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Treating borrowers fairly - FCA Dear CEO letter to Retail Lenders:


On 16 June, FCA published a Dear CEO letter to Retail LENDERS; this is the third letter in as many months focused on the deepening cost of living crisis and the industry's role in supporting consumers.

No time to wait for Consumer Duty

  1. The FCA expectations in this letter are based on its existing principles, rules and guidance, which we are applying to ensure that firms act in their customers' interests. Later this year, the FCA will finalise rules in relation to the Consumer Duty but are not waiting for the Duty to come in before they act to improve consumer outcomes.
  2. The Regulator suggests this because the rules and principles designed to deliver the required outcomes already exist, meaning Firms should already know what is expected.
  3. Yet we have seen some of the most sophisticated and agile firms struggle to ensure their application of the handbook has kept pace with the FCA's view on what good looks like.
  4. This is an easy statement for FCA to make but a tricky one for Firms to process and attest to, given the increasing expectations on how rules should be met and a fast moving and complex risk environment.

Is this Consumer Duty guidance through the back door?

  1. For many, the letter should not include any surprises but what is interesting is the FCA's increasing propensity to use mediums like Dear CEO letters to set out their expectations. It feels a bit like guidance by the back door.
  2. We all know that some of the rules in the handbook allow for firms to take liberal interpretations of their meaning.
  3. The responsible lending rules in CONC are a prime example of this. Perhaps the FCA has decided to publicise its own interpretation as a way of pushing firms in the right direction.

Does the letter tell us anything new?

The letter reiterates the same themes we have seen published over recent weeks but with some notable new and useful insights including:

  • Clear statements of expectation of how to manage customers in financial difficulty – particularly in the annex.
  • A link to their updated vulnerability work – including useful guidance around expectations.
  • A list of common failings across the sector – it's the first place the FCA will look, so you should too.

What steps should you take?

  1. It is more important than ever, that Boards and senior managers are really engaged with how they are delivering consumer outcomes. It is highly likely that circumstances for many customers, including those who are vulnerable, will deteriorate over the course of the year. Firms cannot simply rely on their usual modus operandi to get them through this.
  2. Senior managers need to ensure they provide the right culture and leadership in providing excellent care for their customers, whatever their circumstances.
  3. Management Information packs and risk management models will need to be reviewed – all too often we see little or no mention of vulnerable customer information.
  4. Compliance teams or external support should rapidly benchmark the approach to creditworthiness and customers in financial difficulty against this letter - note the recent FCA enforcement notice against TFS Loans