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Transcript of THE NPA ROADSHOWS 2014 UNDERSTANDING FCA REQUIREMENTS Headline Sponsors: Coffee and lunch Sponsor...
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THE NPA ROADSHOWS 2014
UNDERSTANDING FCA REQUIREMENTS
Headline Sponsors:
Coffee and lunch Sponsor
Other Exhibitors
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National Pawnbrokers Association
Understanding FCA Requirements March 2014
Welcome
Nathan Finch,
Deputy President of NPA
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National Pawnbrokers Association
Understanding FCA Requirements March 2014
• 10.30am Welcome- Nathan Finch, Deputy President of NPA
Introduction- Ray Perry, Chief Executive NPA
• 10.40am ‘Introducing The New Regime’
Nausicaa Delfas, FCA Head of Consumer Credit.
• 11.10am ‘What lies ahead? Key Changes for pawnbrokers’
Ray Watson, Walker Morris
• 11.40am ‘How to Comply- Policies and Procedures’ Stephen Atkins
• 12.30pm Buffet Lunch
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Values
Fairness and Transparency
Expertise
Professionalism and Excellence
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THE NPA ROADSHOWS 2014
UNDERSTANDING FCA REQUIREMENTS
Headline Sponsors:
Coffee and lunch Sponsor
Other Exhibitors
![Page 6: THE NPA ROADSHOWS 2014 UNDERSTANDING FCA REQUIREMENTS Headline Sponsors: Coffee and lunch Sponsor Other Exhibitors.](https://reader035.fdocuments.net/reader035/viewer/2022062314/56649dd25503460f94ac92b4/html5/thumbnails/6.jpg)
Introducing the new FCA regime
NPA Conference
Kensington, London11 March 2014
Nausicaa DelfasHead of Consumer Credit Supervision, FCA
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How regulation is changing
1 April 2014
• The Financial Conduct Authority takes over consumer credit regulation from the Office of Fair Trading
• This creates a single regulator for conduct in financial services
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The Financial Conduct Authority
Strategic objective: • ensuring the relevant markets function well
Operational objectives:• promoting effective competition in the interests of
consumers• securing an appropriate degree of protection for
consumers• protecting and enhancing the integrity of the UK financial
system
Our remit:• Conduct of c25,000 firms• Prudential soundness of c23,000 firms (those not
regulated by the PRA)• Responsible for c50,000 consumer credit firms from 1
April New regulatory system
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Your firm’s FCA authorisation – a two stage process
1. Interim permission registration
– Deadline is 31 March
– Takes 10 minutes to register online: www.fca.org.uk/clicked
If you don't register by 31 March 2014, you won’t be able to legally continue lending money
2. Full permission application
– A more detailed application than the OFT equivalent:
• Threshold conditions
• Approved persons
– Application periods start in October for firms with Interim Permission
– Pawnbrokers’ application period to be confirmed at the end of March
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FCA fees
1. Application fees when you apply for full permission
2. Periodic fees every year once you have full permission– Fees based on your business type and your income– Proposed period fees published 31 March
Credit income Proposed feeUp to £50,000 £800
£50-£100,000 £1,000
£100-£250,000 £1,500
£250,000-£1 million £5,000
over £1 million £10,000
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How the rules change for your firm
• Final FCA rules published on 28 February in Policy Statement 14/3
• From 1 April:– OFT requirements move to FCA Handbook – FCA Rules and Principles will apply – such as ‘treating customers fairly’, systems
and controls
• Once you are authorised:– Approved persons– Reporting
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The FCA’s approach to regulationThe FCA’s approach will emphasise 5 elements:
• being more forward-looking• intervening earlier • tackling underlying causes • securing redress • taking meaningful action
More powers and resources than the OFT – for example:
• temporarily ban products or restrict sales for up to 12 months• ban firms or individuals• stop misleading financial advertising• impose requirements on firms • require skilled person reports
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What we will focus on
• Our aim is for a credit market that works for the benefit of consumers
• Proactive supervision of firms will aim to deal with issues and address root causes of problems
• Your approach needs to put the interest of your customers at the heart of how your business is run
• This is about:– culture– leadership– clear business practices
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How we will regulate you during ‘interim permission’
• Responding to issues in individual firms
• Visits to larger pawnbrokers
• Proactive monitoring of financial promotions and contract terms
• Thematic work
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How we will regulate you once you have ‘full permission’
• Our regulation is risk-based and proportionate
• The intensity of our approach will depend on your FCA category: C1, C2, C3 or C4
• Majority of pawnbrokers will be in category C4
• Three “pillars” of Supervision:
1. Individual firm assessments
2. Reactive work with individual firms
3. Thematic work across groups of firms
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Pillar 1: Individual firm assessments
• We will regularly assess your firm through reviews/visits
• Consider this fundamental question:
Do you have the interests of consumers and the integrity of the market at the heart of how you run your business?
