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Author: Internal Compliance Director

 Getting regulated by the Financial Conduct Authority – Our Journey

Earlier this month (March 2016) the Financial Conduct Authority (FCA) granted full authorisation to Fidelity Works Ltd, the company behind a BFWG Grants. So what does that mean?

Well let’s take a short trip back in history, for many years the Office of Fair Trading (OFT) provided the regulation of lenders under the Consumer Credit Act. Previously, to gain a Consumer Credit License from the OFT was a piece of cake. The first time I applied in 1995 it was a 3 to 4 page form, send off a cheque and the license was sent back. When I applied again in 2013, the form had grown a little and the cheque was now larger, but in essence there was no risk that I wasn’t going to get the license. The OFT worked very much on a ‘reactive’ basis. They issued the license and as long as you were not bought to them and investigated for wrongdoing, you could keep it. In many cases this was not good for the consumer. You only have to look at the way certain companies like Cash Genie treated their customers to realise that reactive regulation did not work.

In 2014 the FCA, formerly the Financial Services Authority (FSA), took over regulation of all of the lenders, credit brokers, debt councillors, debt management companies and credit reference agencies that had formerly been regulated by the OFT. They not only introduced a number of new rules to protect customers, but they took a very different stance on regulation.

It would have been very easy for the FCA to simply transfer the consumer credit licenses of the 50,000 or so companies to their regime and then spend the next few years trying to turn around those that were not meeting their standards. This was not what they chose to do… Instead, all of the firms that wanted to carry on operating this market applied for Interim Permission. This was a status that allowed them to carry on business until they were granted full authorisation.

Every firm then has to complete a FULL application form for FCA authorisation. This was no walk in the park. Fidelity Works Ltd submitted the application in early February 2015, and I spent much of the 9 to 12 months before this getting the documented policies and procedures in place and competing the application pack.

As well as a full regulatory business plan, the application form wanted to know how every part of the business was run, how we would ensure that the regulations were complied with, how we would conduct ongoing monitoring and finally, how we would make sure that the customer was always treated fairly. Key staff had to submit CV’s and testify that they had no criminal convictions. The cost of the application for Fidelity Works was some £7000.

During the 13 months and 2 days that the FCA considered our application there were often requests for additional data or for further explanation of policies and procedures. While at times the levels of scrutiny were frustrating, it was comforting to know that they were being so thorough and that only those firms that came up to scratch would be regulated.

So now we are regulated we can just sit back and relax…I don’t think so.

Getting regulated was just the first part of the journey. We now need to ensure that, through ongoing monitoring and reviews that we continue to remain compliant and meet the FCA objectives.

As the Director of Compliance, each and every month I conduct an in depth Compliance Monitoring Program. This not only checks that, as a business we are doing all that we need to, but looks at samples of loans to make sure that they were properly issued, debt collections to make sure customers were treated fairly with forbearance, Anti Money Laundering checks to make sure that these were all carried out properly. I follow trends in default rates to make sure these are not going up, as well as ensuring that any complaint received are handled correctly and within time frames.

We also have 3 monthly Treating Customer Fairly meetings where senior managers look at each process to check that it is still operating in the customer’s best interest.

We also have to submit regular returns to the FCA to provide them details of our product sales data and other business statistics. This means that the FCA can benchmark us against other companies in the market and very quickly identify and investigate any undesirable trends.

In essence the FCA expects and requires firms, once regulated, to keep their foot on the gas in terms of ongoing compliance. Any firm who believes that, once regulated, the hard work is over is likely to very quickly become the subject of the FCA’s Supervision Team. This is a division of the FCA that continues to monitor all regulated firms to ensure that they are not failing in their regulatory duty.

So how does this benefit you as a BFWG Grants customer?

As a company we were built around the ethos of doing right by our customers. Having been in the industry for 8 years now, we all remembered the companies who allowed endless ‘rollovers’, piled on excessive charges and raided customers’ accounts  via their debit card up to 30 times per month to take their last £5.00, and we wanted to be different.

With this in mind, and knowing that the Financial Conduct Authority would be taking over regulations in 2014 and want things done differently, we chose an instalment loan product as we thought it would be easier to budget for. We also made sure we did adequate credit checking and full affordability analysis. We were not obsessed with ‘5 minute funding 24 hours a day’ as some lender were and as such every application is manually reviewed before funding.

So yes, we have had to make some changes to our operation as new rules such as Continuous Payment Authority limits and Rate Caps were bought into force, and yes, we now have much more comprehensive documentation for the business, but for us, and hopefully our customers, the only thing that has changed by being fully authorised is our registration number.