SO YOU'RE GOING TO BE AN APPROVED PERSON? - Key corporate and personal priorities for board members and senior executives
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CREDIT TODAY – CREDIT SUMMIT 2014 SO YOU’RE GOING TO BE AN APPROVED PERSON? Key corporate and personal priorities for board members and senior executives Alex Ellerton - Director, BDO Financial Services Advisory Practice
SO YOU’RE GOING TO BE AN APPROVED PERSON? Key corporate and personal priorities for board members and senior executives • FCA vs OFT: Re-defining compliance • Key expectations of the FCA for Boards – Now • What should Boards be doing now • Key expectations of the FCA for Approved Persons personally • What should Approved Persons-designate be doing now? • FCA Risk Outlook 2014 – Specific consumer credit issues • FCA Business Plan 2014/15 – Consumer credit activities • Conclusion – A New World • Essential reading list • BDO contacts
SO YOU’RE GOING TO BE AN APPROVED PERSON?
FCA vs OFT: Re-defining compliance
Detailed rules (CONC)
Legalistic approach
• Rules-based
• Limited supervision
• Weak enforcement
• No individual responsibilitySO YOU’RE GOING TO BE AN APPROVED PERSON?
FCA vs OFT: Re-defining compliance
Intensive & intrusive
Threshold conditions for authorisation High level standards
Conduct risks
Strong enforcement regime
Proactive risk-based supervision
Detailed rules (CONC) Approved persons
regime
Legalistic approach
• Rules-based
• Limited supervision
• Weak enforcement
• No individual responsibilitySO YOU’RE GOING TO BE AN APPROVED PERSON?
Key corporate and personal priorities for board members and senior executives
Key expectations of the FCA for Boards
• High level standards - came into force on 1 April 2014
– Principles for Businesses (PRIN) including TCF
– Senior Management Arrangements, Systems & Controls (SYSC) including:
– Governance
– Staff
– Outsourcing
– Record-keeping
– Conflicts of Interest
• General provisions (GEN) - came into force on 1 April 2014
• Business standards (CONC) - came into force on 1 April 2014; Enforcement grace period to 30
September 2014 if can demonstrate compliant with old regime
• Complaints (DISP) - came into force from 1 April 2014FCA REGULATION OF CONSUMER CREDIT Key corporate and personal priorities for board members and senior executives What should Boards be doing now? • Did you obtain interim permission from the FCA before 1 April 2014? • Were you ready for the FCA’s high level requirements which came into force on 1 April 2014? • Were you ready for the FCA’s “CONC” detailed requirements by 1 April 2014 or, if not: • Can you demonstrate that you are fully compliant with all the requirements of the current OFT regime and will you be ready for the FCA’s current proposed “CONC” detailed requirements by 1 October 2014? • Do you have any backbook issues under the OFT regime that still need to be dealt with under the FCA regime?
FCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
What should Boards be doing now?
• Does your firm meet the FCA’s Threshold Conditions for Authorisation as at today?
– Strategy & Business Model (Sustainable? Well-controlled? Culture of doing the right thing for
customers?)
– Conduct Risks/Incentivisation/Conflicts of Interest
– Corporate Structure
– Governance (including over products)
– Resources
– Suitability
• Are your proposed Approved Persons clearly identified and have you determined that they are “fit and
proper” for their regulated roles?
• Will your firm be ready for the new requirements that take effect upon full authorisation?
• Will your firm be ready for the supervision approach to be adopted by the FCA during the interim
period and after authorisation?
• What independent assurance do you have in respect of all of the above?FCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
Key expectations of the FCA for Approved Persons personally
• Fit & Proper Test for Approved Persons (FIT)
– Honesty, integrity and reputation
– Competence & capability
– Financial Soundness
• Statements of Principle for Approved Persons (APER)
– Integrity
– Due skill, care and diligence
– Open with regulators/disclose
– Business controlled effectively (SIF)
– Due skill, care & diligence in managing the business (SIF)
– Compliance (SIF)
• Code of Practice for Approved Persons (APER)FCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
What should Approved Persons-designate being doing now?
• Will you need to be personally approved by the FCA as SIF under the new regime?
• If so:
– Do you know what your AP role(s) will be (eg CF1, CF2, CF3, etc)?
– Do you know how this correlates with your existing role?
– Will you meet the FCA’s Fit & Proper Test for Approved Persons?
– Are you confident that you have the core competencies required by the FCA? (Market knowledge,
Business strategy and model, Risk management and control, Financial analysis and controls,
Governance, oversight and controls, Regulatory framework and requirements)
– Are you confident that you will meet the FCA’s Statements of Principle and Code of Practice for
Approved Persons. In particular, are you confident that you are able to confirm personally that:
• The business you are responsible for is organised so that it can be controlled effectively?
• You exercise due skill, care and diligence in managing the business of the firm for which you
are responsible?
