In one of the latest ‘Dear CEO’ letter, the Financial Conduct Authority (“FCA”) wrote to motor finance providers with a focus on the implementation of the Consumer Duty.
The letter set out a reminder of the implementation timeline and the key components being introduced, the FCA’s expectations of how motor finance firms should embed the Consumer Duty and the FCA’s approach to supervising motor finance providers following the implementation of the Consumer Duty.
The FCA has consistently set its expectation that all firms should give implementation of the Consumer Duty top priority.
What are the key themes the FCA set out in their portfolio letter?
The regulator set out key themes which included;
- Harms observed by the FCA in the motor finance sector.
- The FCA intent to focus supervision on the sector following the implementation of the Consumer Duty.
- Importance of culture and strategy when implementing the Consumer Duty.
- Highlighting the importance of whole distribution chain has been given careful consideration all the way down to individual dealer level when preparing for the Consumer Duty.
- A commitment by the FCA to continue to scrutinise commission and disclosure models across the sector.
- Highlighting that some motor finance products could be considered as “complex” and firms must ensure that these products are designed according to consumer needs.
- Firms are confident in their product governance processes and have in place effective monitoring throughout the customer journeys (including post-sales).
- The FCA expect firms to continue to undertake a monitoring, root-cause analysis and remedial actions across their organisation.
- Ensure that firms are maintaining records and keeping evidence of the work they are doing to improve customer outcomes.
- The FCA expect firms to review all fees and charges under agreement, including interest rate and ensure that affordability processes are effective.
- Firms must provide easy to access customer support.
- The FCA (as we have seen across multiple sectors) push the importance for firms to support customers in financial difficultly.
- Again, the FCA note the importance of financial resilience as well.
The regulator even touched upon how firms can support transition to alternative fuel vehicles.
Firms’ preparations for the Consumer Duty should be well under way. The FCA have been extremely thorough in outlining their expectations of how firms should be preparing for the first implementation date in July 2023. What this portfolio letter places huge emphasis on, is the need for firms to work together throughout the distribution chain and not rely on other firms to have prepared for them. Firms must have ensured that their distribution networks are prepared and that they have shared relevant information and plans by the end of April 2023. The letter highlights a ‘top-down’ and ‘bottom-up’ approach with each part of any distribution chain working together to deliver effective implementation of the Consumer Duty and raising standards for consumers.