Exploring the FCA’s Consultation on Consumer Credit Regulatory Returns: Part 1

The FCA is consulting on proposals to issue a new regulatory reporting return which will capture firms with a credit broking Permission (CP24/19) and impact firms carrying out debt adjusting, debt counselling and providing credit information services. The FCA refers to these 'in-scope of the reporting' firms collectively as ‘Relevant Ancillary Credit Firms’ and has introduced this as a defined term as part of the proposals.

Given that the proposed first reporting would cover the calendar year from January to December 2025, the data required to enable reporting will need to be gathered and recorded from 1^st January 2025 onwards, if the proposals are brought into force. The first return will be due 40 business days after the end of 2025, on 26^th February 2026. Considering that firms with ARs will need to provide consolidated data, which includes their data on their AR’s activities (all to be included together with the firm's data, not separated), this is a short lead-in time to begin collecting the required data.

This article is the first of a two-part series exploring the FCA’s proposed new Consumer Credit Regulatory Return CR009 and will focus on the background, rationale, costs and benefits of the proposals.

Background

When the regulation of consumer credit transferred from the Office of Fair Trading (OFT) to the FCA in April 2014, the number of firms regulated by the FCA increased substantially. Subsequently, the FCA sought to introduce data collection which would provide a base of key information about this new sector. In the intervening years, there have been significant developments in:

• the consumer credit marketplace;
• the range of consumer credit firms operating in that marketplace and the products available; and
• the FCA’s desire to collect more meaningful, focussed data from firms.

The FCA aims to become a more data-led regulator, as set out in its 2022-23 Business Plan. It also has an overarching Transformation Plan (‘Transforming data collection from the UK financial sector: a plan for 2021 and beyond’) in which it sets out its vision to deliver improvements in data collection over the next decade. As a part of this, the FCA has launched its ‘Single View Analytics Tool’, which gives the FCA key data and indicators at firm and portfolio level using data from multiple sources. As a result, the FCA has increased its use of advanced data analytics. However, to capitalise on the benefits of these new tools, the FCA requires higher-quality data on the consumer credit sector.

This Consultation forms part of the FCA’s multi-year plan to review and replace regulatory returns for consumer credit regulated activities and follows the publication of PS24/3, which introduced three new Product Sales Data (PSD) returns into Chapter 16 of the Supervision manual (SUP 16) for firms engaged in credit lending.

The FCA intends to replace further returns for firms undertaking other consumer credit activities in due course, gradually replacing all existing consumer credit reporting (CCR) returns.  Until then, there will be some overlap in existing (and retained) CCR returns and the proposed new CCR009 return (e.g., CCR002).

Rationale for change

The FCA wants to improve the information it collects from firms by focusing on their:

• business models;
• the products and services they are providing; and

• the extent of their regulated activities.

The FCA believes that collecting better quality information will enhance its ability to identify the risk of harm and prioritise its resources to enable swifter intervention where consumers are at the highest risk.

To achieve this, it will also include tailored questions to better understand:

• supply chains;
• consumer understanding of products and services;
• suitability of products and consumer support;
• the way firms remunerate and incentivise their staff; and

• fee and remuneration structures.

Currently, the FCA collects mainly aggregated data, using regulatory returns that were introduced back in 2014 when it first assumed responsibility for consumer credit regulation from the OFT. However, the FCA recognises that data requirements across consumer credit services have since changed significantly, as has the way in which consumer credit markets operate in practice.

More recently, the Consumer Duty has set higher and clearer standards across markets for consumer protection and the prioritisation of customers’ needs. The enhanced information is expected to be instrumental in enabling the FCA to effectively monitor whether firms are acting to deliver good retail outcomes in line with the Duty.

The benefits

The FCA receives a considerable number of contacts about firms in the credit sector; for instance, in 2023 the FCA received 2,000 consumer queries and pursued around 6,000 supervisory cases. This proposal will capture more in-depth data about firms, their products, and business models to enable the FCA to focus on:

• problem firms;
• setting its priorities; and

• being more proactive in identifying future harms to pre-empt adverse consumer outcomes before they happen.

This means lower risk firms will be subject to less supervisory engagement, and the FCA’s focus can be concentrated on areas where it detects a higher risk of harm.

The FCA expects to receive more detailed, accurate, and consistent data from firms through the proposed return and, in the medium to long term, expects this to result in a reduction in:

• queries received about how to complete returns;
• late returns; and

• ad-hoc information requests issued by the FCA to firms.

Equally the proposals will ensure data is relevant by removing data that:

• does not link to the key harms to consumers and markets;
• is of poor quality with inconsistencies (due to some firms' lack of understanding);
• is no longer relevant; and

• has a lack of context around how firms are using their permissions.

The FCA has carefully considered the proportionality of its proposals and found that the benefits of streamlined returns and more targeted supervision outweigh the costs set out in the Cost Benefit Analysis.

The proportionality of data requests, and the burden it places on firms, as well as the time taken to complete information requests and data returns, are consistently raised by firms via the FCA’s Practitioner Panel Survey. The proposals have been developed following extensive engagement with industry and stakeholders to ensure that the questions capture the nuances of these firms’ products, services and business models. The FCA's engagement also included speaking with the Smaller Business Practitioner Panel about the proposals.

The cost for firms

There will no doubt be costs involved for firms to meet the proposed new requirements:

• Familiarisation and gap analysis – firms will have to familiarise themselves with the new rules and reporting requirements and analyse what changes they will need to make in response (e.g., any additional information or data they will need to capture).
• One-off change and IT project costs – firms may need to change IT systems to enable them to collect and report the required data, which will require approval from senior decision makers.

• Ongoing IT project costs - associated with the additional staff time required to collate and report the data needed to complete the new return on a periodic basis.

The FCA anticipates that the cost to an average small firm will be in the region of £1,490 for implementation, and in the region of £70 per annum for on-going costs.  If you believe that this estimate is inaccurate, take the opportunity to voice your opinion by responding to the Consultation.

However, the FCA believes firms will benefit from:

• being able to easily understand the information that they collect and why (e.g., the language in the returns, as well as the supporting guidance, will be more closely aligned to industry terminology); and

• reduced additional reporting burdens such as ad-hoc data requests.

The FCA also engaged stakeholders to ensure that, where possible, firms already hold the data that they intend to collect and propose to extend the time given to firms to submit the data from the end of the reporting period. There may, though, be many firms which cannot easily pull together the required data.

The prototype return

The FCA has started sharing a prototype of the proposed return with in-scope firms and will be doing this between now and the end of September. This will allow firms to view the return in a similar way to how they will be required to submit the data in the future. This includes testing the branching logic used and allowing firms to understand exactly which questions will be relevant to their business and what they will be expected to complete.

Considering that the earliest date that this will start to impact firms is 1^st January 2025 (the beginning of the first reporting year), having access to the draft report in September, ahead of the closing date for responses to the Consultation, should be welcomed by impacted firms.

Submitting data through the prototype is completely voluntary but the FCA emphasises that it will help to assess whether the data they intend to collect meets the needs set out in the Consultation Paper.

Next Steps

• Look out for the second article in this series which will provide a detailed overview of the proposed reporting requirements, and how this may affect your firm.
• Take advantage of the opportunity to review and complete the prototype return when it is sent to you.
• Firms have until 31st October 2024 to provide feedback on the proposals to the FCA, which can be done using the response form on the FCA website.
• The FCA will consider feedback and aims to publish its response and final Policy Statement in Spring 2025.