November 2021 | Regulation

The arrival of ‘Consumer Duty’

Tony Marshall is managing director of Equifinance

I can’t remember a time, in the last ten years particularly, when the lending industry had a moment to stand still and reflect. 

Of course, innovation, technology and regulation wait for no one, and the lending market is no exception.  

Today’s market is light years from the industry I came into and is the better for it in all three areas. 

Of these, technology has made the biggest impact because without it innovation and compliance in its present form would not be possible but for massively expensive manual intervention. 

At one level, technology has allowed us to develop services that are faster and easier to access. For brokers, it has allowed better analysis of alternative lending propositions, execution and transmission between lenders and customers.  

The same is true of managing compliance within the adviser and lender community. Given the scope and scale of staying in step with today’s regulatory requirements, it would be unthinkable that maintaining a fully compliant regime could be achieved economically without modern technology tools.

You might of course disagree with me putting technology before regulation. All I can do is reiterate my point above that in its present form and the different iterations that have led to where we are now, technology is the glue that allows it to work as well as it does. 

That said, regulation has had a transforming effect on an industry which is now manifestly more professional and accountable. 

The guiding principle of customer care runs through the centre of the regulatory canon as Blackpool does through a stick of rock. The effort to bring the industry to this point has not been without bumps in the road. However the direction of travel has long been fully accepted and with rare exceptions, any infractions have been down to interpretation rather than deliberate attempts to break the rules or guidelines. 

As we look forward to what 2022 will bring, one of the near certainties is that we are set to consider the regulator’s desire to make more use of data to better manage and inform good customer outcomes. This suggests that new reporting requirements will require regulated firms to improve as well as increase the volume and quality of the data they collect. I can’t speak for other lenders, but I have no doubt we will find the capacity to comply when required – thank goodness for technology!

The burden will be felt more keenly by directly regulated intermediaries. The new responsibility, manpower and time demands required will need to be assessed when the latest changes go active. However, smaller firms might struggle to accommodate these changes, while firms working under a network will be shielded to an extent by their network principal.

2022 is also likely to see the arrival of ‘Consumer Duty’. 

In a speech to the Westminster Business Forum on the 8 October, Nisha Arora, director of consumer and retail policy at the FCA said,

“We need to ensure our regulation adapts to the changing market environment. When we think back to how different consumer credit was five or ten years ago, it underlines the importance of adaptive regulation that can respond and develop as the market does.

“The proposed Consumer Duty will set the standards for firms in all retail markets including consumer credit. Firms will have to have a greater focus on consumer outcomes and act to enable these. They will need to test what happens when consumers use their products and services – if credit products are causing financial harm or aren’t delivering the right outcomes, firms will need to fix this.

“Later this year, following our recent consultation, we plan to consult on proposed rules and set out our approach to supervision and enforcement under the new Duty.”

What we understood as part of TCF is being taken to the next level and we all need to be prepared to step up. One small point to bring the topic back to the second charge market – it will be interesting to see whether declining to advise on second charge or telling clients that a remortgage is the only legitimate way to capital raise will still hold water when Consumer Duty arrives. Likewise, the opposite also applies!