DWF recently hosted the BVRLA Summer Compliance Forum

This also follows our hosting of a previous Compliance Forum for the BVRLA in October last year (see our write-up of that previous Forum.)

In this article, we share a summary of the key messages discussed during the day, with a number of topics covered: 

• Consumer Duty deep dive
• Panel discussion
• Regulatory overview and horizon scanning
• ESG: where are we now?

Consumer Duty deep dive

Andrew Jacobs, Head of Regulatory Consulting at DWF provided a comprehensive overview of the Consumer Duty framework, addressing historic issues, good and poor practices, and real-life examples. 

The implementation of the Consumer Duty has led to several positive developments within firms, notably at the Board level. There is a significant increase in focus on customer outcomes, with senior leadership teams actively considering the practical and cultural implications of the Duty. Additionally, firms have developed new data and metrics to better understand and respond to their customers' needs, demonstrating a commitment to enhancing customer experiences.

However, despite these advancements, some areas still require considerable attention. In several firms, the Duty is primarily driven by programme teams or risk and compliance departments, resulting in insufficient discussion at the Board level. This lack of engagement from senior leadership can hinder proactive measures, as some firms wait for FCA intervention rather than addressing potential issues independently.

One of the key areas discussed was the Governing Board Report, which is a critical component of the Consumer Duty framework, which should comprehensively cover key areas:

• First, it must provide a thorough review and approval of the firm's view on the outcomes customers are receiving. This ensures that the Board has a clear understanding of the customer experience and can confirm compliance with the Consumer Duty requirements. 
• Additionally, the report should assess the alignment of business strategies with the Duty, supported by rigorous monitoring and reporting mechanisms.

The FCA's review of insurers' vehicle valuation practices revealed that some consumers were offered settlement values below a fair estimate of their vehicle’s market value. This finding underscores the importance of handling claims promptly and fairly, in line with ICOBs 8.1 obligations. 

In the realm of motor finance commissions, recent updates include Barclays initiating judicial review proceedings against one FOS decision, with no date set for resolution. The Court of Appeal is hearing three disputes related to motor finance commissions, with updates pending. The FCA previously said that it plans to communicate a decision by 24 September 2024 but given the court cases and word of some delay of the review itself, it seems likely that the next communication will be to announce that more time is needed.

Andrew reminded firms that they should keep in mind several key points as they navigate the Consumer Duty. They should avoid being overly critical of their current practices, recognising that continuous improvement is part of the process. The Consumer Duty is not a one-time task but an ongoing journey, requiring honesty about areas needing improvement and a commitment to best efforts. By adopting these practices and focusing on both positive developments and areas needing improvement, firms can better align with the Consumer Duty, ensuring better outcomes for their customers.

Panel discussion – embedding the Consumer Duty: what does the Board Report mean to you?

Led by BVRLA Legal and Membership Director, Shashi Maharaj, a panel session then moved on to discuss embedding the Consumer Duty and what the Governing Body Report means to different firms.

Key points of discussion that came were:

• Regarding the Governing Body Report, Wayne Gibbard from Shoosmiths emphasised the importance of assessing what good customer outcomes and harms mean to your firm. This allows firms to identify what bespoke management information is required to monitor against said outcomes and harms. He advised that this approach allows firms to have a much clearer grasp of customer outcomes rather than just recycling exiting data, but that firms need to be honest where potential gaps in information are arising as a result. 
• Naveed Asif from the Consumer Credit Trade Association advised that smaller firms within the industry were struggling to understand how to embed and comply with the Consumer Duty in a proportional way, compared to their larger and more resourced counterparts, and that some guidance would be welcomed on this topic. 
• Steve Cocks from Lex Autolease provided examples of how they have attempted to address the Consumer Duty. He stated they have adopted a top-down approach and encouraged others to do the same, focusing on building a consumer-focused culture and structure. He also said that collaborating with other parts of the distribution chain is a great way to develop best practice across the product lifecycle and to address potential information gaps. 
• Lynda Gibson from Fleet Alliance discussed how they have prepared their governing body report, recommending firms to share updates to governance committees on the report throughout the process to avoid surprises and to ensure awareness across senior stakeholders.
• Janine Eden from Deloitte emphasised the need for firms to understand where they sit within the market, what they do and how that correlates to achieving good customer outcomes for their consumers. She also discussed the benefit of being proactive in identifying the right MI and making use of available resources, with employee feedback being an example of an underutilised way of tracking how products and services are performing for customers

Regulatory overview and horizon scanning

Luis Hernandez, Associate Director within the Regulatory Consulting team at DWF provided an overview of how firm can remain aware of other potential regulatory changes on the horizon, as well as what some of those might be that could impact BVRLA members. 

