The document provides an overview of the interim permission and full authorization processes firms must go through to be regulated by the Financial Conduct Authority (FCA) for consumer credit activities. It discusses what interim permission allows, how to register for it, and obligations during the interim period. It then outlines the full authorization application process, including required documentation, threshold conditions, alternatives to authorization, and timelines firms should expect. The document aims to help firms navigate the transition to the new regulatory regime for consumer credit which begins on April 1, 2014.

1. The changing face
of consumer finance
An update on the
latest developments

2. Consumer Finance Seminar
Interim Permission
Joanne Owens, Principal Associate, Eversheds LLP
October 2013

3. Interim Permission
•What is Interim Permission?
•How do you get Interim Permission?
•Categories of regulated activity and exemptions
•Challenging Areas
•Implications of registering for Interim Permission
•What do I need to do post 1 April 2014?

4. What is Interim Permission?
• Existing OFT licences lapse 31 March 2014
• From 1 April 2014 permission from the FCA is
required
• Transitional process to allow businesses to continue
to trade until full authorisation is granted
• Interim permission valid until 1 April 2016
• Failure to register for interim permission

5. How do I get Interim Permission?
• Need to register with the FCA prior to 31 March 2014
• Grace period to 14 April 2014 to register and pay fee if you
are granted OFT licence between 18 March to 31 March 2014
• Registration process started 2 September 2013
• 30% fee discount if you register before 30 November 2013
• Fees are £350 for most firms and £150 for sole traders
• Registration process is online via FCA website with guidance
notes (www.fca.org.uk/firms/firm-types/consumercredit/consumer-credit-interim)
• CCL must still be valid on 31 March 2014 to qualify
• Need to provide information to FCA on registration

6. Categories of Regulated Activity
•
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment)
(No 2) Order 2013
•
Interim permission is based on current categories on your existing OFT
licence
•
10 categories:
– consumer credit (category A)
– consumer hire (category B)
– credit brokerage (category C)
– Debt Collection (category F)
– Debt adjusting, debt counselling, debt administration (categories D, E
and G)
– credit information services (category H)
– Canvassing off trade premises
– credit reference agency (category I)

7. Categories of Regulated Activity
• Exemptions:
– Insolvency Practitioners
– 3rd party tracing agents
– not-for-profit debt advice
– canvassing off trade premises

8. Challenging Areas
• Professional firms
• Credit brokerage
• Peer to peer lending/operating an electronic system
in relation to lending (debt administration)
• Debt adjusting and debt counselling
• Appointed representatives during interim
permission regime

9. Implications of Interim Permission
• Authorised by the FCA to trade in the activities covered by the
interim permission only
• Compliance with CONC and FCA Handbook generally (PRIN,
GEN, SYSC, DISP)
• Supervision by FCA – thematic reviews/events driven
approach
• AML requirements
• Disclosure – no need to specifically refer to interim permission
• Reporting
• Notification of Changes post registration

10. Post 1 April 2014
• Can apply for full authorisation from 1 April 2014
• New rules specifically for high cost short term loans and P2P
lending
• TCF culture within your organisation
• Prudential standards for debt management firms or not for
profit debt advisors
• 6 month transitional period to be compliant with rules
• Ensure standard disclosure of the FCA as regulator is given
• New financial promotions regime applies (clear, fair and not
misleading)

11. Post 1 April 2014
• Working towards full authorisation:
– Identification and training of approved persons
– Meeting the threshold conditions including the business model
threshold condition (mind and management in the UK)
– Identify areas of compliance risk and address
– Training and competence
– Organisation and control
– Product development and marketing

12. Consumer Finance Seminar
The Draft Financial Promotions Rules
Chapter 3 (Conc 3)
Bethan Evans, Senior Associate, Eversheds LLP
Geraint Thomas, Partner, Eversheds LLP
October 2013

13. Overview
• Detailed rules and guidance
• Combination of existing 2004 and 2010 regulations and elements
of existing OFT guidance:
– ILG (2010/2011)
– CBG (2011)
– DMG (2012)
• Proposal:
– clear, fair and not misleading;
– broadly equivalent to current CCA (and CCD) regulations; and
– carry across relevant OFT guidance

14. Overview (continued)
• New provisions dealing with:
– high-cost short-term credit
– cold calling
– debt management
• Timing:
– to be in force on 1 April 2014
– six-month transitional period from 1 April 2014

