Regulators often remind firms that they are expected to learn from all their outputs, so risk manager horizon scanning should not be limited to regulator rules and updates. Their scanning should encompass, for example, consultation papers, speeches, press releases and portfolio letters. It should also consider portfolio letters addressed to other regulated sectors.
One such gem can be found in a sector specific portfolio letter; the recent one to payments portfolio firms. On the face of it, this would seem to apply to only a small handful of specialist product providers, but the letter includes guidance that is common to all regulated firms. For example, it highlights the need for ongoing attention to Consumer Duty, financial crime risk management and operational resilience.
The guidance gets interesting by focusing on the often-overlooked issue of “agent and distributor oversight.” This is an area that applies to firms in many sectors, but are the risks given the attention they deserve? In the car loan funding space for example, two banks have already set aside £0.5bn to settle potential claims after failed oversight of third-party intermediary firms. More providers will undoubtedly follow, suggesting weak governance at best.
What about the mortgage market? Do lenders, funders or buyers of mortgage books apply the right levels of oversight to introducing intermediary firms? Recognising most mortgages are arranged by intermediaries, a recent Bank of England working paper concluded, “Our findings indicate that the rise in the sale of short-term fixed rate loans coincided with more households choosing mortgages in that category, due to brokers steering households towards these mortgages to increase fees from repeat business.”
Just those two examples point to the need for CROs to be in the driving seat on such issues. They need to take a robust and holistic approach to agent and distributor oversight. They should actively be monitoring agents to ensure compliance with relevant regulations and to minimise potential customer harm,
Rockstead is one of the UK’s most trusted providers of governance, compliance and regulatory services. We help clients in financial services markets grow safely and safeguard them from foreseeable harm. Our people are experienced subject matter experts, and we continue to provide independent support and oversight on these and other risk matters. If you are a lender, a holder of loan assets, a distributor or agent of a regulated product provider, call us to see how we can support you with your plans to grow safely.