Martin Hill offers some valuable tips for complying with FCA regulation
With the advent of FCA regulation of consumer credit activity on 1 April, many motor dealers entered a formal regulatory regime for the very first time.
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Of course, any dealer that embraced general insurance regulation back in January 2005 would have been used to the demands of being a regulated firm, but this will be new territory for those dealers that decided to opt out of insurance all those years ago.
When the final rules for the new regime were published, most motor dealers understandably turned straight to the conduct of business rules (CONC) to see what demands have been placed on them with regard to showroom/sales activity. This approach would seem common sense. However, there are many other rule books and regulatory requirements to be taken into consideration.
Although it would be impossible to cover all FCA requirements in one article I would like to provide some idea of what the bigger picture looks like.
First, there are numerous FCA sourcebooks that deal with the other aspects of regulation. These include sourcebooks for management systems and controls (SYSC), training and competence (T&C), complaints handling (DISP), as well as rules and guidance on the FCA’s Principles (PRIN). There are numerous others.
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By GlobalDataAny business wishing to conduct regulated activity, whether consumer credit or not, will need to be fully aware of their responsibilities across all of these sourcebooks. One of the assumptions that many dealers have made is that the FCA will only be looking at showroom and sales practices – this is not the case. Motor dealers that are currently submitting their application for authorisation to the FCA (as well as those that have been successful in obtaining authorisation) will need to demonstrate (and evidence if required) that they are a suitable business for the regulated regime.
Being able to evidence this is not just a question of adopting a ‘tick box’ mentality within your business. The FCA will want to see that the customer is placed at the centre of your business, and is obviously experiencing positive outcomes from dealing with you. The FCA’s principles-based approach means that no dealer can simply rely on the rules themselves – they need to demonstrate that this ethical treatment is embedded across their business.
Treating customers fairly
I recently met with a client that informed me that as only 40% of his finance business was going to fall into the ‘regulated’ category. Surely that meant that he could do what we wanted with the 60% of his clients that were ‘unregulated’? (most of them were limited companies, that fall outside scope).
My response was that although he would be free to adopt such an approach, in my opinion it would be difficult to convince the FCA that treating customers fairly was central to his business’s culture – how could it be if he only wanted to treat his customers fairly if the rules told him he had to?
Apart from which, the dealer would then have to demonstrate that it could work with two different sets of systems and controls, which would be extremely difficult to do.
This is the more ‘touchy feely’ side of regulation that many dealers will not be focussing on. The lack of a prescribed ‘road map’ as to what a dealer needs to do makes many motor dealers feel uncomfortable, but the reality is that regulation will touch almost every aspect of a dealer’s business – from how the business is structured and set up, to how new incentives for its sales people are designed.
Consider advertising, or ‘financial promotions’ as the FCA rules call it. Many motor dealers advertise finance examples on their website or in print. One of the easiest ways for a dealer not to comply visibly with the new regime is by providing misleading or unclear information in the finance advertising. Remember that in April 2014 there were several motor dealers that were contacted by the Office of Fair Trading (now part of the FCA’s resource for enforcement of the rules) as the dealers had breached the advertising rules.
Breaching rules in areas such as advertising could be the catalyst for receiving a more ‘in-depth’ visit from the FCA, and I would suggest that this should be avoided if at all possible.
Here’s a few tips on complying with the new regime:
- Don’t just look at the FCA rule books – also examine the FCA Principles and consider how you can actively demonstrate that treating customers fairly is embedded within your business;
- If you informed the FCA on your application that you have got certain systems and controls in place, make sure that you have. I know of several businesses that have been caught out by the FCA, where the regulator has asked to see documented systems and processes when the dealer hasn’t actually got them;
- Once you are authorised by the FCA, don’t be afraid to communicate with the regulator if you need to. If you discover non-compliant activity within your business, then inform the FCA. Inform them of what has happened, how extensive the issue was and how many customers were affected, and what steps you have taken to make sure that it doesn’t happen again. This ‘risk-based’ approach shows that your systems and controls are effective – you have found a problem and that you have rectified matters. This will always be a positive sign for the FCA, and demonstrates a true customer-centric approach.
Martin Hill is joint managing director at Frontline Solutions
