Lenders have been slammed for “inconsistency” in the way they consider the impact of their actions on borrowers, in the latest Financial Conduct Authority thematic review.
A nine-page thematic review paper published today (19 March) stated that lenders were told it was not good enough to just have a few high up individuals made responsible for conduct.
When setting or amending lending strategies, the FCA told lenders they need to up their game and consider if the decision is in the best interests of their customers. This includes ensuring that they understand the impact on the actual customer experience and how the decision will affect the customer.
Lenders were told they should constantly challenge themselves in terms of the possible impact on customer outcomes throughout the life of those strategies. This means keeping lending strategies under review from a customer outcome, as well as from a commercial perspective.
The regulator said that following a review of 10 banks, building societies and niche lenders, it concluded all lenders should ask themselves if they have the right individuals or committees in place for the approval of a lending strategy and to asses the conduct risk of that strategy.
They were also told it was not good enough to just make assessments at the start of a lending strategy and they should be looking at it throughout the implementation, operation and conclusion.
While the thematic review fell short of coming up with any new rules dictating how lenders should consider borrowers when making decisions about the way they do business, the FCA did state it was unhappy about “some firms” being “overly reliant on a small number of key individuals to act as conduct champions and there is a lack of succession planning for retaining conduct knowledge”.
The FCA warned that this “poses a risk to customer outcomes because, unless these conduct champions are involved in every step of the strategy formulation, there will be times when the firm will fail to challenge effectively on behalf of the customer”.
It added that key person risk exists in some firms, due to those understanding conduct being in the minority, noting that if they fail to fulfil their duty or leave the firm, the risk is heightened considerably.
“We believe more needs to be done by firms to ensure that conduct champions’ focus on good customer outcomes is not diluted or lost as strategies are implemented.
“Firms need to ensure that conduct and focus on customer outcomes are understood by all business levels and operational business areas, and they are owned by everyone in the business.”
This is expected to be evidenced through management information, such as board or committee papers.
emma.hughes@ft.com