Key areas discussed include:

• FCA Business Plan 2024/2025: The FCA's Business Plan for 2024/2025 focuses on reducing financial harm, setting higher standards, promoting competition, and protecting consumers. Key actions include combating financial crime, enhancing market integrity, and supporting innovation and international competitiveness. The plan emphasises improving consumer outcomes, ensuring fair treatment and adapting to technological advances.
• Regulatory Initiative Grid (RIG): This highlights expected regulatory changes over the next two years, including reforms in consumer credit, consumer duty implementation, and updates on financial promotions, particularly in social media. It serves as a roadmap for businesses to anticipate and prepare for upcoming regulatory developments, helping to ensure compliance and protect consumers in a dynamic financial landscape
• Proposed Reform to the Consumer Credit Act (CCA): The proposed reform to the Consumer Credit Act aims to modernise regulations, simplify compliance, and enhance consumer protections. Key changes include transferring oversight to the FCA, clarifying ambiguous terms, and ensuring that the rules are more adaptable to current financial practices. This reform seeks to create a more transparent and fair consumer credit market, benefiting both lenders and borrowers.
• Financial Promotion Updates: The FCA's focus on financial promotions includes enhancing guidelines, particularly for promotions on social media, and Luis reminded members to beware 'Finfluencers', with recent guidance and action showing that the FCA is keen to avoid potential for customer harm. This involves stricter oversight to ensure that promotional content is clear, fair, and not misleading. The aim is to protect consumers from potentially harmful financial products and services by making sure firms accurately represent risks and benefits. These measures are part of broader efforts to improve market integrity and consumer trust in financial services.
• Vulnerable Customer Review: The FCA are undertaking a review into how firms are acting to understand and respond to the needs of customers in vulnerable circumstances, and aims to share findings by the end of 2024. This is off the back of guidance published in 2021 and in the wake of the Consumer Duty, providing more emphasis on incorporating vulnerabilities into all aspects of each firm's Consumer Duty work.  
• Diversity & Inclusion Consultation: The FCA published its Consultation Paper at the end of last year covering these topics. The new rules are likely to mean firms will be expected to clarify D&I governance and accountability and embed this into SMF responsibilities, set a data driven D&I strategy and comply with new D&I reporting. Luis also discussed the importance of not simply seeing the need for compliance here, but understanding the reason why this is important, and that even some of the reaction to the search for the new England Men's Football Team manager can help us think about the benefits of diversity of thought. 

ESG: where are we now?

In 2024, the landscape of Environmental, Social, and Governance (ESG) considerations has significantly evolved, reflecting increased regulatory scrutiny, heightened stakeholder expectations, and a growing recognition of the importance of sustainability in long-term business success. Toby Poston, Director of Corporate Affairs at the BVRLA spoke about the fact they have been at the forefront of preparing its members for these challenges, conducting a survey last year which revealed that 31% of members identified ESG requirements as their biggest compliance hurdle. Toby then introduced three speakers to expand further on each element of ESG:

Environmental

Emmet Bulman, Director at PricewaterhouseCoopers LLP (PWC), delivered a presentation on the Scope 3 requirements, emphasising the comprehensive nature of these standards. Scope 3 includes accounting for and reporting emissions from all sectors globally and addressing all indirect sources of greenhouse gases linked to a company's operations. For BVRLA members, this means meticulously managing fuel levels and considering the lifecycle of leased assets.

