Emma RadmoreFCA’s portfolio supervision strategy letter for the retail banking sector focuses on the challenges of the pandemic. It notes the critical role of retail banks and is pleased that on the whole the sector has responded well. FCA is now looking ahead to the challenges of the next 2 years – challenges which it says are not new, but are heightened in current conditions. FCA has set 4 priority areas for its supervision of retail banks:
- ensuring fair treatment of borrowers – mirroring the concerns FCA already expressed in its sector letter for mainstream consumer credit lenders, it notes the potential for banks to cause harm if, for example, they do not perform adequate affordability checks, do not have clear, effective and appropriate policies for dealing with customers in arrears, do not respond to credit card regulatory remedies and are not transparent in their pricing structures. FCA points banks towards the guidance it has given on these issues and particularly how forbearance measures they agree with vulnerable customers should be sustainable without pressurising customers while protecting them from escalating debt. FCA’s supervision strategy will focus on how firms deliver forbearance, including for SME customers;
- ensuring good governance and oversight of customer treatment and outcomes during business change – FCA is concerned that the changes banks may have to make over the next 2 years to their business models to deal with the challenging economic conditions may not always be in the best interests of customer outcomes. FCA is worried about the risks of sub-standard or unsuitable product, unfair pricing and unfair handling of complaints, and about potentially damaging business changes such as accelerated branch and ATM closures, and the new risks caused by increased digitalisation, use of Big Data and dispersed working. FCA is worried some banks may withdraw from some of their current activities and is concerned that governance structures should ensure assessment of all relevant risks, in particular to vulnerable customers. It stresses its expectations under Principle 11 that firms tell it about everything about which FCA would reasonably expect notice – such as restructurings and reorganisations, or the provision or cessation of a product or service;
- ensuring operational resilience: although firms responded well to the pandemic, FCA still sees too many outages and incidents, often stemming from weaknesses in governance and technology. It stresses the importance of banks considering their procurement decisions carefully and identify and manage the operational risks throughout third party engagements. It stresses that senior management must understand what falls within their responsibility, and FCA will focus on controls around outsourcing of functions that underpin important business services or have direct customer impact; and
- minimising fraud and other financial crime: generally, FCA wants banks to make sustained improvements to their systems and controls as they will continue to face new challenges from the speed and volume of transactions. It will shortly publish a Dear CEO letter about AML frameworks in retail banks.
Finally, the letter addresses the importance of making sure firms have fully considered the impact of Brexit, including telling FCA where they have stopped providing services as a result of Brexit, and the importance of preparing for LIBOR cessation.
