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FCA to scrutinise arrears volumes, as priorities and fees set out for 2020/21

The Financial Conduct Authority (FCA) has published its Business Plan for 2020/21, which includes a pledge to monitor the number of over-indebted consumers and arrears volumes in key markets.

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The FCA's Jonathan Davidson, speaking at the Credit Summit 2019
The FCA's Jonathan Davidson, speaking at the Credit Summit 2019

The regulator’s priorities for the next year include analyses of how arrears and defaults in key markets are changing, and closer assessments of the suitability of creditworthiness assessments. The regulator said it wants to understand “whether consumers are being extended credit they cannot reasonably be expected to repay”.


Among the current concerns the FCA has, which informed its Business Plan, are that consumers don’t get into “unaffordable debt and are treated well if they do”.


Among the other pledges, priorities and concerns were:

  • A goal for firms to identify consumers at risk at an early stage and to give them suitable forbearance. The FCA said it “wants borrowers to be made aware of, and engage with, debt advice before their financial problems become too severe.”
  • The FCA wants consumers to have access to clear and simple information which allows them to understand the range and features of available products.
  • The regulator remains concerned that consumers may be getting unaffordable credit, allowing firms to benefit from exploitative fees and charges.
  • The regulator will continue to work with government and others to develop ways to increase access to fair and affordable credit, especially options to increase availability and awareness of alternatives to high-cost credit.

The regulator also announced its proposed fees for consumer credit firms, but these will remain the same for the vast majority of these businesses.


The regulator also emphasised that consumers must be offered fair value products in a digital age, as use of consumer data and behaviour through digital channels increases, and with it the risk that consumers are not treated fairly in the pricing and terms they receive.


A list of priorities in the document follows new guidance, issued off the the back of the Covid-19 outbreak, of the FCA’s expectations of temporary repayment freezes on credit cards and loans for customers.


Measurements and metrics
During the next three years, the FCA will also develop an approach with measurements and metrics to assess fair value for consumers, using our ongoing evaluation of our previous intervention.


An initial phase of a data strategy will also involve new ways to collect information and monitor consumers’ satisfaction with financial services firms.


The data strategy comes under a transformation programme, which will see the regulator invest £30m over three years. This will primarily be focused on developing its capabilities and simplifying processes.


Among the priorities include plans for “streamlining” and “better coordination between regulators”, but there’s a very light commitment to the latter. The FCA said it will “explore the potential of working with the Bank of England, PSR, Competition and Markets Authority, the Treasury and other public bodies.” This could give the financial services industry a “two-year forward look of known major regulatory initiatives”, published on a regulatory grid twice a year, the Business Plan says.


Scope of regulation
The document explains that through 2020/21, the FCA will recover costs related to the widening of its scope. These costs will be recovered to enable the regulation of the broader Senior Managers and Certification Regime, as well as claims management companies and the final recovery for regulating consumer credit firms.


The regulator has also identified total EU Withdrawal demand of £15m for 2020/21, as it ensures that both itself and the UK financial services industry are prepared for the end of the transition period at December 31 2020 (which still stands as of now).


The full cost of these activities will be raised through fees charged to firms, with a focus on the firms most affected by EU withdrawal.


In line with the UK’s 2019 National Economic Crime Plan, this year the FCA will start to implement changes to how we reduce financial crime. These include making greater use of data to identify firms or areas that are potentially vulnerable.


The FCA warned it will continue to take enforcement action where we uncover serious misconduct, particularly where there is a high risk of money laundering.

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