The FCA approach to supervision is not new having been put in place 18 months ago, but it has now further tightened the regulatory ratchet for lenders and others with Dear CEO/Board of Directors letters to the different types of businesses it has identified.
The FCA groups firms into portfolios (dare we suggest individual bubbles?) based on their broadly similar business models, for example Mainstream Consumer Credit lenders or Mortgage Intermediaries. We think this is a sensible idea to encourage the attention of those firms that in the past may have been tempted to say ‘you can’t compare us with xyz co – we are fundamentally different’.
The recent letters, which build on previous policy statements, set out the FCA requirements to December 2021 and highlight risk and harms firms pose to their consumers or the markets in which they operate.
For example:
• The Lender’s letter focuses on affordability checks, responsible policies that are clear, fair and not mis-leading and the fair treatment of customers in arrears. There is a specific warning shot to this group which states “We expect that firms not only meet the letter of our rules, but also consider the requirement to treat customers fairly when implementing them” – no pulling punches in that statement.
• The Mortgage Intermediary letter focuses on ensuring that firms are meeting FCA expectations. These include the significant number of ‘harms’ identified in the Mortgage Market Review and other areas including evidencing of customer assumptions, the suitability of lifetime lending, steps to mitigate mortgage fraud by use of appropriate due diligence and oversight arrangements.
There is significant work to be done in 2021 whatever ‘portfolio’ a firm resides in. Governance and oversight are our bread and butter; we have carried out numerous projects and reviews for lenders, funders and intermediaries. If you would like to find out more about the FCA ‘Dear Board of Directors’ letters, how they impact your firm and how we can help you through the regulatory challenges, give us a call.