Mike Geddes, AFS (UK) Ltd Group Compliance Director, talks about impending new compliance regulations that could affect the commercial finance sector
As the Group Compliance Director I have a responsibility to our clients, our network members, our panel of funders and of course to the business, to ensure that everyone is operating in a fair and responsible manner that meets the expectations of all the regulatory bodies. Recently I keep hearing that it is ‘just a matter of time’ before the Regulator focusses its attention to intermediaries and the commercial finance sector. In fact, it is my belief after speaking to many people across the industry, that it’s not a question of ‘if’ … but ‘when’ the regulator turns it attention on us.
Looking back I think that it is fair to say that for the past 5-years the FCA has been focused on areas that present the main risks to consumers. The commercial finance sector on the whole does not fall into this category. Yet, at the same time, there can be no doubt that the FCA recognises that it has a responsibility to ensure that all the firms it regulates are adhering to the relevant compliance rules.
Lately I have become aware we are seeing the first indications that the Regulator now acknowledges the commercial finance sector – and that includes brokers and intermediaries – require oversight and scrutiny. For instance, recent changes mean that the Financial Ombudsman services are now empowered to rule on complaints from limited companies. This suggests that the FCA accepts companies not covered by the Consumer Credit Act require protection – or at least have access to an independent party to appeal to should they feel that they have not been treated fairly.
The other significant change I have seen is the motor finance review. This has looked into the practices of brokers and intermediaries and while it has focused on the activities of motor dealers, it has also highlighted a number of concerns that the Regulator has in respect of the oversight funders exert over the intermediaries who sell their products.
These two events have prompted me to question how the FCA will now address the commercial finance sector, which as we know, covers a considerable amount of funding – much of which is currently not subject to compliance regulations.
In my view this recent motor finance review indicates how the Regulator intends to manage our own sector. Much of the focus centres around the responsibility of the funder to control how their products are being sold. In fact the word ‘oversight’ comes up a number of times, which to me indicates that the FCA will now concentrate more closely on the funders and will require them to ensure that their various distribution channels adhere to all the relevant regulations and rules.
Looking ahead, it is my belief that commercial finance brokers and intermediaries should now expect to see funders requiring a great deal more information about the way their products are being sold to customers. I fully expect that funders will, in future, be looking closer at the customers’ journey before they actually receive the proposal.
In addition, I expect funders in future will want to see the intermediaries disclose information, quotations and provide justification of why they recommended the product and funder. In fact I would not be at all surprised to see funders requiring intermediary audits to prove adherence to compliance regulations
Which … brings us back to the question I posed in my headline: Is it just a matter of time?
On this occasion though I am not simply referring to when this will happen because I truly believe that the time is imminent. I am talking about how much time will an intermediary have to dedicate to proving to funders that they are meeting all the compliance regulations. Additionally, how much will that cost?
Speaking of time … maybe now would be a good time to talk to us to discover how AFS Compliance has already prepared for this and can help protect you, your business … and your time.