• Intensity depends on your FCA category
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Examples of likely areas of focus
Areas of Focus for Pawnbrokers
• Appropriate controls to mitigate against the risk of fraud/crime? e.g. ensuring it does not handle stolen items
• Robust controls in place to ensure accurate valuation of items?
• How does the firm mitigate against the risk of inappropriate lending, including how it deals with ‘vulnerable’ customers? e.g. those on very low income/benefits or those with mental capacity limitations
• Firm’s redemption policies, how it calculates interest, additional fees/charges
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Pillar 2: Reactive work with individual firms
• To deal quickly and decisively with problems
• Risks identified through variety of sources
• You will have to tell us about issues you find
• Use a range of tools to put things right
• We prefer to work with you voluntarily, but enforce our decisions if necessary
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Pillar 3: Thematic work across groups of firms
• Examines emerging risks across firms
• First thematic project to be announced soon
• Any firm can be included in thematic work outside of its regular assessment
• We engage with the industry to set the tone and publicise the outcomes of this work
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Action points for you
• Register at www.fca.org.uk/clicked by 31 March for interim permission
• Visit www.fca.org.uk/consumer-credit to find out more about how we will regulate you
• Familiarise yourself with our final rules (Policy Statement 14/3)
• Prepare for what’s new:
– High-level principles – such as treating customers fairly– Complaints rules– Reporting
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THE NPA ROADSHOWS 2014
UNDERSTANDING FCA REQUIREMENTS
Headline Sponsors:
Coffee and lunch Sponsor
Other Exhibitors
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What lies ahead?The key changes under the new FCA regime for pawnbrokers
Presentation to NPA members by Ray Watson11 March 2014
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Agenda‒ Impact of transfer of Consumer Credit regulation
to the FCA– Legal framework– Timescales
‒ Key changes for pawnbrokers– Threshold conditions– Approved persons– CONC sourcebook– Supervision and reporting– Appointed Representatives– Enforcement
‒ What you need to do to prepare
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Timetable
‒ 2014– February 28th - final rules published – By 30 March – apply for interim permission– 1 April transfer to FCA– 1 July – bespoke HCSTC rules apply– 1 October- end of transitional compliance period
‒ 2016– By April – all firms to have applied for full
authorisation
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OFT and FCA regimes - Compared (1)
OFT
‒ Detailed law (CCA 1974 and Regulations)
‒ Supplemented by guidance‒ Light touch
licensing/supervision‒ All entities must be licensed
‒ No UK presence required
FCA (FCA)
‒ Framework law (FSMA)‒ Detailed COB rules and
guidance in handbook‒ Rigorous authorisation and
supervision‒ Authorisation or Appointed
Representatives‒ All entities must have a UK
presence
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OFT and FCA regimes - Compared (2)
OFT
‒ Fitness and propriety‒ Licensing fees relatively
low‒ No reporting requirements
‒ Limited powers‒ Enforcement - £50,000
maximum regulator fine‒ No price controls
FCA
‒ Personal liability ‒ Higher scaled fees based
on turnover ‒ Regular reporting and
disclosure obligations‒ Wide ranging powers‒ Unlimited fines and
consumer restitution‒ Price cap for high cost
short term loans
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Threshold Conditions
‒ From authorisation onwards‒ Pawnbroking is ‘high risk’‒ Minimum standards required
– Legal status– Location of offices– Effective supervision– Appropriate resources– Suitability– Business model
‒ ‘Fit and proper’ test for management‒ Failure may = variation/cancellation of permissions‒ Pawnbrokers must advise how value items and charges
on redemption
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Approved Persons
‒ Individuals or entities‒ Approved to perform controlled functions‒ Significant influence functions‒ Have considerable sway over how the
business is run‒ Subject to significant personal
responsibilities
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Becoming an Approved Person
‒ Must be ‘fit and proper’‒ On an ongoing basis‒ Detailed application process‒ Possible interviews by FCA‒ Personal accountability‒ Subject to disciplinary action/fines
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The Consumer Credit Sourcebook (CONC) ‒ What is familiar?
