Following on from Breathing Space, SDRPs are the second element of the government’s debt respite scheme, a new debt repayment vehicle consolidating all eligible debt into a single plan

Whilst there are significant implications for all included creditors – not least the overlap of timelines with Consumer Duty – perhaps the most fundamental impacts are for mortgage lenders and their borrowers. The proposals have fundamental implications for the management of secured priority debt, and arguably overlook distinctions between this and other debt types, including mortgage arrears. Unless the debtor chooses to exclude a debt as a “discretionary non-eligible debt”, this will in many cases have significant implications for lender provision of the value-driven outcome-orientated support mandated by Consumer Duty and emphasised in the June Dear CEO letter.

The potential for individuals to yo-yo between an SDRP and lender support – e.g. after a lender has already put a plan in place, or in the event of a failed SDRP, will impact on lender’s ability to offer the expected and good practice support.

A further cause for concern is Joint SDRPs with low entry criteria requiring just one shared (and not necessarily SDRP eligible debt), as are implications in the case of the more complex lending scenarios such as joint borrower sole proprietor.

There are numerous areas of uncertainty and a lack of clarity right now too. The treatment of mortgage arrears interest has been central to much recent discussion with the ambiguity between CP 3.2 which indicates an SDRP will halt interest on included debts, and 5.19 which categorises interest payable on outstanding mortgage principal as an ongoing liability. The treatment of interest on mortgage arrears included in the SDRP and also forming part of the principal is unclear and has wider implications than problem debt

Other areas of concern include affordability assessment of ongoing liabilities, how will this be stress tested to accommodate interest rate rises and wider inflationary pressures? How these will apply at implementation is unknown but it would be shortsighted to ignore this issue

How will debtors utilising Support For Mortgage Interest be assessed for the affordability of ongoing liabilities?

The practicalities of an SDRP and lender support plan running in parallel where a creditor has opted to exclude mortgage arrears from the SDRP.

The examples above are a small, high-level subset that helps to illustrate the significance of these proposals for mortgage lenders.

I encourage all impacted organisations, and in particular mortgage lenders to ensure they have considered the wide-ranging implications for themselves, and their borrowers.

Tessa Jenkins

[Tessa is a highly experienced, expert consultant who is available to consult and act as a Critical Friend on a wide variety of issues including Vulnerable Customers and Consumer Duty. Building from agreed policy frameworks Tessa supports organisations to achieve “applied compliance” developing action-driven and outcome-orientated processes, decision-making frameworks, and communication strategies needed to support their business. If you’re interested in working with Tessa and find out how she can help your organisation, contact Selena Tye on 0121 643 2100 or e-mail selena@kindconsultancy.com]

The fast-rising cost of living is the kind of broad economic shift that affects everyone within the Financial Services ecosystem. One of the most immediate effects is consumers who have quickly found themselves with substantially increased regular expenses which leaves them struggling to make repayments. The FCA has made it clear in a letter sent to more than 3,500 lenders last week that they expect firms to do everything they can to help their customers who have found themselves in difficult circumstances.

The FCA’s recent work on Borrowers in Financial Difficulty showed that even before the landscape shift, we’re seeing right now, this was an area of concern. Whilst they found examples of firms delivering good outcomes and taking all necessary measures to encourage customer engagement from vulnerable customers, they also found some firms were not offering the right communication methods, not taking the time to understand customers’ circumstances, not appropriately tailoring forbearance to those circumstances, and a litany of other failings which together paint a portrait of many businesses just not quite doing enough to help their customers who need it most.

It’s an unfortunate reality that current circumstances are creating two key concerns from a customer vulnerability perspective – first, there’s the creation of newly vulnerable customers, and second, those people who were already vulnerable will face some of the most difficult changes and become more vulnerable. Combined, I think we’re going to see a sharp increase in the demands being placed on business’s Collections and Complaints staff.

Those staff will need to be mindful of the extensive FCA rules and expectations relating to Treating Customers Fairly – MCOB 13, CONC 6,7 and 5D all make clear requirements and expectations on “firms dealing with borrowers in financial difficulty”. This is all happening in the run-up to the new Consumer Duty, with a final announcement detailing the new rules expected next month, and the implementation deadline set for April 2023. That set of new expectations will mean there is an absolute need to be right-first-time and the increased responsibility of firms to ensure the best possible outcomes means that tackling the rise in demands on their Collections and Complaints departments is not going to be straightforward.

Businesses need to make sure that they are using a wide range of communication channels so that it’s as easy as possible for customers to access support. They need to make sure that repayment plans and forbearance agreements are appropriate to the specific customer’s vulnerability, and that customers are given a range of options. They need to have a team that is big enough to handle the number of customers – but having the right number of people isn’t enough. Businesses need to ensure they have properly trained, highly skilled staff talking to these customers, asking the right questions in an empathic manner and ensuring the customer feels heard and understood.

