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UK firms told to expect ‘increasingly active’ FCA amid cost-of-living crisis

UK firms should expect increased scrutiny from the Financial Conduct Authority (FCA), according to one legal expert, after the regulator told lenders to offer more support to consumers struggling with the cost of living.

Jonathan Cavill, financial services expert at Pinsent Masons, said the message signalled that the FCA was set to become “an increasingly robust and active regulator” that sought to remind firms of “their obligations under Principle 6 of the FCA handbook, as informed by the vulnerable customer guidance.”

The FCA’s letter, sent to more than 3,500 lenders including retail banks and consumer credit firms, said most firms needed to improve their “understanding of customers’ individual circumstances” and provide “tailored support” to ensure arrangements to pay back debts are sustainable. The FCA said it was also concerned that some lenders are not helping customers in vulnerable circumstances access money guidance or free debt advice.

Cavill Jonathan

Jonathan Cavill


The consumer duty will no doubt increase regulatory expectations further and so early changes where needed will help firms in being ‘future proof’

The regulator found more serious failings at more than 30 firms, largely in the consumer credit sector, and reminded lenders that they should only charge struggling borrowers fees which are fair and that cover costs. The letter, which was also sent to unauthorised ‘buy now pay later’ providers, told firms to ensure that their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their expenditure.

The FCA said its expectations for lenders were based on existing principles and guidance but added that its new consumer duty, expected later this year, will finalise any changes to rules to improve consumer outcomes.

Cavill said: “With the rising cost of living, it is likely that more consumers be shifting along the vulnerability spectrum due to financial pressures. Come April next year, the consumer duty will no doubt increase regulatory expectations further and so early changes where needed will help firms in being ‘future proof’. Coupled with an increasingly robust and active regulator, firms will be keen to ensure that they are treating customers fairly, supporting those who need it and improving where they need to do so.”

The letter comes after the FCA launched its Borrowers in Financial Difficulty project in the early stages of the pandemic, leading to more than 4.5 million mortgage and consumer credit payment ‘holidays’. The regulator has so far conducted four surveys of over 400 lending firms, consumer research and deep dives with a sample of 63 firms, covering a range of firm sizes and lending portfolios.

Out of the sample so far, 34 lenders have been told to make improvements. The regulator said the project would continue in light of the current cost-of-living crisis.

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