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A road map for coexistence with the FCA

The LSB has undergone an evolution to reduce overlap with the Financial Conduct Authority (FCA). Robert Skinner, former chief executive at LSB, explains the changes and what they mean for the industry



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It is easy in financial services to fall into the same old trap.

 

Everyone talks about customer outcomes and putting the customer at the heart of what they do yet, when it comes to implementation, other thoughts can take over such as process, systems or compliance.

 

At the LSB we have grown accustomed to the Lending Code’s structure, with its focus on detailed provisions and, because of the value it added in a world before the FCA introduced CONC, breaking that mindset has been difficult.

 

Something had to be done though.

 

Professor Russel Griggs’ independent report into the code, while highlighting its positive aspects, nevertheless concluded that change was necessary if a code was to have relevance when coexisting with the statutory regime.

 

So what did we feel was necessary?

 

Put simply, an increased focus on customer outcomes and added value, of which, more later. By having the customer as our ultimate reference point and then constructing a set of standards and principles, we provide firms with greater flexibility to innovate and use their business models to achieve good customer outcomes.

 

The standards and details of the LSB’s independent oversight regime, which has evolved to reduce overlap with the FCA’s work, were launched in July.

 

This way forward

 

Where do the new standards go from here? How can the LSB’s work add value to firms? Moving from provisions to outcomes and principles, underpinned by an oversight model that is proactive, has caused a mindset shift.

 

This has enabled us to broaden our thinking around what can be achieved through the new regime and how self-regulation can help firms achieve the right customer outcomes.

 

There are four developments where we can add value.

 

Firstly, the new standards will evolve and we will not wait for an independent review every three years as a catalyst for change.

 

As the pace of technological advancements increases we need to ensure the standards keep track and, where possible, set the agenda for pragmatic consumer protection.

 

We are about to publish a series of documents to support the standards, called the Information for Practitioners, which will contain good practice and suggest ways firms can meet the standards.

 

Secondly, we believe voluntary self-regulation can achieve much in the area of lending to small businesses and we have been encouraged by the FCA’s views on this, expressed in its discussion paper on SMEs.

 

With industry experts, we have started to develop a set of business lending standards which we hope to launch in the first quarter of 2017, covering businesses with up to £6.5m turnover.

 

Thirdly, extending the standards’ scope beyond their current product set of credit cards, overdrafts and loans, will help to benefit a wider reach of customers.

 

The business standards would be a natural place to extend, because many businesses access other forms of finance such as asset-based finance (invoice discounting and invoice factoring) and sales finance.

 

A set of standards, coupled with an extended product scope, should attract more firms to the regime such as business banks, asset finance specialists and potentially peer-to-peer platforms.

 

Lastly, the LSB’s oversight will be risk-based and proportionate.

 

State of independence

 

So who will benefit?

 

Well, both firms and customers. Firms will see a more efficient alignment between our work and that of the FCA. For customers, they will know we’ll retain our independence and hold firms to account, but not burden firms with a costly, onerous monitoring regime that doesn’t reflect current and emerging risks.

 

How have our stakeholders reacted to these changes? It’s early days but we seem to have achieved support from firms, regulators, debt advice and consumer bodies.

 

From our perspective these are exciting times. We feel we have an opportunity to help the industry deliver consistent and fair consumer outcomes.

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