and Q2 2022, with financial services and insurance having seen the biggest increases. The published a release in April 2022, where their director of Fraud & ID reflected on the ONS fraud statistics:
“The figures from the Office for National Statistics affirm that fraud levels remain concerningly high. The data shows an increase of 41% in fraud overall, compared with the year ending December 2019. Advanced fee fraud and consumer and retail fraud were of particular concern, as fraudsters take advantage of shifts in consumer behaviour due to the pandemic.
“Phishing is confirmed as one of the main methods used to commit fraud, with over half (53%) of respondents surveyedi saying they had experienced attempted phishing in the last month alone. This aligns with the findings in our Global Digital Fraud Trends report, which highlighted phishing as one of the biggest concerns for UK consumers – the majority of whom now manage all their transactions online”
StepChange SDRP response
Peter Tutton has posted on LinkedIn and provided the link to the StepChange SDRP response. StepChange remains strongly supportive of the principles of providing statutory protections for consumers who can repay their debts, however, they have reflected the same industry concerns around the lack of flexibility and have provided evidence to support why more flexibility is required to avoid meaningful groups of consumers not being eligible for the SDRP debt remedy.
They have called on the government to redraft SDRP rules to better align with the needs of actual debt advice clients based on the evidence of what currently works with DMPs. This has been a recurring message through May, June and July from industry workshops.
They have highlighted the additional burden on debt solution providers administering SDRPs and urged the government to quickly and effectively work with debt advice providers and other stakeholders to simplify the administration of the SDRP scheme for the benefit of all where possible.
The response reflects many concerns around the design and build of the core hub, with a clear need to learn lessons from the Debt Respite Scheme. This will strongly influence the intended implementation date.
StepChange has expressed their concern that the proposed SDRP funding rate would be a significant funding cut. They have called on government to increase the proposed SDRP funding rate to 13% and to support implementation costs, which from their experience of Breathing Space suggests could come to £2.5m. This is a similar order of magnitude to other major debt solution providers. DEMSA made this point that there was no cost benefit in its response of 4 August 2022. SDRPs need to be made more inclusive and accessible to operate by more debt solution providers with client money permissions. We strongly reflected that the SDRP proposals in their current form are a missed opportunity.
Many of the StepChange comments are aligned with the UK Finance release that stated:
“Cost of living pressures are changing customers’ finances, which means flexibility is more important than ever, as their affordability will be greatly impacted. As currently designed, the SDRP is too complex. The rigid structure of the plan may mean that customers find it too difficult to keep up with payments. There are also significant operational and legal risks that may arise for creditors and the debt advice sector as part of the implementation requirements.”
Creditors and debt solution providers are in accord that further consultation work is required to make SDRPs fit-for-purpose, including the underlying technology framework.
Link: https://stepchange.medium.com/our-thoughts-on-hm-treasurys-sdrp-consultation-ade999b46692
Link: https://www.stepchange.org/policy-and-research/hm-treasury-consultation-sdpr.aspx
Insolvency statistics – July 2022
For England & Wales there were 1,609 Creditors’ Voluntary Liquidations (CVLs) in July 2022, 60% higher than in July 2021 and also 60% higher than July 2019. Numbers for other types of company insolvencies, such as compulsory liquidations, remained lower than before the coronavirus (COVID-19) pandemic, although there were 3 times as many compulsory liquidations in July 2022 as in July 2021, and the number of administrations was twice as high as a year ago.
In July 2022 there were 70 company insolvencies registered in Scotland, similar to the number in July 2021, but 28% lower than in July 2019. This was comprised of 15 compulsory liquidations and 55 CVLs. There were no administrations, CVAs or receivership appointments.
In July 2022 there were 14 company insolvencies registered in Northern Ireland, the same number as in July 2021, but 33% lower than July 2019. This was comprised of one compulsory liquidation, 10 CVLs and three administrations. There were no CVAs or receivership appointments.
Personal insolvency
There were 1,835 DROs in July 2022, which was similar to July 2021, but 23% lower than the pre-pandemic comparison month. There were 531 individual bankruptcies in England & Wales, which was 16% lower than in July 2021 and 64% lower than July 2019. There were, on average, 7,608 IVAs registered per month in the 3-month period ending July 2022, which is 11% higher than the 3-month period ending July 2021 and 4% higher than 2019. IVA numbers have ranged from around 6,300 to 7,800 per month over the past year.
In July 2022, there were 160 individual insolvencies in Northern Ireland, 13% higher than in July 2021, but 19% lower than July 2019. This consisted of 142 IVAs, 12 DROs and six bankruptcies.
Breathing space
In July 2022 there were 6,112 breathing space registrations, which is 10% higher than the number in July 2021. There were 5,994 standard breathing space registrations and 118 mental health breathing space registrations, which is 34% higher than the number in July 2021.
