The Financial Conduct Authority (“FCA”) has put forward proposals that it hopes will ensure that individual’s credit files will better reflect their financial circumstances.
The FCA’s proposals set out in MS19/1: Credit Information Market Study, belong to a range of measures aimed at improving the quality of the information collated by credit reference agencies (CRAs), which is used to inform lending decisions and boost competition in the market.
In November last year, the FCA published an interim report which set out that whilst the credit information market is working well in some ways, there were a number of areas where the market could improve.
Some of the most significant issues identified through the interim report include;
- Differences in data coverage between the 3 large CRAs (Equifax, Experian and TransUnion) as well as some evidence of data quality issues.
- Better competition and innovation could be delivered through changes to data access arrangements and timely reporting of key metrics.
- Current industry governance arrangements, the Steering Committee on Reciprocity (SCOR), is ineffective at driving change, representing views from a range of stakeholders, prioritising consumer outcomes and acting transparently.
- The lack of consumer understanding on how to access and dispute credit information.
The interim report proposed 12 remedies focusing on 4 themes, including; governance, data quality, competition and innovation and consumer engagement. The FCA received 57 responses from the credit industry and consumer groups and further engaged with many stakeholders to discuss feedback on the findings and remedies.
The final proposals the FCA has made following its consultations include;
- FCA-regulated data contributors, such as lenders, will be required to share credit information with CRAs.
- Establishing a new Credit Reporting Governance Body (“CRCG”) with broader objectives. The CRGB is to be more inclusive, transparent and accountable.
- A common data reporting format will be introduced to enhance consistency across CRAs and promote competition.
- Streamlined consumer access to credit information, including statutory credit reports, by having one stop for consumers to engage with.
- A streamlined process to help consumers dispute errors in the credit information held on their credit file.
- A streamlined process for improved consumer outcomes which builds upon existing processes.
- Provision of an accurate and up-to-date view of consumers credit commitments to further support lenders in making decisions.
- Complementing the proposed mandatory reporting requirement implemented by the FCA.
- Assessment of how access arrangements to Current Account Turnover (“CATO”) data can be updated for non-personal current account providers, and how CATO data can be improved.
- A mandatory reporting requirement for all FSMA-regulated data contributors to designated CRAs which aims to provide more accurate, consistent and comprehensive credit information.
- A new regulatory reporting framework for designated CRAs which aims to monitor the mandatory reporting framework and give the FCA insight into potential issues.
- Proportionate requirements for FSMA-regulated data contributors that aim to provide regulatory certainty, aid supervision and deliver transparency to consumers.
- Increasing consumer awareness of the availability of free credit information via the statutory process.
The FCA believe that the proposals it is introducing will ensure that the quality of credit information is high and comprehensively covers UK consumers, which will lead to improved financial inclusion and better-informed lending decisions. The FCA also believe that these changes will ensure that CRAs and credit information service providers compete effectively and provide fair value for consumers and firms. Likewise, the FCA believe the proposals will allow firms in the credit information market to innovate and provide new products and services that increase the quality of credit information and the effectiveness of credit risk assessments.
An Interim Working Group will be set up to establish a new credit reporting governance body, designed to be more inclusive, transparent and accountable, which will oversee many of the changes proposed. The FCA expects the working group to start its work in January and deliver the proposals within a nine-month timeframe.
By the end of 2024, the FCA expects to further these proposals by beginning a consultation on new measures which include the introduction of a mandatory reporting requirement.