The National Association of Commercial Finance Brokers (NACFB) has released a document offering guidelines for brokers.
Joanne Davis, consumer finance lawyer with Locke Lord, drafted the original NACFB code of practice and the minimum standards.
The NACFB Minimum Standards Document deals with the expected behaviour of brokers looking to operate in the regulated space.
Davis tells Leasing Life: “The guidance is to demonstrate to brokers and intermediaries the minimum standards which funders and lenders, the FCA handbook and the NACFB will be expecting brokers to uphold when conducting regulated activities.”
Tyler highlights the growth in regulated brokers among the NACFB membership.
“We’ve taken our membership from being 10% regulated prior to April 2014 to 99%,” he says.
Davis tells Leasing Life that the involvement of brokers in drafting the standards was essential: “We did not want to see brokers exiting the market for reasons of regulation being too much to cope with or strangling their business,” she explains.
A question of culture
The NACFB Minimum Standards Document addresses how brokers should conduct business in the “firm-level requirements”, and draws attention to company culture.
The NACFB says funders will seek to ensure brokers are solvent, and may scrutinise business plans, growth strategies and financial positions to ensure that brokers’ ambitions do not stretch beyond resources.
Both Davis and Tyler note that the concept of treating customers fairly (TCF) is an important part of the standards. The FCA notes that TCF could be assessed on the basis of six outcomes, including suitable advice, and no “unreasonable post-sale barriers imposed by firms”.
Davis says adherence to these principles could have a financial impact on brokers.
“[TCF] is, and will continue to be, one of the key areas of compliance linked to brokers’ remuneration and reward by its funders,” Davis says.
“Balanced scorecards are paramount, and rewards based on volume sales alone will be a thing of the past.”
Tyler also emphasises the importance of TCF to the way that brokers conduct business, and reveals that the NACFB will conduct a review of members’ practices, partly on these principles. He tells Leasing Life that 150 reviews of the 869 NACFB broker members have been undertaken.
“There [are] a few little tweaks and assistance they need, but in the main they are doing things as they should be,” Tyler says.
Reporting and compliance
According to the NACFB, brokers will be subject to supervision by both funders and the FCA, stating that broker information will be collected every six months to a year to “help identify trends and emerging risks and to monitor compliance”.
Online reporting tool Gathering Better Regulatory Information Electronically (Gabriel) was implemented by the FCA to allow brokers to upload relevant reports based on information supplied.
Davis says there are procedures by which funders, as well as the NACFB, can hold brokers to account and ensure standards are adhered to.
“The funders will have contractual relationships with their brokers, and can enforce for breach of contract if the minimum set of standards dictated by them are not met,” Davis says.
The funders, according to the NACFB, have two means of monitoring brokers and ensuring compliance. The first method is by submitting a questionnaire to the funder.
“Brokers may be required to complete a Compliance (Attestation) Questionnaire,” the NACFB states in the document.
“There will be a variety of questions designed to enable the funder to capture a high-level overview of the Broker’s compliance position.”
The second is the use of “mystery shopping”, to assess customer treatment and system controls. In both cases, funders can deliver feedback, and may base remuneration decisions on their findings.
If breaches of minimum standards are discovered, the FCA and NACFB have procedures to deal with them.
The Minimum Standards Document indicates that the FCA may take disciplinary action against brokers which are found to be not compliant to its regulatory standards.
The process would begin with referral to the Enforcement and Market Oversight division of the FCA, and may result in a tribunal, and a fine.
Penalty tariffs linked to the revenues of the firm under investigation may result in some cases. According to the document, the FCA could also pursue criminal charges.
Tyler says the NACFB will help brokers that are in breach of minimum standards to make adjustments to reach them.
“We’ll provide them any remedial action that they need to come up to the minimum standards,” Tyler explains.
Benefits of minimum standards
Davis tells Leasing Life that a unified set of minimum standards for NACFB broker members would have positive outcomes for service and user experience in the broker industry: “Good, compliant sales that reach fair outcomes for the consumer,” Davis explains.
She stresses that for this to result, regulations must be correctly adhered to, adding: “If regulation is embraced in the right way, it can support brokers and funders to deliver a good-quality service and customer experience.”
Tyler says the NACFB minimum standards will lead to better practices in the industry, benefitting funders, consumers and the brokers themselves.
By adhering to the standards, Tyler argues that brokers can ensure that they did not fall foul of FCA regulations, which will also benefit the funders.
“The brokers are given a helping hand to make sure they are getting the regulation right,” Tyler says.
“The funders are dealing with a [regulated] broker community.”
Tyler concludes that by adhering to the standards, brokers will ensure acceptable levels of customer service, in line with FCA regulation.