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The FCA’s latest Dear CEO letter warns 28,000 consumer credit firms that they need to take action now to prevent consumer harm.
In a background of increasing concern around how lenders are responding to the cost-of-living crisis the FCA issued a Dear CEO letter on 6th May. The letter sets out FCA concerns with the quality, presentation, and oversight of financial promotions across the sector and is a must read for all consumer credit firms.
The FCA says “Firms have a responsibility to ensure they do not exploit the cost-of-living crisis to promote their services. Firms should focus on their customers’ needs, delivering the right information, at the right time, and in accordance with our rules”.
The FCA is not waiting for the new Consumer Duty rules that will be published later this year and are intervening now to prevent harm taking place.
In particular firms need to think about how they can foster a culture focused on consumer needs that is carried through all of their operations, including producing and distributing financial promotions.
FCA concerns raised in Dear CEO letter to credit lenders
Culture and governance:
The regulator is looking for confidence that there is a consumer-focused culture and that effective governance arrangements are in place. Are Boards considering the risks of their distribution and promotion strategies for vulnerable customers to ensure that they are designed to achieve good consumer outcomes?
Systems and controls:
Firms must develop and maintain over time robust systems and controls for the approval and ongoing monitoring of financial promotions. Firms must also have adequate oversight procedures for monitoring third parties that issue promotions on their behalf. Those systems and controls should include the production of quality MI and use of root cause analysis for outcome failure or customer complaints to improve systems and controls over time.
Clear fair and not misleading:
The FCA highlights failures to clearly provide adequate representation of services and appropriate risk warnings. The FCA also gives examples of firms using inappropriate trigger phrases, or using triggers without the required appropriate information on costs. Staff that approve a financial promotion must have a thorough understanding of the product and services being promoted and the FCA rules that apply to it.
Use of social media and Google ads may well be financial promotions:
The FCA is concerned that several firms are still not clear on what constitutes a financial promotion and they emphasise that a communication that includes an invitation or an inducement to engage in financial activity no matter on what platform (for example through paid for Google ads and social media) is capable of being a financial promotion and all of the relevant rules will apply to that.
Take action now
Boards need to:
- Consider the issues raised in the letter and have approved any action that has been taken in response and retain evidence that this action has taken place, including the outcomes of those actions.
- Consider conducting a review of financial promotions processes and systems and controls, to determine whether they are sufficiently robust in order to comply with the FCA rules. Such a review should include oversight of appointed representatives/introducer appointed representatives and marketing across all media platforms such as: websites, paid for Google ads and social media sites such as TikTok and Instagram.
- Consider specific financial promotions that have been issued and that they comply with the FCA’s rules and do not exhibit any of the characteristics the FCA refers to in the letter.
We can help
Bovill can help you conduct a review and provide clear outcomes focussed reports to the Board. Our consumer credit focused consultants have experience of helping consumer credit firms of all sizes handle regulatory interventions. Contact us to find out how we can help you respond to the requirements of the Dear CEO letter.