15. Application
• 3.1.3:
– to communications in relation to credit agreements
– to communications in relation to credit-broking
– to communications with borrowers (or prospective
borrowers) in relation to operating an electronic system
in relation to lending

16. Application (continued)
•
3.1.6:
– contains certain exemptions where for customer’s business
– excludes “qualifying credit” (first charge residential lending)
•
3.1.7(i)
– where only:
name of firm
logo
contact details
brief practical description of type of credit provided
– limited obligations
•
Set out in 3.1.7(2)
•
Application of 3.1.8

17. Clear fair and not misleading and general
requirements
•
3.3.1
– communications and financial promotions to be clear, fair and not
misleading
•
3.3.2
– use plain and intelligible language
– be easily legible (or clearly audible)
– specify the name of the person
– in case of credit broking, specify name of lender (where known)
•
3.3.3
– rule against stating/implying that credit is available regardless of
customer’s financial status
– this may be implied by the name of a firm or its logo or internet
address
•
Also apply to consumer hire and to provision of credit information
services

18. General Requirements (continued)
•
3.3.5
– accuracy and should not emphasise any potential benefit without also
giving a fair and prominent indication of any risks
– sufficient to be understood by average member of the recipient group
– doesn’t disguise or diminish important information/warnings
– clearly identifiable as a communication/financial promotion
•
3.3.7
– imposes a duty to consider whether omitting certain facts will result
in information being unclear, unfair or misleading
•
3.3.8
– any comparison with another product should be meaningful and
presented in a fair and balanced way
•
3.3.9
– specific requirement to advise of rate and likely duration of call to
premium rate telephone number

19. General Requirements (continued)
•
3.3.10
– examples of practices that will breach the clear, fair and not
misleading rule:
implying firm is a lender where this is not the case
using false testimonials/case studies
suggesting repayments will be lower without also mentioning,
where duration of agreement will be longer or that total payable
will be higher
provision of online tools e.g. budget calculators that don’t carry out
a sufficiently full assessment of a customer’s financial position

20. Short-term High-cost Credit (3.4)
• A financial promotion for short-term high-cost credit is to contain
this warning:
“Think! Is this loan right for you?
Over 2 million short-term loans were not paid off on time
in 2011-12.
This can lead to serious money problems.
If you’re struggling go to
www.moneyadviceservice.org.uk/payday for free and
impartial help”
• Each warning must be included in a prominent way.

21. Financial promotions: credit not
secured on land
• Rule 3.5
• Mirrors existing 2010 Regulations:
– representative example
– clear and concise
– presentation and prominence
– requirement for APR
• Brings over guidance produced by BIS on implementing CCD

22. Financial promotions : credit secured on
land
• Rule 3.6
• Carries over 2004 Regulations
– existing warnings
“your home may be repossessed....”
“think carefully.....”
“check that this mortgage will meet your needs.....”
– prominence
– APR
– Schedule 2 information

23. Credit broking (3.7)
• Indicate the extent of its powers and in particular whether
it works exclusively with one or more lenders or works
independently
• Make clear:
– nature of service it provides
– indicate ‘in a prominent way’ any arrangements that
may impact impartiality in promoting credit products
– independent – only if able to provide access to a
representative range of credit products on competitive
terms and not constrained by arrangements with
lenders
• Much of this carried over from CBG

24. Other obligations on lenders (3.8)
• Must not:
– provide application with pre-completed credit amount without
having assessed creditworthiness;
– state or imply that provision of credit depends solely on value
of equity in any security property; or
– promote unsuitable credit (either knowingly or where reason
to believe)
• Examples (from ILG):
– replacing unsecured with secured credit when not in interests
of customer
– promote high-cost short-term credit as being suitable for long
term borrowing

25. Debt Counselling and Debt Adjusting
(3.9)
• Complexity of debt counselling – restricted space media unlikely to
be suitable for promoting debt solutions
• Sets out guidance from DMG on marketing debt management
services
• Particular focus on:
– not claiming advice is provided on a free/impartial basis where
the firm has a profit seeking motive
– not claiming firm is charitable/not-for-profit
• Application of clear, fair and not misleading rule and general
requirements (3.3) to debt counselling and debt adjusting

26. 3.10/3.11
• Promotions that are not in writing and made to a customer
outside firm’s premises:
– to be made at an appropriate time of day
– firm to be identified at outset, making clear the purpose of
the communication
• Not approving – a firm must not approve a financial
promotion to be made in the course of a personal visit,
telephone conversation or other interactive dialogue