– Agreements and SECCI largely as before– Advertising /financial promotion too for pawn –
(although speed is an incentive)– Adequate explanations (limited for pawn) (4.2.5 (6))– Post contractual processes/Debt Collection (CONC 6
and 7)– Mental capacity/vulnerable consumers (CONC 2.10)– FOS complaints process (DISP)– Financial crime/AML (EG, DEPP MLRs)
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CONC 6.6 Pawnbroking
‒ Pawn receipts unchanged (s 114(1) CCA)‒ Redemption and sale processes too
(section 121 CCA)‒ Record requirements in CONC 6.6.3 –
6.6.9‒ Replicate existing rules under 1983 Pawn
Records Regulations
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CONC – what’s new?
‒ Definition of High Cost Short Term Credit– Borrower/lender or P2P agreement (not DCS)– APR of 100% or more– ‘Substantially’ repayable within 12 months– Unsecured– NOT home credit, a bill of sale, or an overdraft
‒ Much wider than ‘Payday’ loans‒ But exempts pawn agreements
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Bespoke rules for HCSTC
‒ Risk warning on adverts (now simplified)‒ Maximum of two rollovers‒ No refinancing unless in consumer’s interest‒ Limits on use of Continuous Payment Authority
– No more than two attempts without contact– No part payments
‒ BUT FCA have made it clear being outside definition will not avoid scrutiny for other short term lenders.....
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CONC - Supervision
‒ Classification C1-C4‒ Dedicated supervisor or team‒ Prioritisation by risk/consumer harm‒ All firms will be visited by the FCA at least
once every 2 years‒ Supervision will be based on level of risk
with bigger firms more closely supervised‒ Thematic reviews
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You can expect a visit...
“We will initially be delivering a hybrid supervisory approach to consumer credit firms during the interim permission period. We will focus on the way that firms treat their customers by: conducting firm-specific visits to the largest firms within certain sub-sectors, including debt management, debt collection, home-collected credit, HCSTC, pawnbrokers and credit card issuers. we assess whether a firm is being run in a way that results in the fair treatment of customers, minimises risks to market integrity and does not impede effective competition.”
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CONC – reporting requirements
‒ Every 6 or 12 months, depending on turnover (6 months if turnover £5m+)
‒ Regulatory reporting‒ Product sales data ‒ Wide scope of information‒ To enhance market understanding‒ And shape future FCA approach
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Pawnbrokers need to report‒ Fees‒ Revenue‒ Total customers‒ Total number of loans‒ Total number of transactions (each item counts separately)‒ Total value of loans (outstanding and in a given period)‒ Number and value of loans in arrears‒ Average APR‒ Highest APR‒ Complaints (received, outstanding, closed, upheld)‒ Redress paid in response to complaints
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For reporting purposes
“In the case of pawnbroking, each item that is used as security should be counted as a separate loan”
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Creditworthiness/affordability
Creditworthiness assessment is more limited for pawn
Security is enough provided liability no more than value of article plus interest with no additional charges
But for unsecured loans: Rigorous affordability checks Guidance has become rules Must be able to evidence such tests Positive obligations to check income/expenditure Link with reporting requirements?
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Appointed Representatives
An appointed representative (AR) is a person or firm who conducts regulated activities and acts as an agent for a firm directly authorised by the FCA. The directly authorised firm is known as the AR's
'principal'.
N.B. lenders who charge for credit provision cannot be ARs, they must be directly authorised
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AR requirements
‒ A written contract‒ In prescribed terms‒ Principal takes FULL written responsibility for
AR’s compliance‒ AR must meet Threshold Conditions‒ AR must accede to Principal’s supervision
– Access to staff, premises, records– Ongoing monitoring
‒ Appointment via online application
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Enforcement
‒ Stronger, earlier regulatory intervention
‒ Preventative, proactive ‒ Focus on minimising consumer
detriment‒ A sea-change compared to the OFT
approach
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Powers of the FCA
‒ Refuse and revoke authorisation‒ Take civil action ‒ Take disciplinary action against individuals‒ Impose fines ‒ Product intervention powers
– Imposed without consultation for up to 12 months– Prohibit product sale– Render existing agreements unenforceable
‒ Impose a price cap from January 2015‒ Prosecute
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But probably even more important...
‒ A change in regulatory attitude
“Our message to any company that harms their customers – the clock is ticking.”
“Our enforcement teams are already working with the OFT so that we can take action where existing rules aren’t being followed and where we believe that firms are continuing to harm consumers.”
