There were a couple of interesting news items this month that caught our attention. One being the speech given by Jonathan Davidson, the current Director of Supervision – retail and authorisations at the FCA, at the Future of Lending Conference, and the other being the recent FCA update relating to ‘Smarter Consumer Communications’.

 

Jonathan Davidson talks @ Future of Lending Conference

 

Jonathan Davidson recently gave a speech at the Future of Lending conference with some interesting updates for alternative lenders. His speech focussed on 3 main areas:

 

Innovation - Davidson looked to offer some advice for innovative new entrants to the market namely, that no-one in the FCA is worrying or fretting about a firm’s business making money from bold but fair customer propositions. However, the FCA will categorically not wave through innovations with no useful purpose to consumers.  This point wasn’t elaborated on but is definitely something to bear in mind when launching new products and applying for or varying your permissions.

 

Consumer Protection – There is a much larger ongoing project at the FCA (and another paper in the offing) on how firms assess consumers’ creditworthiness and the affordability of their products. I’m sure this will not be so much of an issue for the data-driven platforms out there, utilising multiple data points to make informed credit decisions. The FCA are also nearing completion of another thematic review into staff remuneration – a key issue of focus is that in consumer credit, there is not just the risk of mis-selling, but also of not exercising appropriate forbearance if staff are financially incentivised to collect from customers in arrears.  Consumer protection was a pervasive theme in the recent FCA Consultation Paper on crowdfunding and firms can expect regulatory changes from the FCA in the future to reflect this.

 

Market Integrity – This section of the speech is actually labelled as ‘keeping an eye on P2P’ by the FCA so this goes to show that the P2P market in particular has definitely caught the FCA’s attention.  What this will mean remains to be seen but Davidson was keen to highlight the FCA’s concerns over one noticeable trend in particular - whether loan volumes in P2P are growing fast enough to keep up with investor appetite. The important question for the FCA is ‘how do P2P lenders respond to this greater demand?’ There were forewarnings that the FCA will keep a close eye on the market to make sure firms don’t respond by lowering underwriting standards, creating affordability issues for borrowers and credit risk for lenders.

 

Smarter Consumer Communications

 

The FCA has recently published a review on what they call ‘’.  This review was designed to start a debate that optimistically ends with a solution as to how information can be delivered to consumers in more effective ways. 

 

It seems that the people have spoken and the FCA has listened as the paper culminated in the removal of certain unpopular and impractical templates and requirements in the FCA Handbook which firms have had to use or adhere to when providing information to their customers.  In line with the Smarter Consumer Communications initiative, the FCA has said that it wants to create an environment where firms have flexibility to decide the best ways to communicate key information to consumers – firms should have a greater freedom around the design and content of any disclosure they make available to consumers. This is clearly a move away from the ‘tick-box’ approach to disclosure that might be restricting firms from finding better ways to give consumers the relevant information.

 

Although the Smarter Consumer Communications paper is mainly relevant for insurance companies and banks it is interesting to see that the regulator is keen to drag this market into the 21st century with greater focus on tech, clear and more bespoke communications with consumers and greater flexibility going forward.  It would be best practice then for all FS firms to take the Smarter Consumer Communications into account as the chances are that similar provisions will be rolled out for all regulated firms in the future.

 

 

Jonathan Segal, Partner at Fox Williams LLP

 

Jonathan is a partner in the FinTech and Alternative Finance team at Fox Williams, a City-based Law Firm. He advises clients across the FinTech and Alternative Finance spectrum, from start-ups disrupting existing markets with innovative technology to financial institutions looking to invest in new technology.

 

 

 are experts at advising entrepreneurs and FinTech businesses in particular in the P2P and crowdfunding sector. For more information as to how Fox Williams can help you (including arranging a free consultation) or for further information on the issues discussed in this article, please liaise with either or .