UK credit brokers are not always clear on their regulatory requirements, putting their customers at risk of potential harm, the Financial Conduct Authority (FCA) has warned.
The FCA has written to directors of firms that it classes as credit brokers (5-page / 471KB PDF), setting out its regulatory priorities for them over the next two years. It is the latest in a series of such letters issued to different types of financial business as part of the FCA's portfolio-based approach to regulatory supervision.
Other areas of potential concern highlighted by the FCA in the letter are brokers' oversight of the activities of their staff and appointed representatives; sales of products to customers, particularly vulnerable ones, in their own homes; and misleading or inaccurate financial promotions. The FCA is also concerned that these firms are not prepared for the possibility of cyber attacks and other emerging technology risks.
Financial regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said: "The FCA's focus on credit brokers is not wholly unexpected - it is consistent with the FCA's overall objectives, particularly its recent focus on vulnerable customers, internal systems and controls and culture more generally. It also reflects the FCA's work in the other goods financing sectors, such as the motor finance sector".
"Firms that carry out credit broking activities should be now reviewing their credit broking business to ensure it is compliant with the FCA's rules and expectations. We think this will be particularly important for firms where credit broking is their main FCA-regulated activity, or is carried out in relation to the financing of goods and services, such as household goods or insurance premiums," he said.
"Financiers who rely on business referrals from credit brokers should also be reviewing their broker remuneration models, and ensuring that financial promotions and other information to be passed onto customers is accurate and appropriate for their target customers," he said.
Credit brokers are now required to review and confirm their firm details annually via the FCA's online Connect portal, regardless of whether their details have changed in the past year. Some firms are still to register to use the portal, meaning that they may miss the deadline for compliance, the FCA said.
Regulatory initiatives planned by the FCA in the coming months will focus on credit brokers of third party finance providers, and so-called 'domestic premises suppliers' (DPS) that sell to consumers in their own homes. The FCA is concerned that customers may feel under pressure to sign up on the spot given the setting, and the fact that some agents operate on a 100% commission or sales bonus model.
The FCA said that firms "should examine your business and consider whether you can make changes to reduce harm or potential harm to consumers".
"We will act where we find that firms have not put their customers at the heart of how they do business," it said in the letter. "For example, where they have put their own profits and income above paying due regard to customers' interests and treating them fairly."
Firms need to have appropriate governance systems and controls in place regardless of size, the FCA said.
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