How Are Regulations Changing the UK Financial Sector?
The UK Financial Sector is one of the world’s most sought after financial markets and one of the UK’s largest. It contributes more than £130 billion per year to the UK economy and accounts for around 7% of the total UK economic output. Incredibly, around 49% of this huge sector is based in the financial capital of the UK and arguably the world, London. Thus, it is an understandably heavily regulated industry, with one of the most recent regimes being the SMCR, or Senior Managers and Certification Regime.
As you may imagine, there are numerous subsections of regulation throughout the financial sector providing specific services and product areas. Over the past decade, the Financial Conduct Authority (FCA), the UK’s financial regulator has overhauled the Financial sector and has focused on various, specific industries in which they have felt regulations are most needed.
This has included short term personal loans (also known as the ‘Payday Sector’) and more recently, consumer credit and companies providing financial advice and even brokerages. This, through the SMCR regime includes the likes of mortgage and insurance brokers as well as financial advisors and many others.
Interestingly, with the FCA focussing on consumer credit, any company offering credit to their customers, be they a small furniture company, a vehicle dealership, a retail design company offering customers finance plans or any other FCA authorised business offering finance for customers, will need to abide by these new regulations.
How Has Regulation Changed the Loans Industry?
Loans in the UK, particularly the high-cost-short-term-loan (HCSTL) industry saw arguably the biggest changes in the last decade compared to any other areas of the UK’s financial industry. Previously well-known, well-established and very successful lenders such as Wonga, Piggybank, 247 Moneybox have all fallen foul to the regulation and as a result have all collapsed and one into administration.
In short, the regulations introduced by the FCA implemented measures upon the lenders whereby, amongst other measures which must be taken by all lenders in the UK, they are now required to:
- Carry out sufficient checks on all applicants
- Limit the number of times in which loan repayments can ‘roll-over’
- Provide clear warnings about what could happen if repayments are missed
- Limit the amount of daily interest which may be applied on any loans to no more than 0.8%
- Cap the amount of interest which may be accrued on a loan so borrowers’ interest will never exceed the loan amount (i.e. be more than double the actual capital of the loan)
These measures then subsequently gave rise to payday loan reclaims, in which previous borrowers of payday lenders were entitled to repayments from the lenders who fell foul to the above rules and regulations.
What is SMCR?
The Senior Managers and Certification Regime (more commonly known as ‘SMCR’) is being introduced by the FCA in a bid to totally overhaul how compliance works within UK finance. In previous times, compliance within financial institutions was looked after by and was the sole responsibility of a compliance manager or department.
This meant that within companies, when there was a compliance issue or breach, everything would simply be passed to the compliance person or people in question. This in turn led to the emergence of a culture of blame and a distinct lack of personal responsibility and accountability. Thus, the SMCR regime was mooted by the FCA in a bid to change the culture when it comes to compliance.
Under the new regime and as of 9th December 2019 from which time firms must start rolling out the necessary changes, FCA authorised financial firms are required to ensure their staff all undergo the necessary level of training so they understand their responsibilities and what they are accountable for. Furthermore, senior managers will need to understand who is responsible for what within their company.
One of the ultimate aims of this new set of regulation is to shift the focus in compliance from firms worrying about ‘technical compliance,’ to simply doing the right thing all of the time and within the confines of the FCA’s requirements. The Appointed Representative (AR) regime however, is untouched and its obligations remain unchanged.