I’ve heard some stories of businesses with no capacity for new hires drafting in staff from other business areas to handle the rise in demand. If those staff don’t have the appropriate understanding of vulnerability and Consumer Duty, it could lead to potential harm to the customer who fails to receive the proper support, there’s a risk of that leading to regulatory investigation and there’s also the question of how that affects staff – if someone who never wanted to work in Collections is suddenly forced into that role, they may look for other work elsewhere.

As specialist Financial Services recruiters with substantial experience in the Collections and Complaints space, Kind Consultancy may be able to help your firm. We work with a number of experts who can train existing staff, or we can provide skilled teams of Collections Agents or Complaints Handlers who can assist on an interim basis while you carry out permanent recruitment. In some cases, we have even provided firms with full teams who they have taken on permanently. Whatever your situation, we always make sure we only provide clients with contractors and candidates who we are confident have the skills and knowledge to keep you on top of regulatory changes and ahead of the competition.

For a confidential discussion, contact me on 0121 643 2100 or selena@kindconsultancy.com

The FCA have published their 2022/23 Business Plan, setting out the regulator’s areas of focus for the next 12 months. So what should the Financial Services industry be working on to stay ahead of the agenda? I’ve identified a few key subjects in the Plan that I think many firms will benefit from tackling head-on as soon as they can.

Complaint Timescales

We’ve talked about this one a lot recently, and now it’s here – a change in the expectations and measurements around complaint timeframes. The FCA will now be assessing how timely an organisation’s complaints responses are by looking at “the proportion of complaints closed within three days, between three days and eight weeks, and after eight weeks.”. How recently have you reviewed your complaints processes? Would it be helpful to reassess your complaints resource needs? Are there particular types of complaints that are responsible for taking your average closure time up? Is it worth considering specialist handlers with training in that area?

Fair Value

The FCA is looking for a reduction in the number of consumers who are offered “a financial product or service they wanted, but at a price or with terms and conditions that [the consumer] felt were completely unreasonable”. This is a tricky issue on a number of levels – the biggest perhaps being that “completely unreasonable” is going to vary from person to person. For one person a product’s benefits will justify it’s cost even if that cost is higher than they expected, for another the cost will be an impossible barrier to entry. This of course ties into Consumer Duty (don’t worry, more on that shortly) and the discussions that we in the industry have been having [link here to the last CD blog] about knowing and understanding customers. It may well be that you’re already working with your customer base ahead of Consumer Duty to develop a strong understanding of what your specific target market considers fair value – it’s going to be important to make sure your products are priced and designed in line with that data. Does your organisation need to adjust prices? Do you need to develop new products to offer fair value to a greater number of people? How could your terms be adjusted to feel fairer to customers?

Good Customer Support

The FCA wants to see a reduction in complaints relating to “administration or customer services, account access, delays & terminations, account closure [and] cancellation of policies”. There are more clear links to Consumer Duty here and the idea of improved customer care, and this one will also require multiple approaches and considerations. For example, there may be a technological aspect to improving your customer’s account access options and reducing delays and terminations, where improving the service they receive and avoiding administration errors may well need a more human, personal approach. For some businesses that will mean upskilling existing frontline staff, including training on the approach to Vulnerable Customers. This focus area really shows how much we’re all going to need to think about Consumer Duty as a start-to-finish concept that can’t be box ticked with behind-the-scenes Compliance changes – we need to now start thinking about protecting customers right from their first interactions with customer contact staff.

Appointed Representatives

There’s been some discussion in the lead up to Consumer Duty about firms being held more responsible for the actions of third parties working on their behalf. This fits in with another identified area of activity set out for this year – improved oversight of Appointed Representatives. There is a concern that Appointed Representatives are undermining market integrity and consumer trust through misleading and mis-selling, and we’re going to see a shift to the Principal firms being held more directly accountable. The FCA approach here looks detailed and wide-ranging, requiring more details of Appointed Representatives to be made available to the regulator and potentially to be published on the FCA register.

Services to Meet Needs

The regulator also is asking for a reduction in complaints upheld by the Financial Ombudsman Service about “unsuitable advice and mis-sold products and services”. I think it’s reasonable to say that the vast majority of Financial Services businesses are operated in good faith and are always trying to only sell customer’s the products they need. So how can we avoid a situation where customers are getting an unsuitable product? I think firms need to develop an understanding of why and how these complaints are coming about because again, what is unsuitable will vary from customer to customer but there may be some commonalities across your own particular customer base. Is it arising from human error? Are your own staff misunderstanding the products and recommending the wrong thing? Or is there extra information you could provide to customers that would more reliably steer them to make the right choice for themselves? Remember, under Consumer Duty (yes it’s going to keep coming up) we’re going to see a big increase in the degree to which a firm is seen as liable for their customers’ choices, so it’s going to be very important to seriously consider this and deliver solid improvements.

