Last month Leasing Life talked to the NACFB, the FLA and Close Brothers about a minimum set of standards for brokers in the UK. Julian Rose, director of assetfinancepolicy.co.uk, responds.
Who could ever argue against having minimum standards for any industry? Who then could question the need for a new set of minimum standards for asset finance brokers, as reported in Leasing Life last month?
The point of the new minimum standards appears to be to check brokers’ compliance with the Financial Conduct Authority’s consumer credit regime. Compliance is important but it’s also worth keeping the FCA regulation in perspective.
Here are five reasons not to worry – or more precisely not to worry too much – about FCA regulation.
1. Most of the asset finance market is not regulated by the FCA. Around 70% of small businesses are companies and are not regulated, and that proportion is growing every year. Only 5% of asset finance business users are likely to be FCA-regulated, and around 2% of the market by value.
2. Over 90% of the UK’s more than 500 asset finance brokers have now been authorised, having satisfied the FCA they can meet the “threshold conditions” minimum standards and that the persons running the firm are “fit and proper”.
3. The FCA conduct of business rules are mostly business as normal for brokers. Compliance involves knowing the customer, explaining your role as a broker, listening to the customer’s needs and circumstances, and finding a suitable finance solution. This is what brokers do for all clients.
4. Asset finance is a product that helps businesses, so problems with it are very rare indeed. Customers are not looking for ways to get out of their deals.
5. The FCA’s stated approach to regulating the market is to look at conduct across the sector and deal with any risks accordingly. Provided there is no bad news, brokers should not expect the FCA to come knocking at their doors.
Despite these reasons why we do not need to be too concerned, there are still two main problems with the FCA regulation.
First, it is difficult to know what the FCA Handbook rules mean when broking asset finance. Many of the conduct rules appear more relevant when dealing with individuals rather than businesses, but we can't just ignore them.
What do brokers have to do in order to ‘pay due regard’ to affordability, for example? Or what should brokers do to ensure customers understand reasons why an agreement might be unsuitable for their needs?
Second, although in general it is business as normal for brokers, a change is the need to keep more detailed records to prove the right things were explained and the right factors considered.
There are some straightforward ways for the industry to overcome these difficulties. Here are some suggestions:
1. Provide brokers with an industry-standard practical guide to how the FCA rules apply to broking leasing agreements.
2. Provide brokers with an industry-standard asset finance information sheet to issue to regulated customers, covering many of the FCA’s disclosure requirements.
3. Provide brokers with an industry-standard list of records to be kept for each regulated agreement (and/or include this information in proposals systems).
4. Provide brokers with a free helpline for FCA compliance questions.
These steps would help ensure brokers can be confident they are being compliant with the existing FCA requirements, saving them and the funders a great deal of time and uncertainty and avoiding the need for yet another set of rules and the monitoring that would go with them.