The FCA final guidance (FG24/2) has just come into force, replacing and building on the earlier Covid Tailored Support Guidance, and further protecting the ongoing needs of borrowers in financial difficulty. Despite recent public criticisms, the regulator continues to promote its ‘principles-based’ approach, but this latest guidance suggests a change in tone to a more direct, prescriptive approach. Many will welcome this development, as the FCA needs to face up to recent poor PR and strengthen its approach to regulation
In our view, this guidance could not have come at a better time. While the Bank of England still predicts that there will be four 25bp BBR rate cuts in 2025, the Financial Policy Committee has just warned that around 420,000 households could see their monthly mortgage payments rise by £500 next year. Clearly lenders need to be prepared for that and prepare for what may be a more robust approach by the regulator.
Although the FCA is not prescriptive about which solutions are most appropriate for different circumstances, it expects firms to be able to justify decisions when offering any particular forbearance option to individual customers. The corollary is that firms need policies, procedures and controls in place to avoid agreeing inappropriate forbearance arrangements. These procedures also need to address customers who have more complex needs, including those identified as vulnerable due to physical or mental illness or unemployment, for example.
The current market environment also brings a particular challenge to firms under general MCOB requirements; any form of variation of a regulated contract requires a firm to provide advice as part of that process, and ‘providing forbearance at scale’ has been difficult to interpret and implement. The latest guidance provides examples of ‘scale’ processes that may be compliant, such as rate switches on an execution-only basis via digital channels. That is a more helpful position for lenders, even if it does fall under general ‘principle-based’ regulation.
There is a lot to unpick in the updated formal guidance. Rockstead has been working in the collections arena for all of our 16 years. Our people are experienced subject matter experts, and we continue to provide independent support and oversight on these and other risk matters. Whether a lender, holder of loan assets, servicer or asset manager, call us to see how we can support policy reviews and provide third line oversight