• The business that you are responsible for complies with the relevant regulatory requirements
and standards
• Will you be ready if the FCA decide to interview you for your Approved Person role?FCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
FCA Risk Outlook 2014 – Specific consumer credit issues
• Drivers of risk [to the FCA’s objectives]:
– Lack of full information for consumers about credit products that they use
– Short-term high-cost credit (e.g. payday) may not be a suitable option for consumers
– Marketing techniques may deliberately mislead customers
• Detailed consumer research into consumers on low income and specific credit products
– Payday loans
– Logbook loans
– Debt management services
– Credit cards
– Overdrafts
• Impact of FCA regulation on the market
– Smaller firms could exit the debt management sector
– Consumer credit firms could look to second guess the new approach e.g. new payday lending rules
could lead to the creation of new products to avoid them or to online firms moving offshore,
outside the regulatory perimeterFCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
FCA Risk Outlook 2014 – Specific consumer credit issues
Looking ahead: “The growth of consumer credit may lead to unaffordable debt”:
• Key FCA focus will be on affordability-related risks of customer detriment:
– Credit cards and overdrafts could prove to be a risky source of additional credit to already highly
indebted households
– Complexity of certain products makes it harder for consumers to choose and use products well
– In more expensive, shorter term forms of credit (e.g. payday loans, logbook loans) some business
models have evolved to shield lenders from the consequences of lending irresponsibly (e.g.
excessive interest/fees)
– Evidence that debt management services are not always provided to a suitable standard leading to
poor outcomes for customers (e.g. high fees, unsuitable debt solutions)
• Driving specific FCA activity in 2014/15 Business Plan:
– Review of arrears management processes of firms in the high-cost short-term lending market
– Review of incentive structures of debt management firms and use of lead generators
– A demanding authorisations approach will be applied to logbook lenders to ensure only responsible
firms remain in the marketFCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
FCA Business Plan 2014/15 – Consumer Credit activities
• Tackling risks in high-cost short-term credit including payday lenders:
– Real-time data sharing
– Price caps
– Ongoing OFT investigations
– Thematic work on arrears management
– Poor financial promotions
– Visits to firms to check compliance with new regulations covering rollovers, CPAs and affordability
assessments
– Detailed look at firms’ business plans, how they operate and their track record through the FCA’s
authorisation process “drawing on all the available evidence”
• Improving financial promotions
– Review across the consumer credit market to ensure not misleading, unclear or unfairFCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
FCA Business Plan 2014/15 – Consumer Credit activities
• Improving debt management:
– Meetings with debt management firms to make clear early on the FCA’s expectations that poor
behaviour will not be tolerated
– Review of quality of advice across the sector
• Enhancing standards for logbook loans:
– Evidence of some very poor customer outcomes
– Demanding authorisations approach will be applied to ensure only responsible firms remain in the
market
– Event-driven supervision and enforcement as necessary to maintain standards
• Addressing issues with credit cards and overdrafts:
– Market study
– Potential new policy rules
– Proactive supervision at a firm-by-firm levelFCA REGULATION OF CONSUMER CREDIT Key corporate and personal priorities for board members and senior executives Conclusion – A new world • The new regime is now in force and the FCA has declared its hand via its Risk Outlook, Business Plan and Authorisations timetable • Looking to make an impact and get some early scalps • Payday Lenders, Debt Managers & Logbook Lenders are their immediate focus • 48,000 firms obtained interim approval: how many will actually be approved? – 25-30% of payday lenders predicted to exit – Significant levels of exit by a wide range of other firms also predicted • Of the order of 100-150,000 Approved Persons required => does the industry have sufficient senior resource who will be able to meet the FCA’s requirements? • The impact of getting it wrong corporately is potentially business-terminal (fail to be authorised) or extremely onerous (intensive supervision, enforcement actions, financial penalties, remediation costs) • The impact of getting it wrong as an Approved Person is potentially career-ending with associated reputational damage and financial penalties • The regime is now in force – are you ready personally and corporately?
SO YOU’RE GOING TO BE AN APPROVED PERSON? Key corporate and personal priorities for board members and senior executives • FCA vs OFT: Re-defining compliance • Key expectations of the FCA for Boards – Now • What should Boards be doing now • Key expectations of the FCA for Approved Persons personally • What should Approved Persons-designate be doing now? • FCA Risk Outlook 2014 – Specific Consumer credit issues • FCA Business Plan 2014/15 – Consumer credit activities • Conclusion – A New World • Essential reading list • BDO contacts
FCA REGULATION OF CONSUMER CREDIT Key corporate and personal priorities for board members and senior executives Essential Reading List: • FCA Guide for consumer credit firms that are new to FCA regulation (http://www.fca.org.uk/your- fca/documents/consumer-credit-being-regulated) • FCA Fit & Proper Test for Approved Persons (http://fshandbook.info/FS/html/FCA/FIT) • FCA Statements of Principle and Code of Practice for Approved Persons (http://fshandbook.info/FS/html/FCA/APER) • FCA Risk Outlook 2014 (http://www.fca.org.uk/news/risk-outlook-2014) • FCA Business Plan 2014/15 (http://www.fca.org.uk/news/business-plan-2014-15) • FCA Research: Consumer credit and consumers in vulnerable circumstances (http://www.fca.org.uk/news/consumer-credit-consumers-vulnerable-circumstances)
FCA REGULATION OF CONSUMER CREDIT
Key corporate and personal priorities for board members and senior executives
BDO Contacts:
• David Morrey – Partner, Financial Services Advisory
020 7893 3559 (DDI)
07833 296870 (Mobile)
david.x.morrey@bdo.co.uk
• Alex Ellerton – Director, Financial Services Advisory
020 7893 2713 (DDI)
07971 320095 (Mobile)
alex.ellerton@bdo.co.ukYou can also read