Consumer Duty

The big headline continues to be our good friend Consumer Duty. So many of the business plan focus areas fall within or overlap with Consumer Duty, and the regulator is very serious about making this a core part of Financial Services in the UK. One of their key activities for this year set out in the plan is a commitment to embedding Consumer Duty “at each stage of the regulatory lifecycle, from authorisation to supervision and enforcement”. Integrating Consumer Duty at the authorisation stage is a topic I haven’t seen much discussion about so far and is definitely one for any businesses in the early stages of authorisation to sit up and take notice of. Anyone thinking Consumer Duty is something they can worry about later needs to instead, tackle it head-on as soon as possible. Any newly created business should work to thread the principles of Consumer Duty throughout their policies, processes and products at the point of creation – the need to be “right first time” could prove to be a very difficult bar to clear for those very new businesses, especially any with innovative new propositions with few clear precedents or points of comparison.

As we expected, the plan reaffirms the commitment to publishing final Consumer Duty rules in July, which may feel like a ticking timer but it will also bring greater clarity about what needs to be done before the implementation deadline. Further positives can be found in the FCA’s pledge to “help identify and work through examples of good and poor practice” during the introduction of Consumer Duty, drawing learning from firms, trade bodies, consumer organisations and wider stakeholders. I know some organisations see Consumer Duty as a long road ahead of them, with a lot of changes needing to be made on a tight timeframe, but it is a road that is increasingly well illuminated. For organisations who think they’re already compliant, those increasing levels of detail and clarity may be crucial in seeing where there are gaps between the pre-existing commitment to good customer outcomes and what is specifically required under Consumer Duty.

On a related knowledge-gathering note, the Business Plan also contains a mention of gathering “insights on consumers’ needs and experiences through our consumer research and partnerships work, for example on the impact of the cost-of-living crisis on consumers” and utilising those insights to inform priorities and actions. That gives us some indication of where the FCA may be focussing later in the year and into next year, with a continued commitment to consumers and acknowledgement that there will be external factors that have a knock-on effect on exactly how Consumer Duty applies.

There’s a lot to consider here – I’ve just picked out the highlights that stood out to me and that I feel will be most relevant to the greatest number of businesses. I would recommend giving the full plan a read and seeing what is likely to have the most direct impact on you and your work. One thing is abundantly clear for all of us across Financial Services – this is going to be the Year of Consumer Duty.

As ever – if Kind Consultancy can support you in your regulatory work, at any stage and level of seniority, get in touch with me on selena@kindconsultancy.com or 0121 643 2100. We can connect your business to specialised Consumer Duty Consultants, and will be running a webinar around Consumer Duty soon with a panel of industry experts. We can also assist with the provision of interim resource whilst assessing your permanent requirements. Whatever your needs in this area, we’re ready to work with you to deliver a bespoke solution.

Consumer Duty is almost here, and more firms are realising that they can’t put off thinking about it until the final rules are announced. We have just over 12 months to go, and most businesses still have a lot of ground to cover to get Consumer Duty Ready.

Where Are We Now?

The landscape of customer care varies significantly across Financial Services. Sectors have already undergone regulatory changes around customer value, for example, we have seen the insurance industry address ‘Fair Treatment of long-standing customers and more recently Pricing Practices, therefore some may find that a lot of the work they have previously completed has already set them on the right path. The recent regulatory focus on Vulnerable Customers has also led to a number of organisations making changes that can pave the way for Consumer Duty work. For others though, there is going to need to be a ground-up re-think of how positive customers outcomes are delivered, assessed, and recorded.

Looking at the recent history of regulatory developments, we can see Consumer Duty as the continuation of FCA’s journey which has included Treating Customers Fairly, Conduct Risk and the Senior Managers and Certification Regime – a gradual shift toward encouraging and enforcing accountability for customer outcomes. We could see the implementation of Principle 12, as an elevation of the standards set out in principles 6 and 7. What we do know is that Consumer Duty represents a setting down and codifying of what were previously unwritten expectations – we’re talking about a level of responsibility to customers that has been expected but was not necessarily explicitly detailed in any of the rulebooks.

The FCA has been clear about wanting to establish a consistent standard for customer experiences and outcomes. They are making it clear what every relevant business needs to deliver, and how that will be supervised. This represents a new era where organisations need to be getting it right first time with remediation only after a problem occurs not being good enough. I think even firms that are confident that they are providing good quality to their customer base will need to re-assess how they track and codify their outcomes. If the regulator takes a comparative approach, I think we may see a situation where a customer experience that has previously seemed to be a good one turns out not to be as good as a better-prepared competitor.