27. Consumer Finance Seminar
The Draft Conduct of Business Rules
Geraint Thomas, Partner, Eversheds LLP
October 2013

28. CONC
• Structure
– Rules
– Guidance
• Approach
– CCA provisions
– Guidance
– Codes
• Transition
• Waivers

29. CONC 1 & 2
• Application
• Responsibility
– See also CONC 14
• Principles
• General Standards
• E-commerce
• Financial difficulties
• Mental capacity

30. CONC 4 – Pre-Contract Matters
•
•
•
•
•
Disclosure
Adequate explanations
Commission/fees
CPAs
Other cases:
– current accounts
– P2P
• Pressure sales

31. CONC 5 – Responsible Lending
• Creditworthiness
• Brokers
• P2P

32. High-cost Short-term Loan Proposals
•
Catch loans:
–
–
up to 12 months duration
–
•
at or over 100% APR
not secured (mortgage, charge or pledge)
1 April 2014
–
–
broader definition of ‘financial hardship’
–
only refinance if express request and you reasonably believe it is in customer’s best
interests
–
•
affordability checks guidance becomes binding rules
electronic advert to carry health warnings
1 July 2014
–
CPA
- 2 unsuccessful attempts = stop
- including refinancings
- no part call
–
rollovers
- cap at 2
- debt advice information sheet
-
all adverts to carry health warnings

33. CONC 6 – Post Contract
•
•
•
•
•
Creditworthiness
Assignment
Credit/Store cards
Brokers
Special cases:
– current accounts
– pawnbroking
• Conc 11
• Conc 13

34. Conc 7 – Arrears etc
•
•
•
•
•
•
•
•
•
Policies
Treatment – forbearance and consideration
Information
CPAs
Interest/charges
Customer contact
Lender responsibilities
Accuracy
P2Ps

35. Special Cases
•
•
•
•
•
Advice
Debt Management
CRAs
P2P
Secured lenders:
– OFT Guidance
– The future (?)

36. Consumer Finance Seminar
Full Authorisation Process
Kate Mowbray, Associate, Eversheds LLP
October 2013

37. The Authorisation Process
•Firms can apply for full authorisation from 1 April 2014 (previously October 2014).
•Firms will be called forwards for authorisation but you do not have to wait to be called to
apply.
•There will be an announcement early in 2014 of dates (starting in autumn 2014) by when
specific types of firms with interim permissions must apply for full authorisation.
•Applications will be available online with draft authorisation packs being produced and
published by the FCA shortly prior to 1 April 2014.
•Applications contain a number of forms and documents and must be completed in full.
•If the FCA think the application is incomplete they can request clarification/further
documents.
•The size of firm will play a part in how intrusive the FCA are in assessing its application.

38. •Applications must include the required fee and will not be processed until it is received.
There is still no detail on what the fees will be.
•October 2013 - consultation paper on fees, including authorisation fees for consumer credit
firms and how the FCA propose to calculate periodic fees.
•March 2014 –proposals for periodic fee rates for 2014/15.
•The FCA must make a determination within 6 months of receiving the completed
application and all received applications must be determined within 12 months.

39. Documentation required
•
Business plan
•
Competitor analysis
•
Organisation, board and compliance structures
•
An assessment of the board
•
Membership - board and executive committee and terms of reference
•
Procedures/monitoring of compliance and relevant compliance documentation e.g.
policies regarding lending, arrears, treating customers fairly and financial crime
•
Business continuity plan
•
IT systems
•
Training and competence rules
•
Outsourcing to third parties (SYSC 8.1 and tracing agents)

40. Requirements on full authorisation
•
Many of the new requirements for firms under the FCA regime will not apply until a firm
receives full authorisation. These include:
– approved persons requirements;
– prudential standards and client assets for debt management firms;
– requirements relating to controllers;
– periodic reporting; and
– complaints reporting and publication rules (note that firms will be required to record
complaints from 1 April 2014).
•Firms will be categorised by the FCA once they become fully authorised.
•The distinction between higher-risk and lower-risk activities remains. A key difference is
that firms carrying out lower-risk activities can only apply for a limited permission.

