IN a letter to all credit brokers, the Financial Conduct Authority (FCA) reiterated its focus on putting the customer central to broking operations. 

It said that brokers should take action to de-risk their operations where there is the potential for customer harm (February 13, 2020).

The communication from the FCA is part of the Senior Managers & Certification Regime says Joanne Davis, head of asset, leasing & consumer finance at Locke Lord.  It expects that firms have clear accountability and a clear understanding of individual roles and responsibilities.

Joanne added:

“It’s a warning shot. The FCA wants senior managers to step up and take control of the compliance issue from the top down. It’s a matter of a firm’s culture – it cannot reside just with a compliance manager. The letter gives the FCA teeth if they find a firm failing in these areas – and it will be the CEO or other senior managers that they’ll be gunning for.

“The letter should be addressed and not left as it makes it very clear on the FCA’s area of focus and sets out the key risk of harm that credit brokers pose to their customers and requires that firms put strategies in place for mitigating them.”

In its letter to credit brokers, the FCA points out that:

  • Many firms did not understand their regulatory requirements and the correct permissions required;
  • There was poor oversight of staff and/or Appointed Representatives (ARs) which could lead to mis-selling;
  • Provided misleading or inaccurate financial promotions;
  • Did not explain service levels or factors such as commission likely to be received from a lender;
  • A lack of information on suitability of products; and
  • Failure to manage risk from cybercrime or ensure IT robustness.

Russell Thoms, managing director at DriveSmart, wrote on LinkedIn:

“Based on the FCA’s recent motor industry pronouncements, credit brokers must:

  1. Prove that they only introduced finance to the sales process when it was necessary (i.e. prove that customer needed to borrow to fund a vehicle).
  2. Exercise due diligence in calculating the customer’s ability to afford repayments.
  3. Prove that all the available finance options from the broker’s portfolio were shown to the customer, including advising when other products not offered might be better for the customer (eg a bank loan).
  4. Explain all the salient terms and requirements of the finance offered, including restrictions/exclusions on ownership, any end of contract conditions, term and mileage requirements etc.
  5. Explain that commissions are received by the broker if the customer takes the finance it offers.”

The FCA went on to say that it would follow up in March 2022 with its understanding on the key risks from credit brokers and its future plans for supervision.

Read the FCA’s letter

If you have not seen the FCA’s correspondence, then you can read it on the FCA website.

BVRLA guide to FCA compliance

The BVRLA has produced guidance in its resources section for brokers to help with FCA compliance

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