It was an interactive and informative discussion around the particular challenges its members are currently facing from a financial services perspective in the market, and the future of regulation for the industry.
A number of topics were covered during the day:
Consumer Duty Enforcement- Firms under the spotlight
Following the passing of the deadline of the Consumer Duty for open products, understandably many businesses are anxious and want to know what the FCA will do next. As of late, we have had limited comment from the FCA on how it will enforce the Duty, although we have started to see it to make sure movement around fair value assessments for example. Wayne Gibbard (Shoosmiths) had some insightful points regarding what he thinks will happen next, building on that initial activity.
The key points here were that the FCA noted a large number of firms still did not have an implementation plan. As a first step, firms should have an implementation plan to show they have considered the impact of the duty across all areas of their business and planned to make changes accordingly. Firms now need to evidence action of these plans following the deadline. The FCA will likely also want to see how these plans have been actioned following the deadline.
This is all part of firms understanding that there will be no return to 'business as usual' and that the Duty is a paradigm shift that firms need to understand. Even where firms did well to be prepared for implementation, they should now be moving their focus to how they evidence the steps they are taking.
In the Panel session, Andrew Jacobs (Head of DWF Regulatory Consulting) echoed these points and observed that follow-up is key and through its monitoring activities, the FCA is likely to be considering how firms in this sector are dealing with vulnerable customers, affordability assessments and the Consumer Understanding, as firms concentrated a lot of their efforts on the other Consumer Duty outcomes.
Panel discussion
Led by BVRLA Chair, Shashi Maharaj, the panel session them moved on to discuss the transition to the closed products deadline and the future outlook of the Duty.
Points of discussion arising were:
- Whilst many SMEs struggle with a lack of resource, the FCA is unlikely to accept this as a valid reason for not implementing the Duty appropriately. Firms need to think creatively to solve resource issues, or at least mitigate the risk of harm to consumers that resource issues may create. For example, is there a need to rethink job roles to gain efficiencies, or to build the right case for additional budget (how do you educate the decision makers as to the importance of the need), or indeed is there is a need to seek support from a third party in the short time?
- Phillip Garlick from PPL emphasised the importance of firms having implementation plans in place. The panel discussed that the FCA will be less likely to look favourably on how a firm is attempting to comply with the Duty if there is no implementation plan. His observations prior to the Consumer Duty deadline were that quite a high proportion of firms did not have a specific Consumer Duty implementation plan.
- The FCA is becomingly increasingly data led and is expecting firms to follow suit. Firms should be ready to have sufficient MI to evidence they have actioned their implementation plans and are continually considering the Duty across all business decisions. Again, firms should consider what is reasonable at this time, and then also consider what improvements or enhancements are needed looking forward. The Experts on the panel agreed that MI is a real challenge for all firms.
- Finance Providers also acknowledged that tensions could arise across distribution chain due to information and data demands, but agreed that communication and pragmatism are important, as this is new for everyone and therefore best endeavours should be applied rather than being paralysed by inaction if information/data is not perfect.
The big picture – ESG
DWF's Tracey Groves, partner, Head of DWF's Sustainable Business and ESG Advisory Practice, gave an insightful talk on the wider context of ESG for BVRLA members.
To effectively consider Sustainable Business and ESG, businesses need to consider this as a transformational opportunity rather than transaction to be complied with i.e. a tick-box exercise. Regulators are increasingly expecting firms to show not only do they have a clearly defined direction of travel but also an evidence-based road-map for how they aim to get there. For BVRLA members, the FCA will likely want to see how firms aim to increase the proportion of electric vehicles in their fleets, for example, as well cut down on other carbon emissions.
Firms should also consider how they can prepare for the future rise of regulation and reporting requirements, with the advice being that firms should remain pragmatic, take a risk based approach, and consider the areas of opportunity and how to optimise these. The Task Force on Climate-Related Financial Disclosures (TCFD) already requires reporting around carbon emissions, however there are expectations for other regulation to require reporting on other sustainability-related issues, such as the recently introduced Task Force for Nature-Related Financial Disclosures (TNFD).
Getting to grips with ESG
The following session, led by Ben Horne of Omnivue, focused on how SMEs can have a material impact on the regulators view towards climate-related reporting. With SMEs making up over 35% of emissions in the UK, it is little surprise that future regulation will likely be aimed at this group. However should this be the case, these firms will likely struggle to meet the required standard for international climate-related and emissions reporting. Lacking the large business sustainability and ESG teams that large corporate entities have, SMEs risk being left behind when it comes to future emissions and climate related reporting, and possibly being fined as a result.
FCA Principal AR Regime
Luis Hernandez, Associate Director within the Regulatory Consulting team at DWF further gave insights into the Appointed Representative (AR) regime under the FCA, a topic that is likely relevant for a number of BVRLA members. From this keynote talk, it was noted that the FCA is cracking down AR/Principal relationships, with firms being put under more scrutiny when making AR applications. The FCA is also expecting firms to conduct sufficient monitoring after registration is granted, with possible reviews by the FCA where it feels firms are not subjecting their ARs to sufficient monitoring and oversight.
For SMEs that struggle with resourcing such oversight, the FCA is unlikely to accept this as an excuse and will expect to see alternative solutions in an attempt to remediate any gaps in their oversight. Firms that cannot demonstrate sufficient oversight of their ARs will likely be expected to relinquish any such relationships due to the risk of undue influence being exercised by the ARs, or potentially ARs acting outside of the original scope of permissions. DWF are helping a number of Principals with the new AR reporting requirements that come into effect at the end of 2023.
The impact of future regulation
To conclude the event, Janine Eden from Deloitte and Harry Madan, Head of Compliance and Governance at the BVRLA, spoke on the key areas in which the industry may expect to see future regulation or focus.
Among the discussions, a key insight was that the incoming reform of the Consumer Credit Act will likely have a significant impact on firms in the vehicle rental and leasing industry. Some firms may need to consider whether they will come under the regulatory scope of the new act and require authorisation.
Due to the ongoing cost of living crisis, firms should also be mindful of customer vulnerability. Firms must consider that individuals are less financially resilient, with the coming winter likely to exacerbate this. Firms must ensure customer handling and complaints policies take this into account, and reduce the risk of harm to consumers.
Where firm handle complaints and they are not upheld, the FCA expects firms to have robust reasoning explaining how they came to this decision. A lack of resource surrounding the investigations of complaints will not suffice and the FCA will likely look unfavourably on firms that have not considered other strategies to mitigate the risk of harm to consumers.
In conclusion, it was a day full of a lot of valuable information and insight. We hope that the BVRLA and its members had a productive day, and have taken away lots to think about.
As always, DWF remains available to support clients with any of these topics, with deep knowledge and expertise that is ready to be applied in a variety of circumstances. Some of them spoke during the event and please feel free to reach out to them directly to discuss further how we can help, or indeed to anyone else in the wider teams.
With thanks to Tom Castel for writing this article
