The FCA's taken over regulation of the pawnbroking industry...you may be thinking, "so what"?
As you adjust to the move from OFT to FCA regulation, you may have already noticed some of the major changes in the level of supervision you receive and the reports you will be required to complete.
We have now moved a little further down the regulatory road and I wanted to look in more detail at the practicalities and realities of life for pawnbrokers under the FCA. I guess that many of you will have had a thorough read of the regulator’s handbook – the memorably named ‘CONC’ – , particularly Chapter 6.6 which deals specifically with the pawnbroking industry, and noted the business areas upon which the FCA are going to apply particularly focus. However, at the Consumer Credit Centre we know from experience that FCA guidance can be difficult to navigate, and it can be even more difficult to understand how the rules relate to your business in practical terms. With that in mind, for those of you who are currently thinking “The FCA’s taken over my regulation...so what?”, I wanted to take this opportunity to discuss some of the key implications in more detail.
Firstly, why the change from OFT to FCA? As you would expect, the Government’s main objective is to “strengthen consumer protection”. However, it does offer some reassurance with the caveat that it will only place requirements on firms where there is a clear benefit for consumers – in other words, not introducing regulation purely for the sake of it. As you may have noticed from the areas they have focussed upon initially, the FCA are approaching consumer credit regulation with a clearly defined sense of proportionality.
There will be highly detailed standards and rules which will apply to various areas of consumer credit (peer to peer lending, debt management, firms who hold assets on behalf of customers etc.), however, some of the FCA’s conduct standards will apply across the board;
- Principles for business which will establish the principles for behaviour which are required from firms in relation to their consumer credit activities.
- High level standards which will govern how firms should organise and manage their affairs, including arrangements for senior management and systems and controls.
- Conduct standards which will set out detailed guidance on how firms should conduct themselves with customers during the sales process.
One of the areas the FCA is currently focussing upon is that of communicating with, and promoting your services to, existing or potential customers. The FCA's overarching objective is to ensure that all interaction with customers or potential customers is clear, fair and not misleading. These are the watch-words you need to have in mind any time you conduct any level of communication. Be certain that you don't reference anything that could give a potential customer unrealistic expectations; be that about the rate of interest they can expect, their likelihood to be a suitable customer or the risks they face.
For some of you, the FCA's record-keeping requirements for pawnbroking business will be more detailed than you're used to, whilst others may already be in line with the new rules. In Chapter 6.6 of CONC, the FCA lays out exactly what information you need to record at the point at which an item is either pawned, or redeemed and sold. In addition customers details, you also need to document the financial difference between the amount for which an item was originally pawned, and how much it raised at sale. In addition, it's also stipulated that you must keep your records for a prescribed length of time; five years from which an item was pawned, or three years from when it was resold.
Another change you may have noticed since the change in regulator is the amount of information that you need to report to the FCA. Depending upon the size of your firm and the nature of business you conduct, you will need to report on either a six-monthly or annual basis; unfortunately, as the FCA has categorised pawnbroking as a 'high risk' activity, this is more likely to be six-monthly. In addition to financial reports, you will also need to provide information on complaints received, your business model and continuity plans, staff and resource assessments and the systems and processes you have in place to measure and ensure your continued adherence to the regulator's requirements.
A further area I would urge you to consider is that of vulnerable customers, another current hot topic for the regulator. Using the terminology of the FCA, some people are considered to be vulnerable on a long-term basis, for instance those who have issues with literacy, numeracy or other characteristics that may impact their mental capacity when it comes to making financial decisions. There are others who are vulnerable on a more short-term basis due to life events such as illness, bereavement or a job loss. The FCA recognise that identifying vulnerable customers can be a difficult call for you to make – for example, someone who is currently suffering from an illness or a bereavement may not lack the mental capacity to make financial decisions – it's not a one-size-fits-all rule and it depends upon an individual's circumstances. For more information on this, see Chapter 2.10 of the CONC for the FCA's guidance on mental capacity.
Although adapting to all the requirements of the FCA may seem daunting and onerous initially, there will also be benefits to this increased level of regulation. I’m sure we would all agree that any potential advancement in consumer protection is a good thing and this move will also undoubtedly see a positive change to the general
perceptions of the consumer credit market as a whole. It also means that any non-compliant and potentially non-ethical pawnbrokers will be identified and targeted by the FCA, reducing the risk of damaging the reputation of the entire market.
But of course all of this means more time spent on compliance issues and less on running your business and generating income!
The Consumer Credit Centre was launched by the SimplyBiz Group to help firms with their consumer credit licence application and ongoing compliance, and has already partnered with the National Association of Commercial Finance Brokers and others to provide compliance services to their members. Our pedigree is such that we are currently managing the applications and ongoing compliance of over 1000 firms who conduct consumer credit business.
If you need further details on anything mentioned in this article, we suggest you visit the Consumer Credit Centre (www.consumercreditcentre.co.uk) or call 01484 443424 for up to date and relevant information.