With the Financial Conduct Authority authorisation process completed by a growing number of companies, Jonathan Minter surveyed key industry personnel on their experiences of applying
The FCA has noted that since the regulation of consumer credit was transferred to it, 49,000 firms have registered for interim permissions, allowing them to continue to do business without interruption.
Since 1 April 2014, it has received more than 39,000 applications for authorisation from firms with interim permission, as well as new entrants to the market. It claims to have closed over 95% of these.
The largest category of application has been for limited permissions, which has a lower average processing time than full permission.
Even taking this into account, processing so many applications in this period is an impressive feat.
For the companies that have applied for FCA consumer credit authorisation, large amounts of effort, time and money have been spent ensuring compliance. In many cases, receiving authorisation is the difference between being able to continue to operate or not.
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This is the case for motor finance lenders. In general, they will have applied for full permission to lend, and will therefore involve longer processing times.
However with so many companies applying for authorisation – either full or limited – there are questions as to whether the FCA has been consistent, or whether the quality of service provided has been of a high enough quality, bearing in mind the potentially disastrous consequences a company might face if its application does not go well.
With the majority of the industry now having gone through the authorisation process, Motor Finance decided to conduct a survey of motor finance lenders to assess their experiences.
Firms were asked to score various aspects of their application out of ten (see box on p.19), as well as to give some general feedback
14 lenders responded, made up of both independents and captives. As most firms are aware of the idiom ‘don’t bite the hand that feeds you’, and may have been reluctant to be too openly critical of their regulator, the survey has been kept totally anonymous.
Despite this, there were some very interesting results.
The responses received were extremely varied, with some lenders reporting a highly satisfied experience which exceeded their expectations of the application process, while others reported disappointment and frustration at the length of time the process took.
Despite the variation in responses, there were a number of themes which could be drawn from the results:
- In general, independent lenders were less satisfied with the application process than their captive counterparts.
- Their application process also took longer – on average 0.4 months longer than the average captive application.
- Although we have not published the results of the individual firms, in the independent space there was not a strong correlation between target market (prime, subprime and so on) and the way they scored the process.
- There was a massive variation in how long it took to complete the authorisation process. In some cases this took just a couple of months. In others it took well over a year.
- In every case, the question ‘How helpful was the FCA during the process?’ was answered with the same score or higher than the overall score. For the vast majority of cases it was also rated the same as or higher than the question ‘How would you rate the efficiency of the process?’
A key takeaway is that different lenders had wildly different experiences. Although the averages point to captives generally rating the process higher, this was not true throughout. Some captives rated the process extremely highly, others a lot lower, and the same was true in the independent space.
Included in the survey was the chance for lenders to share their thoughts on the process. Some of the common responses were:
- Several firms reported having to provide the same information repeatedly. This included providing certain information in the initial application, and then being asked to provide it again later on.
- Related to this was an inconsistency with case workers. A number of lenders reported being moved between case workers during their application. Often this required revisiting subject areas already covered, and cost companies time and effort going over the same ground.
- Another clear problem was trouble defining what the FCA considered good practise. As the FCA is a principles-based regulator, there is not always necessarily a correct answer to the regulation, but a number of firms expressed an opinion that the FCA could be clearer in defining what ‘good’ actually meant.
- It would be incorrect to say all companies complained about the process. A number of companies reported a relatively smooth process.
Companies were asked how the authorisation process compared to their expectations.
Of those that responded, half said it met their expectations, and half said it did not. However, this statistic comes with a number of caveats:
- Some of those who said the experience matched up to expectations noted their expectations were already low.
- The level of disappointment was sometimes related to parts of the process, as opposed to the entire process.
- One respondent who said the process matched or exceeded their expectation noted the quality of their case handler.
Although too late for the tens of thousands of firms who have already been through the authorisation process, in July the FCA did commit to improving the application process.
These commitments were made based on feedback the regulator had received on the process from some firms and industry bodies.
This feedback included the idea that it would be improved by more contact with a case officer in the early stages of application and by receiving more updates.
The five commitments are listed in the box below.
Notably, however, these commitments stop short of promising that case handlers will not change; however this is perhaps understandable, as there will be occasions where it becomes necessary to reallocate a case to a different case officer.
This could be for a number of reasons, such as if, during the course of an assessment, it becomes apparent that the specific details of an application would be better dealt with by someone with expertise in a particular sector or business model, or if a case officer leaves or transfers within the FCA.
One area these commitments don’t touch on is around the varying times it takes for firms to go through the process.
Speaking about the process at October’s LendIt Conference in London, Christopher Woolard, director of strategy and competition at the FCA, acknowledged that the authorisation process was a demanding and sometimes lengthy process.
However he defended the process, saying: “Although it may not feel like it at the time, the gateway can also be good for the firm. Where we challenge your business models, where we pose questions about the risks to consumers and where we ask for further information, what we’re doing as a regulator is to try to help you get on a stronger footing, and hopefully make you better prepared for regulation in the future. “
He added: “It’s also a very serious process. We work with firms to make sure authorisations can be as smooth as possible. We try and help where we can. But it’s important that firms respond to our requests fully and promptly.
Ultimately we have to make decisions to a statutory timetable, and if a firm is unable to prove it can meet our threshold conditions in a timely way, then the outcome may be that we have to refuse that firm.
While it’s unlikely that the five commitments will solve all the problems companies had with the FCA authorisation process, at least they acknowledge the system could improve.
Given the sheer quantity of firms that needed to become authorised in a relatively short period of time – during which the FCA was also getting to grips with consumer credit in general – it’s perhaps not surprising the situation varied from firm to firm.
It’s likely this authorisation period has acted as a learning period for both sides: the regulator and the industry.
The hope is that companies will have made themselves compliant as part of this process, and will treat customers better as a result, and that the FCA will have learned in detail about consumer credit, and the players involved.
Whether this is the case or not, only time will tell.