42. Threshold Conditions
•
Firms must demonstrate that they meet the threshold conditions BOTH at the time of
application for FCA authorisation and for as long as the firm is authorised.
•
The FCA will have a risk based approach depending on whether a firm is carrying on
higher-risk or lower-risk activities.
•
The threshold conditions are:
– legal status (only PRA firms);
– location of offices - firm’s “mind and management” should be in the UK;
– effective supervision – a firm must be capable of being effectively supervised by the
FCA;
– appropriate resources – a firm must demonstrate appropriate financial resources,
nature and scale of the business and the skills and experience of those managing
the firms affairs;
– suitability – demonstrate the competence and ability of management and that the
firm’s affairs are conducted with regard to the interests of consumers and the
integrity of the UK financial system; and
– business model –not applicable for lower-risk firms with limited permission.

43. Business Model
•
All higher-risk firms will be required to have a detailed business model.
•
COND 2.7.8G
– the assumptions underlying the firm's business model and justification for it;
– the rationale for the business the firm proposes to do or continues to do, its
competitive advantage, viability and the longer-term profitability of the business;
– the needs of and risks to consumers;
– the expectations of stakeholders, for example, shareholders and regulators;
– the products and services being offered and product strategy;
– the governance and controls of the firm and of any member of its group (if
appropriate);
– the growth strategy and any risks arising from it;
– any diversification strategies; and
– the impact of the external macroeconomic and business environment.

44. Alternatives to authorisation
•
These include:
– being an appointed representative of an authorised firm;
– being a self-employed agent; and
– being an exempt profession firm.

45. Appointed representatives
•
An option for most consumer credit firms apart from lenders (other than lenders
providing interest-free credit without any other charges), credit reference agencies and
P2P lending platforms carrying on new regulated activity of “operating an electronic
system in relation to lending”.
•
Multi-principal arrangements to also be an option for appointed representative debt
collectors.
•
A firm cannot have appointed representatives until it is fully authorised. However, the
FCA plans to call firms that wish to act as principals forward to apply early in the
authorisation period.
•
A principal must have a written agreement in place with its authorised representatives
and, where a an appointed representative acts as an appointed representative for other
principals, the principals must also enter into a written agreement.
•
A firm will always be responsible for the acts and omissions of its appointed
representatives in carrying on business for which the firm has accepted responsibility.
•
SUP 12 sets out requirements which apply to firms using appointed representatives.

46. •
SUP 12.4.2R - before a firm appoints a person as an appointed representative AND on
a continuing basis, it must establish on reasonable grounds that:
– the appointment does not prevent the firm from satisfying and continuing to satisfy
the threshold conditions;
– the person:
(a) is solvent;
(b) is otherwise suitable to act for the firm in that capacity; and
(c) has no close links which would be likely to prevent the effective supervision of
the person by the firm;
– the firm has adequate:
(a) controls over the person’s regulated activities for which the firm has
responsibility; and
(b) resources to monitor and enforce compliance by the person with the relevant
requirements applying to the regulated activities for which the firm is responsible
and with which the person is required to comply under its contract with the firm;
and
– the firm is ready and organised to comply with the other applicable requirements
contained or referred to in this chapter.
•
SUP 12 also sets out other provisions applicable to firms with appointed representatives
including: continuing obligations; training and competence requirements and notification
requirement.

47. Self-employed agents
•
Principal firms will be held fully responsible for the conduct of their agents contracted to
carry on business on their behalf and enforcement action could be taken against the
principal in the case of misconduct by an agent.
•
Principals and agents must meet the FCA’s criteria for an agent to be considered to be
carrying on the business of the principal or agents will need to be authorised or an
authorised representative of the principal.
•
The exemption for mail order agents has been amended to allow for financing of the
credit agreement to be done by a finance arm in the same group as the mail order firm.
•
CONC 14.1.2R sets out the requirements relating to agents.

48. •
The conditions that must be met at the date of the individual’s appointment and while
the individual continues to act as the firm’s agent are that:
– the firm appoints the individual as the firm’s agent;
– the individual works as agent only for the firm and not as agent for any other
principal;
– the firm has a written agreement with the individual which:
(a) sets out effective measures for the firm to control the individual’s activities
when acting on its behalf in the course of business;
(b) require the individual to make clear to customers that the individual is
representing the firm as the individual’s principal and the name of the firm;
– (in the case of collecting debts) receipt of payments by the individual is treated as
receipt by the firm; and
– the firm accepts full responsibility for the conduct of the individual when the
individual is acting on the firm’s behalf in the course of the firm’s business.