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Obvious implications for credit firms
‒ Costs will rise significantly‒ Record keeping will have to be good‒ Arrangements with agents and third
parties will need to be considered carefully to limit risk
‒ Senior management will have to be focused on compliance and consumers
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Wider consequences
‒ Market exit‒ Reduction in competition‒ Barriers to entry‒ Higher charges for borrowers‒ Overall decline in consumer detriment‒ Express warning against ‘gaming’
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Preparation, preparation, preparation
• Review of policies and procedures• Role of key individuals to be Approved
Persons• Product/process changes• Cost/resource• Training• Monitoring and supervision
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THE NPA ROADSHOWS 2014
UNDERSTANDING FCA REQUIREMENTS
Headline Sponsors:
Coffee and lunch Sponsor
Other Exhibitors
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Understanding FCA Requirements
Stephen Atkins
SA Compliance Management Ltd
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Skilled Persons Panel
• SACM is appointed for Governance, Systems & Controls and Risk to the Panels of the Bank of England, the Prudential Regulatory Authority and the Financial Conduct Authority.
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PS 14/3 applies the FCA Handbooks
From 1 APRIL 2014 all consumer credit firms must comply with the FCA’s high level standards:• The Principles - PRIN• The Systems & Controls Rules - SYSC• Status Disclosure - GEN• Financial Promotions – COBS/CONC
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The Usual Path to FCA Authorisation
1. Application and preparation of supporting fit & proper documents.2. Compliance Plans preparation.3. Authorisation.4. Regulated business starts, subject to FCA High Level Standards Handbooks.
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FCA renumbers the steps to Authorisation
0. Interim Permission4. Application of FCA Handbooks to firms on 1 April 2014 2. Compliance plan transition options, April – October 20141. Preparation for Authorisation3. Authorisation – H2 2015?
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What does the FCA mean by “Proportionate”?
The FCA will adopt a higher starting point for conduct standards than many firms may realise.
• “There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.”
• Hector Sants. FSA CEO. March 2009.
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What does the FCA mean by “Proportionate”?
Pawnbroking is regulated as Higher Risk
Many customers are seen as “vulnerable”
But many firms are “small”
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The FCA Handbook(s)
• Prudential Standards• Business Standards• Regulatory Process• Specialist Sourcebooks
• Rules• Guidance• guidance
• Speeches• Reviews
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Understanding Your Next Steps
1. Understanding and applying the FCA Handbooks, GEN, PRIN & SYSC wef 01/04/14
2. Preparing and applying a compliance plan for CONC wef 01/04/14 – 01/10/14
3. Review record keeping, financial promotions, complaint handling, financial reporting etc
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Action: GEN
• All customer communications must state that you are regulated by the FCA wef 01/04/14
• You do not have to say you only have interim or limited permission
• The standard rule in GEN 4.3 will apply from 1 April 2014.
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Action: SYSC
• Principle 3 states that
• ‘a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk-management systems’
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Action: SYSC
Prepare and maintain written processes for• Organogram• Controlled Functions & Job Descriptions• Senior Management arrangements• Regulatory Business Plan• Compliance Plan• System and Controls• Internal Audit• Financial Crime
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Action SYSC
• Money Laundering• Outsourcing• Risk• Record Keeping• Conflicts of Interest• Whistleblowing
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Action: PRIN
You will need to evidence how you apply these Principles to your business -1 A firm must conduct its business with integrity 2 A firm must conduct its business with due skill, care and diligence 3 A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk- management systems 4 A firm must maintain adequate financial resources 5 A firm must observe proper standards of market conduct 6 A firm must pay due regard to the interests of its customers and treat them fairly
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Action: PRIN
7 A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading 8 A firm must manage its conflicts of interest fairly, both between itself and its customers and between a customer and another client 9 A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely on its judgement 10 A firm must arrange adequate protection for clients’ assets when it is responsible for them 11 A firm must deal with its regulators in an open and co- operative way, and must disclose to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice
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Action TCF & Conduct Risk
Prepare and apply a written policy that evidences –
• Customers are central to your business• Customers achieve their expected outcome and
understand what is involved• How the firm knows what customers are thinking• The firm’s conduct risk appetite• The firm use of internal audit and MI • How this information is used to control conduct risk and
what does the firm do when things go wrong
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Action: AUTH
• Approved Persons
• Controlled Functions
• Compliance Arrangements
• Regulatory Business Plan
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Working with the NPA
• Telos Solutions Ltd –Richard Farr
• Regulatory Finance Solutions/Consumer Credit Advisory Services Ltd – Alison Scott
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NPA
Thank You
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THE NPA ROADSHOWS 2014
UNDERSTANDING FCA REQUIREMENTS
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