The FCA wrote to credit brokers on 13 February 2020 identifying the key drivers of harm within the credit broking portfolio.
These include:-
- failure to understand regulatory requirements;
- poor oversight of staff and appointed representatives (ARs);
- misleading or inaccurate financial promotions;
- inadequate product information;
- lack of explanation of service levels; and
- failure to manage the risk created by technology.
The FCA expects credit brokers to have risk management frameworks that demonstrate clear governance and oversight, to ensure that customers are treated fairly. These should be proportionate to the size of the broking business.
The FCA’s supervision strategy for credit brokers runs to March 2022. Over the next two years, the FCA will prioritise supervisory work in a number of areas, including:
- Accurate regulatory data.
- Understanding the customer journey and staff/AR oversight. The FCA expects its work looking at credit brokers of Third Party Finance Providers (TPFPs) to provide further clarity on every stage of a customer’s journey, including how they get information at each stage and complaint processes. It will also examine firms’ oversight of their staff and ARs to prevent the risk of mis-selling.
- Domestic premises suppliers (DPS). The FCA has identified that DPS firms present a higher risk of consumer harm, especially when sales take place in homes. It will explore this further to ensure adequate controls are in place to mitigate this risk.
The FCA suggests that the letter may be helpful for all firms involved in consumer credit broking activity, and not just introducers to lenders or other brokers. As such, if you are involved in consumer credit broking activities you should take notice of the FCA’s areas of concern. You should assess whether your need to make changes to protect your customers and reduce potential harm.
The FCA will write to credit broker portfolio firms after March 2022 with an update on key risks and its plans for supervising credit brokers going forward.