49. Consumer Finance Seminar
Approved Persons and Reporting
Jonathan Guest, Partner, Eversheds LLP
October 2013

50. Approved Persons
• Why?
• Who?
• How?
Reporting
•
•
•
•
Financial
Product sales
Complaints
Control

51. Approved Persons
Why?
• Compliance culture can only be established from
the top
• Walking the walk, not just talking the talk
• Personal accountability – the only way to secure
focus
• Personal liability
• “Fining firms is not enough… In order to achieve
credible deterrence, senior managers must be
held to account.”

52. Approved Persons
Who?
1.
2.
3.
4.
Not sole traders
Not limited permission lenders
Can be governing function person other than non executive
Only exceptionally

53. Approved Persons
Who?

54. Approved Persons
How?
• Pre-approval
• Process for consumer credit not yet announced (40,000
people?)
• FCA’s Fit and Proper Test (FIT)
• Statements of principle and Code of Practice (APER)
• Process currently
– apply via firm completing – Long Form A
– submit application to FCA via ‘ONA’
(online notifications and applications)
– statutory duty to decide within 90 days
– interview on request – 60/90 minutes with 4 to 5 FCA
employees
– 85% within 10 days = current self imposed service level

55. Approved Persons
How?
Data to be submitted can include:
• CV
• Role specification
• Organisation chart
• Recruitment process
• Board and Committee minutes
• Interview notes
• Skills cap analysis
• Skills mapping document
• Learning and development plan
• Biographies/team mix

56. Approved Persons
How?
Candidates expected to be able to cover:
• Specific areas for function – compliance, risk and audit
functions and challenge business
• Market knowledge
• Business strategy and model
• Risk management and control
• Financial analysis and controls
• Governance, oversight and controls
• Regulatory framework and requirements

57. Approved Persons
How?
Training will be required

58. Approved Persons regime – all change
in 2015?
• Parliamentary Commission on Banking Standards has
recommended the overhaul of the UK approved persons
regime for banks
• FCA to issue a CP in 1st half of 2014
• New rules to be implemented in 2015
• Scope and extent
– new Senior Persons regime
– new licensing regime
– new code of conduct
• A new criminal offence of reckless management
• CP 13/10 process will continue in the meantime, but it
may be “all change” within a year

59. Reporting
Types of reporting:
•
•
•
•
Financial data
Product sales data
Complaints data
Control data/approval
From later of 1 October 2014 and full authorisation/limited
permission status.

60. Reporting
Financial data – lenders must submit:
• Form CCR001 – financial data
= key financial figures including capital,
assets, liabilities, exposures, income and
profit
• Form CCR002 – volumes
= for each activity, revenue, customer and
transaction volume plus main income drive
• Form CCR003 – lenders
= breakdown of value and amount of loans, arrears
plus interest rates

61. Reporting
Financial data – debt collectors
• Form CCR006 – debt collection
= breakdown of number and value of debts by
stage of placement
Limited permission firms
• Form CCR007 – key data
= credit related income, total revenue, number of
transactions and complaints, main credit related
activity

62. Reporting
Manner =
• Via ‘GABRIEL’ electronic reporting system (Gathering
Better Regulation Information Electronically)
• Formats for submitting
• Within 30 business days of due date
Due Date =
• Lenders – up to £5m annually
– over £5m half yearly
• Debt collectors – the same
• Limited permission - key data – annually
• Year and half year linked to firms financial year

63. Reporting
Product sales data
• High cost short-term credit and home collected credit
only
= Loan amount, term, interest rate and fee,
rollover information, reason for loan (if
known), date of birth and postcode of
borrower, borrower and household income,
borrower status e.g. marital,
residential,
employment, car

64. Reporting
Complaints
• All firms record complaints data from 1 April 2014
• No change during interim permission period
• From full authorisation/limited permission stage:
– reporting – as per previous slides and forms
– publishing
larger firms = if 500 or + complaints in 6 month
period (broken down by category)
smaller firms/interim permission = if 1,000 or +
complaints in 12 month period (no breakdown)

65. Reporting
Control notifications
Full authorisation
• Non –directive firm (i.e. not banks, insurance companies
and MiFID investment firms)
– person decides to acquire 20% or more of shares or
voting power or shares/votes giving significant
influence over management (firm or its parent
undertaking)
– existing controller decides to act so will fall outside
these criteria
• Think laterally e.g. insisting an intermediate holding
company requires approval