Recent data from 2024 underscores the urgency - the transportation sector continues to be a significant contributor to global emissions, accounting for approximately 14% of global greenhouse gas emissions. The shift towards electric vehicles (EVs) has accelerated change, yet managing the environmental impact remains a complex task. Firms must prioritise the collection of detailed data on fuel consumption, vehicle type (e.g., diesel vs. electric), and overall energy usage.

Key Steps for the Next Six Months:

• Value Chain Mapping: Identify relevant parties, their permissions, and categories within the value chain. Focus on the segments with the highest emissions and develop a robust calculation methodology.
• Stakeholder Engagement: Collaborate with suppliers and stakeholders, and prepare the necessary software tools for comprehensive reporting. Establish a rigorous data collection process and control mechanisms.
• Internal Assurance: Implement an auditing process to ensure accuracy and reliability in reporting. Regular internal reviews and third-party audits can provide the necessary assurance.

Social

Rachael Jones, Director at Autotrader, highlighted the critical importance of Diversity and Inclusion (D&I). Her talk shed light on the ongoing need for firms to address the pay gap and promote women in leadership roles. According to 2024 statistics, companies with diverse leadership teams are 25% more likely to achieve above-average profitability, yet many industries still struggle with achieving true inclusivity.

Rachael emphasised that diversity without inclusion is merely a number. Employees must feel empowered to voice their concerns and be authentic in the workplace. This cultural shift can be driven by inclusive leadership, sponsorship programs, and diverse talent accelerators.

Strategies for Continuous Improvement:

• Employee Engagement: Regularly solicit feedback from staff to understand their needs and concerns.
• Equal Opportunity Policies: Implement and enforce policies that ensure equal opportunities for all employees, particularly focusing on bridging the gender pay gap.
• Leadership Development: Encourage and support women and minorities in leadership roles through mentorship and targeted development programs.

Governance

Clair Horner, Associate Director at Deloitte, provided valuable insights into the governance aspect of ESG, focusing on the importance of effective minute-taking and handling complaints. In 2024, the emphasis on governance has intensified, with firms facing increased pressure to demonstrate transparency and accountability.

Clair stressed the need for practical steps to ensure robust governance structures, particularly in complaints handling. With the rise of consumer protection regulations, firms must have clear policies and procedures in place, consistent training for staff, and regular audits to ensure compliance. Horsey also emphasised the importance of minute taking - minutes provide a transparent account of meetings, making it clear how decisions are reached and who is responsible for various actions. This transparency is crucial for building trust among stakeholders and for the complaints handling process as it serves as an official and legal record and helps ensure that the organisation’s policies and procedures are applied consistently over time.

The session then ended with an ESG panel discussion, chaired by Toby, where the three speakers were joined by Ben Horn from Omnevue. The discussion touched on the issue of resourcing for SMEs when it comes to future emissions and climate reporting due to their lack of large ESG and sustainability teams. However, it was emphasised that SMEs should feel no immediate pressure as the regulators will look at larger corporate entities first. The panel discussion also focused on the new Labour government's standing on non-financial reporting and how they have taken a cautious yet progressive stance on non-financial reporting, emphasising transparency, sustainability, and social responsibility within the corporate sector. Labour plans to require regulated firms to publish their carbon footprints and adopt transition plans aligned with the 1.5°C target from the Paris Agreement. While this may pose challenges in terms of compliance costs and operational changes, it also offers opportunities for those who lead in integrating sustainable practices into their business models.

To close out the Forum, Shashi Maharaj, reinforced the critical importance of the topics covered and emphasising the necessity for a thorough and honest assessment in the upcoming Governing Board Report to ensure alignment with the Consumer Duty. His closing remarks highlighted the importance of continuous improvement and proactive measures as key strategies for successfully navigating the evolving regulatory and compliance landscape.

In conclusion, it was a day full of a lot of valuable information and insight. We hope and trust 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. Please feel free to reach out to Andrew or Luis directly to discuss further how we can help, or indeed to anyone else in the wider team and DWF.

We remain committed to supporting the BVRLA and its members, and always enjoy the opportunity to meet and speak with the attendees. It was an interactive and informative discussion around the particular challenges members are currently facing from a financial services perspective in the market, and the future of regulation for the industry, with a keen desire to also understand what can be learned from other sectors and applied closer to home.