How Can We Best Prepare? 

It’s almost easier to say what not to do – looking at this as purely a Compliance problem is going to leave crucial parts of your organisation exposed. Any element of what you do that informs the customer outcome needs to be examined and potentially reshaped – from initial product design through to legacy communications. That whole-of-business approach extends to making sure that there is buy-in from your board of directors. The board will be required to sign off on outcomes achieved. Consumer Duty is going to impact areas that may seem to be far outside of the usual consideration for “regulatory transformation projects”. This may sound dramatic, but this is one of the most “big picture” regulatory shake up’s we have seen in a long time, and it’s important not to leave areas of your business working in silos. Affected firms need to be reaching out to frontline customer service, initial product development teams and everyone in between.

Information provision is going to be a crucial consideration. Firms need to think not necessarily in terms of preventing customers from making bad choices, but instead to focus on providing all of the information they need in order to make good decisions.

If we see “the customer getting the right information” as the very beginning of the journey, we also need to think about what the end of that journey might be and recording outcomes. What information are you storing? How are you storing it? And what are you doing with that data to improve future customer experiences?

Another example of needing to approach Consumer Duty is the need for culture shifts around “Good Outcomes.” There is a tendency to think of a Good Outcome as the one that makes a customer happiest – but what if that isn’t the best value for the customer in the long term? Sometimes an outcome that feels immediately uncaring – repossessing a car they cannot afford to pay for, for example – may be hugely beneficial to that customer’s long term financial stability and, as a result, emotional wellbeing. That is going to be a key thing to understand – the FCA is not just talking about positive and negative customer effects in financial terms, and we all need to be more holistic in how we think about both detriments and benefits of products and services. Part of that might be developing an understanding that Fair Value is a relative concept, and what represents Fair Value for one person might be completely Unfair to someone else in different circumstances.

It is also important to consider the structure of the work you do on Consumer Duty – and the work you will need to do in future. Considering the complete customer journey means we’re going to need to keep thinking about product lifecycles and back book products. A product that has delivered good value to a customer at the outset, may not be right for them years later? I think businesses will need to change how they think about communications with pre-existing customers.

What Concerns Do We Have?

All of this represents a significant challenge from a resource and planning perspective. Organisations should think about if they want to designate Consumer Duty Champions for every part of the business, and how they can coordinate the work to deliver a unified approach.

I think there is some specific anxiety out there from mid-sized organisations seeking the “best “ approach. In an ideal world, every customer would have their own dedicated account manager – but with that being impractical, we’re looking at different approaches from different sized organisations. For very large businesses they can harness technology resources to track customer journeys and automate large scale research projects. For small businesses, they can use their personal customer service approach. For everyone somewhere in the middle, I think it may be challenging and I would recommend that they have working parties looking at this now, if not already.

There is concern from some about the idea that the change in approach will see companies being held responsible for choices made by their customers. I think the positive way to approach the issue is to think about giving your customers all the information they need to make informed decisions.

When looking at legacy products there are growing fears that the new rules will lead to some businesses simply killing off products that are difficult to bring in line with the new rules. This could make finance harder to access for the most vulnerable consumers, and they may even be driven to unregulated, illegal money lending avenues instead. It is going to be important to balance all of these concerns against each other – which undeniably represents a significant challenge.

Thinking about the burden on organisations, there’s also the fact that this is far from the only concern any business has right now. There are ongoing effects from the pandemic and other economic shifts which have seriously affected customers’ ability to pay

How Can We Help?

I know many businesses are currently completing a gap analysis and beginning the initial planning for their Consumer Duty projects. We know that no business sets out to cause harm to its customers so it’s very easy to say, “we have good products, our customers are happy, we don’t have concerns about this”. Cultural Change is a very big thing to also consider, and it can involve uncomfortable questions, particularly when looking at what remuneration models are in place in relation to the sale of products. It is important that there is a holistic approach to good customer outcomes, as there can be a reluctance to challenge group norms.

So, there is a lot of work to do, and a lot of questions out there that we are all hoping the FCA will answer, but I do think that this can be a really positive thing for the business, and there’s no reason to sink into negativity

We are working with a number of firms to support them with Consumer Duty, by providing a ‘Critical Friend’ who is comfortable pointing out unexamined flaws in processes and systems with an unbiased, independent perspective.

We hope that the changes that come with Consumer Duty will increase the general public’s trust in Financial Services, and that’s good news for all of us. If you are concerned about your Consumer Duty preparations and are interested in how specialised outside or temporary resource may be able to help, get in touch for a confidential conversation on selena@kindconsultancy.com or 0121 643 2100.