66. Reporting
Control notifications
Limited permission
33% trigger rather than 20% on same basis

67. Reporting
Control notifications
• Section 178 notification required to FCA
• FCA 60 days to agree
• If approved – advise FCA once happened

68. Consumer Finance Seminar
Governance, Culture and Enforcement
Greg Brandman, Partner, Eversheds LLP
Adam Berry, Associate, Eversheds LLP
October 2013

69. OFT to FCA – Implications of changing
regulator
• A new approach to supervision
• Principles-based, outcomes-focused regulation
• A lower conduct risk appetite
– more intervention, earlier
– implications for product governance
• A new, more sophisticated regulatory tool kit
• A better-resourced enforcement division
– rules will be enforced by the FCA
– patchy compliance is no longer an option
– individuals, not just the firm, are exposed

70. Governance - FCA focus
• Stated aim:
“to see how effectively a
firm identifies,
manages and reduces
conduct risk.”

71. Governance and Culture
• FCA’s approach informed by lessons learned from
the financial crisis
• Governance is key to prudential risk
• Culture is seen as key to governance and conduct
risk
• Paragraph 4.27 of CP 13/10
For consumer credit firms “...the assessment of governance and
culture will be crucial, as these are key factors that drive
whether a firm treats its customer fairly.”

72. Good governance: The FCA’s vision of
an effective board
• Asks the “what if” questions
– understands the business model
– understands and focuses on material risks
– effectively challenges executive on execution of
the strategic plan
– quality MI essential for this
• Sets the right tone re culture and ethics
– communicates this to the business
– incentivises the right behaviours
– deals effectively with transgressors

73. Governance: Role of the NEDs
• “An important and unique role to influence firm
behaviour”
• A key role in providing challenge to the executive
– being willing to ask the difficult questions (and
demand satisfactory answers)
• NEDs have a “pivotal” role in delivering fair
treatment for customers of retail firms

74. FCA’s expectations of NEDs at retail
firms
• Risk identification is about identifying risks to the
firm and its shareholders and also to customers:
– does the firm have a customer strategy?
– is the business model geared towards delivering
good outcomes for customers?
– who are your customers /their needs; are the
products you are selling to them appropriate?
– sales incentives driving the right behaviours?
– is potential impact on customers duly considered
when making strategic decisions?

75. FCA focus on Culture
• A firm’s culture shapes judgements, ethics and
behaviours displayed at key moments
• A firm’s cultural characteristics are a key driver of
potentially poor behaviour
• Clive Adamson, FCA Director of Supervision
“ In many cases where things have gone wrong,
whether it is mis-selling of PPI or in attempting
to manipulate LIBOR, a cultural issue is at the
heart of the problem”

76. FCA messaging on culture
• Culture can only be established /changed by the
CEO and senior management
• Key cultural levers
– supporting the right behaviours
– embedding them in business practices through
performance management, training and reward
programmes

77. How will the FCA assess culture ?
• Conclusions to be drawn from empirical observation
• Key cultural indicators include:
– customer sales experience
– how customer complaints are dealt with
– how the firm deals with regulatory issues
– the firm’s product governance process
– remuneration structures, sales incentives and
performance management in practice

78. FCA approach to supervision
• Roll-out of supervision for CC firms “will be aligned with the
FCA supervision model” (CP13/10)
• New categories of firms:
– C1 to C4 (size and impact)
– For C1 firms, the FCA will carry out firm-by-firm business
model and strategy analysis
– Event-driven approach to firms with interim permission
– Thematic supervision of specific issues
• Firm Systematic Framework replaces ARROW
– To allow FCA to assess firms’ conduct risks and asks:
– “Are the interests of customers and market integrity at the
heart of how the firm is run ?”

