Viewpoint from the Financial Conduct Authority
Francisco Esteves, manager, consumer credit sector team, FCA Authorisation
“Prepare, prepare, prepare” was the advice from Francisco Esteves, manager at the Financial Conduct Authority (FCA), who revealed that with six weeks to go until the end of the first landing slot, the FCA had yet to receive a fully completed application form for authorisation to sell finance products from the motor retail sector.
“You may think you have applied the rules in your business, but we may come along with a different view. It’s important to communicate with us.”
Esteves said if dealers were previously directly authorised under the previous regime, they cannot also apply for limited permissions, since they are already directly authorised.
Directly authorised dealers have two options: remain directly authorised and apply for full permission (apply for a “variation of permission” to add consumer credit activities to their permissions); or become an appointed representative. If the latter is your choice, Esteves said, engage with a principal firm and make sure it has its own plans in place and is ready for the dealer’s application timeframe.
To help firms become authorised, the FCA will send dealers a credit- ready pack six months before the application period. Three months before it, the FCA will run a webinar offering guidance for the sector.
Esteves said the FCA is looking for “suitable, sustainable and well controlled business models”. In detail, this means how does your business make and lose money (and therefore is sustainable) and does your firm intend to expand or contract. Finally, does your business model operate in the interests of customers? The FCA believes five factors are essential:
1. Advertising in pre-contract information is fair, clear and not misleading
2. Anyone providing loans takes appropriate steps to assess affordability
3. Anyone trying to recover debt exercises appropriate forbearance to the customer
4. If giving advice, the solutions must be suitable; they take into account the customer’s circumstances and are accessible
5. Businesses must be sustainable, well controlled and focused on doing the right thing for customers.
Consider whether customers’ payments are affordable now and in the future, said Esteves.
The FCA will be asking companies about how well staff understand suitability, the need to consider customers’ best interests, the checks and procedures in place to ensure consistency, how customer feedback is collated and how complaints are handled.
This includes suspending, reducing, waiving or cancelling interest or charges, deferring arrears where immediate payment is not sustainable, accepting token payments for a ”reasonable period of time” to allow recovery from an “unexpected income shock”, allowing a reasonable time to repay debt and recommending customers to free, independent debt advisers.
Incentives and remuneration
A key question when considering these factors is: have you considered what impact your remuneration strategy could have on the advice you provide customers?
The answers, Esteves said, will come from identifying if features of these schemes increase the risk of mis-selling, reviewing if they have controls to manage the above risks and managing the risks from sales targets: “They need to be balanced with good customer outcomes.”
To ensure the above, every firm will be assessed at least every four years by the FCA supervision team.