Events
NCSC Digital Loft: Cyber Security Toolkit for Board Members – 13/9/2022 – 10am-11.30am
The National Cyber Security Centre (NCSC) is urging UK firms to maintain ‘a sustainable strengthened cyber security posture’, during this extended period of heightened cyber threat. NCSC has reminded us that our firms on digital technology to function and transact business. Cyber security is a core component of financial health and operational resilience that is a key remit of the Board and likely to be an agenda topic along with the FCA Consumer Duty, where there will be some overlap in terms of consumer protection requirements.
The session on 13 September 2022 will focus on NCSC’s free Board Toolkit. They have produced the Board Toolkit to encourage essential discussions about cyber security to take place, between the board and technical experts. Board members don’t need to be technical experts, but they need to know enough about cyber security to be able to have a fluent conversation with their technical experts, and understand the right questions to ask during this period of heightened cyber threat.
Interview with Peter Wallwork of Trustfolio on 30/8/2022
My date with destiny approaches and I had a catchup with Steve Coppard this week to ensure that I am well prepared. I will share the link once available.
VRS webinar – Consumer Duty – 21/9/2022
This webinar will cover off some of the tools and solutions available to FCA authorised firms and how help is available to identify the ‘needs, characteristics and objectives of customers’ including those who are vulnerable. We have participants from Aveni, Data on Demand, Delehanty Consulting, IE Hub, MorganAsh, VCX and VRS.
This is very timely and intended to align with a series of events and training sessions around preparing for the FCA Consumer Duty and some of the grassroots changes required between now and the July 2023, whilst providing full visibility to your transformation plans to the regulator. Helen and I are involved in 4 virtual training events through the course of October 2022, which will be published imminently. These align with some of the tools that we have been working on around PRIN 6 and PRIN 7 being disapplied, including the 6 TCF outcomes. DEMSA provided TCF training, a gap analysis and an annual internal audit process in the transition period from interim to full permissions. This has been updated to reflect the transition to PRIN 12 and the requirements of FG22/5 (non-handbook guidance). I can provide details on this to anyone that is interested.
Credit Union webinar – 28/9/2022
Credit Unions have increasingly been in the spotlight, especially with the rise in loan shark activity during the pandemic and the cost-of-living crisis. The Government has promoted Credit Unions as a more cost effective and safer alternative to High-Cost Short-Term Credit (HCSTC) with The Bank of England reporting rising assets and growing member books. This event is timed with the ‘Stop The Loan Shark’ week and we are collaborating with the Illegal Money Lending Team (IMLT). I am taking a back-office role on this event.
Following another FCA portfolio letter in March 2022 and the publication of the Consumer Duty in July 2022, this increased profile will bring Credit Union into the spotlight as transformation plans need to be ready by the end of October 2022. At this event, we will discuss some of these challenges, what has been seen in other markets, look at some of the latest data, to see if we can find some ideas and solutions to help the sector. This will be chaired by Chris Warburton, with Heidi Oliver orchestrating everything before, during and after the event.
Under the FCA Consumer Duty, Credit Unions should have appropriate oversight of customer outcomes through their systems & controls. Risk functions should pay attention to consumer risks and this should also be a key lens for internal audit. This is likely to sound very familiar to most of the regulated firms on the circulation.
Discussion topics:
- Increasing market share – has growth stalled, and what is the impact of BNPL – is this a further threat to market share and good customer outcomes
- Delivering ‘good customer outcomes’ – how will Credit Unions evidence whether these outcomes are being met, including members showing characteristics of vulnerability or with identified accessibility needs
- Economies of scale – in a battle for customer attention and lowering cost to serve how can Credit Unions create economies of scale by leveraging collective buying power
- Cost of living / Recession – What will the impact be? How do stay ahead and get ready for an expected increase in volume
- Regulatory scrutiny – Further focus from the regulator and what to do to increase and evidence proportionate systems & controls
This is a free webinar targeted at the Credit Union sector for key stakeholders and those holding senior management roles (e.g. SMF1, SMF8, SMF17) in a Credit Union of any size or location in the UK where they are subject to FCA and PRA regulations. It is relevant to other firms supporting this sector (e.g. debt advisers). It is evident that a number of affiliates are active in this space and one that has been raised at creditor liaison forums before.
Speakers include Helen Lord of the Vulnerability Registration Service (VRS), Adam Thornber of Bridgeforce and Mehmet Akseki of Ceverine. Bridgeforce has extensive experience of working with Credit Unions in the US where they work with a third of the Top 30 Credit Unions and representing over $300 billion in assets. Digitisation is a key theme where operating costs are a real focal point.
Pre-Event Survey: A Credit Union Perspective on Servicing and Collections
Vulnerability Summit – 5 October 2022
As covered in the bulletin last week, I am looking forward to being on one of the panel sessions at the Vulnerability Summit on 5 October 2022.
Link: https://www.vulnerabilitysummit.co.uk/vulnerability-summit-agenda#speakers
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