79. Firm Systematic Framework
“The FSF assessment process will help us come to a
view about the extent to which a firm embeds fair
treatment of customers and market integrity in the
way it is run. This, at the most intensive end of
assessment, covers the product/service lifespan
from design through to sales/service delivery and
after sales/service handling. The assessment of
governance and culture will be crucial, as
these are key factors that drive whether a
firm treats its customer fairly.” (CP13/10, para
4.27)

80. Supervisory focus on the business
model
• Supervisors to understand where the money is
made
• Does the BM achieve a fair deal for consumers?
• New BM threshold condition?
• Firms will be expected to base their business
models, their culture and how they run their
business on a foundation of TCF
• Presumption that supervisors will intervene if they
believe that a firm’s judgment is at variance with
the regulator’s objectives

81. Behavioural economics – implications
for consumer credit lending ?
• Product design, marketing and sales processes can accentuate
the effects of human biases
• Caveat emptor principle difficult to justify in relation to
complex financial products with a long time horizon and
significant information asymmetries between buyer and seller
• “Huge scope to use BE to understand consumer decisions and
to improve regulation”
• This area will be a “hugely important feature of the new
regulatory system” Martin Wheatley, CEO FCA 2013
• “Firms who want their customers to make the right decisions”
will cooperate

82. OFT to FCA: implications for
enforcement
• FCA will apply the same general enforcement approach to
consumer credit activities as to other regulated activities – no
need to amend Handbook
• FCA penalties policy will apply to disciplinary action in respect
of retained elements of the CCA
• FCA will enforce MLRs from 1 April 2014
– other AML implications
• All CC firms must establish and maintain appropriate financial
crime systems and controls
• Getting to grips with the FCA’s Financial Crime Guide

83. The sharp end of enforcement
• Transition has serious implications for firms and individuals
– FCA’s penalty regime
– Approved persons also within disciplinary jurisdiction of the
FCA
• The FCA’s focus is increasingly on senior management
accountability
• “Fining firms is not enough ... In order to achieve credible
deterrence, senior managers must be held to account” Tracey
McDermott (June 2013)
• FCA will consider investigating SIFs when investigating every
serious systemic failure
• More actions now against individuals than firms

84. Consumer Finance Seminar
Compliance
Graham Richardson, Practice Group Head, Eversheds LLP
Lee O’Connell, Head of Legal and Compliance Consulting, Eversheds LLP
October 2013

85. FCA Compliance Implementation
The following questions need to be answered when considering FCA
Compliance:
Questions:
Are the interests of the customers and market integrity at the heart of
the how your firm
is run?
Are you able to demonstrate through evidence that your services are
compliant, well run, fit and proper and has a suitable sustainable
business model (higher-risk firms)?
Can you demonstrate through evidence the robustness of your
compliance arrangements in protecting your customers, your
stakeholders, your staff and satisfying the regulator?

86. Categorisation and supervision in
practice
Categorisation in practice:
C1 and C2 firms
– “fixed portfolio” – dedicated supervisor
C3 and C4 firms
– “flexible portfolio” – no dedicated supervisor, supervised by a team sector
specialists
Supervisory Framework – the impact:
C1
C2
C3
C4
– firm by firm business model and strategy analysis
- group of similar firms identifying common risks
– sample of firms business model across sector
– less intensive assessment

87. Focus areas to be addressed - 1
• Business model, strategy and culture
- risk-based business model, compliance risk early warning system, ethical
compliance training, suitable management and appropriately trained resources
• Product design and governance (CONC 3/4)
- lessons learnt from similar products, someone as the “voice of the customer”,
“root-cause” analysis, customer experience, TCF, unfair terms and meeting
needs
• Sales (CONC 5)
- affordability assessments, responsible lending, CPA’s, incentives
and remuneration structures, fit for purpose sales oversight
• Fair treatment of customers and market integrity (CONC 4/5)
- suitability, no “hard sell” - monitoring outcomes, clear, fair and not
misleading information, transparency

88. Focus areas to be addressed - 2
• Post sales process (CONC 4/6/7)
- Embedded TCF, call monitoring, feedback, arrears strategy,
supervision, monitoring, retraining, quality auditing and control, noncompliant procedures
• Complaints
- handling, root cause analysis, feedback loops, retraining and
regulatory reporting
• Risk frameworks
- three lines of defence model
• Policies, procedures, reporting & record keeping
- documented, accessible, trained and data management

89. Focus areas to be addressed - 3
• FCA Relationship
- regular interaction, compliance reporting, dealing with requests and
reporting issues
• BCP
- business survival plan including customer impact and control process

90. Compliance Reporting Regimes
Summary
Effective: 1 October 2014
Application: fully authorised firms only
Frequency: depending on size of firm, annual or 6 monthly (aligned to firms
year end)
Process: e-reporting system “GABRIEL”
Timing: 30 business days
Two key components:
•
Regulatory reporting; and
•
Product sales data reporting (PSD) – to include lenders of
high cost short term credit and home collected credit
Already authorised will not to need to resend data already submitted
eg Financial Information

91. Three Lines of Defence
Governing Body / Board / Audit Committee
Senior Management
3rd Line of Defence
Risk Management
Compliance
Management
Controls
Internal
Control
Measures
Regulator
2nd Line of Defence
External audit
1st Line of Defence
Quality
Internal Audit
Security
Inspection
Financial Control
Adapted: ECIIA/FERMA Guidance on the 8th EU Company Law Directive, article 41

92. Seven Elements of Compliance
The seven elements considered fundamental to an effective compliance
programme are:
1.
2.
3.
4.
5.
6.
7.
Written polices and procedures
Defined responsibility and oversight
Effective training and awareness
Effective lines of communication
Internal monitoring and auditing
Reporting and responding
Promotion and enforcement
Adapted:
US Federal Sentencing Guidelines for Organisations'
OECD Good Practice Guidance for Internal Controls, Ethics and
Compliance

93. Consumer Finance Seminar
A few recent developments - OFT, FOS, the
courts and CMCs
Chris Busby, Partner, Eversheds LLP
October 2013

94. Overview
• OFT news
– power to suspend credit licence used
– requirements in relation to charging orders
• Financial Ombudsman Service
– claims trends
– publication of decisions
• The courts
– the Binns case
– section 75 claims
• Claims farmers
– new regulatory powers

95. OFT uses suspension powers for the first
time
• New power granted under Financial Services Act 2012
• Guidance issued in February 2013
• OFT can now suspend consumer credit licences with
immediate effect
• 3 requirements to be met:
– urgent need to protect customers
– potential for harm
– it must be necessary to suspend
• Power exercised for the first time on 17 June
2013 against Donegal Finance Limited

96. Charging order requirements imposed
NatWest and RBS affected
• Requirements issued to address concerns about how some
customer debts are enforced via charging orders
• Concerns stemmed from:
– failure to consider customers’ financial circumstances; and
– proportionality of the approach
• Requirements imposed which required the
banks to act in a fairer manner
• Potential financial sanctions if not followed

97. FOS news
• Latest statistics (April – June 2013)
– Top 5 products – PPI, current accounts, mortgages,
credit cards, car insurance
– 70% in favour of consumer
– 2,000 PPI complaints per day, second wave trend
• Trends – packaged accounts, insurance add-ons
• Publication of decisions commenced
– all ombudsman decisions post 1 April 2013
– useful search engine
– any negative repercussions?

98. The courts – July 2013 decision
Binns v Firstplus Financial Group plc
•
•
•
•
•
Binns complained re. mis-selling of PPI
Firstplus offered full compensation, but not legal costs
Claimant issued proceedings to recover legal costs
Firstplus argued abuse of process
On appeal, High Court agreed with Firstplus – it was
not reasonable to bring a claim which has already
received full redress via ADR
• ‘Full redress’ relates to matters intrinsic to the
case, not costs adjunctive to it
• Very useful decision where proceedings are a
vehicle for building and recovering costs

99. The courts – section 75 CCA
Lessons from PIP implant claims so far
• A few claimant firms bringing most claims
• Typically pre-April CFA and sometimes ATE insurance
• GLO for clinics established – should s75 defendants be
joined?
• Consider tactics in such claims
– s75 issues
– liability for underlying claim
– legal costs
– co-ordination between Defendants
• Co-ordination between legal and complaint
handling teams
• Likely future post Jackson reforms?

100. Claims management companies
Recent news
• Conduct of Authorised Persons Rules – changes effective
from 8 July 2013
– no reference to MoJ
– standard terms must be on website
– written signature on terms required before taking
payment
– must inform customers of variation or suspension
of authorisation
• Trends
– 180 more CMCs operate in financial
products claims this year – total 1155
– 94% of consumer complaints to MoJ in this area
– Consumers increasingly bring own claims

101. Complaints round table discussion
Friday 6 December 2013 (10am – 12 noon)
• Join Eversheds, Kevin Rousell, the MoJ’s Head of Claims
Management Regulation and Caroline Wayman, Legal
Director & Principal Ombudsman at FOS
• Topics will include:
– developments around the MoJ’s regulation of CMCs
– recent trends in FOS claims
– review of impact of publication of FOS decisions
– new claims areas and likely developments
• Opportunity to put questions in advance
• Contact Chris Busby or Rebecca Nicholas