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Six Financial Regulations Raising Your Risk of an Audit


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Six Financial Regulations Raising Your Risk of an Audit

31 Oct 2023

Eric Brown
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Financial services companies in the UK have a legal and moral responsibility to treat customers fairly—that’s nothing new. What’s changing is the level of scrutiny firms face from industry authorities.

A recent KPMG industry barometer revealed the pressure companies feel from regulatory bodies is increasing. New and expanded rules have expanded the duty of care that banks, insurers, loan providers and other financial services companies must show towards consumers. And it’s leaving businesses like yours at greater risk of regulatory intervention.

The following are six of the most significant rule changes from UK financial regulators—and how your company can use remedial responses to manage their impact.

1. Consumer Duty

What Is Consumer Duty?

Consumer Duty is a new Financial Conduct Authority (FCA) regulation placing responsibility for acting in consumers’ best interests on the shoulders of financial services companies.

How Does Consumer Duty Impact Your Company?

As a financial services provider, you must ensure that your lending criteria, products and services are fair and transparent. More importantly, you must act if they’re not. This will lead to more remediation projects for many companies as you rectify issues affecting multiple customer accounts.

2. Borrowers in Financial Difficulty (BiFD)

What Is BiFD?

BiFD is another FCA initiative launched in 2021 in response to consumer borrowing during the pandemic. It mandates that financial institutions proactively support borrowers in financial distress—for example, communicating with borrowers at risk of missing payments.

How Does BiFD Impact Your Company?

BiFD has intensified the scrutiny of how you handle customers facing financial challenges. If your business feels certain borrowers could have been given clearer communications about their policy and payment commitments, you can address that oversight through remedial action.

3. Affordability Checks

What Are Affordability Checks?

The advent of BiFD has brought the issue of affordability into the spotlight. There’s renewed pressure on your financial services company to apply fair and realistic criteria to all customers before lending money or approving other credit-related services.

How Do Affordability Checks Impact Your Company?

Many firms are seizing the opportunity to review customer eligibility and tighten lending criteria as protection from future FCA scrutiny. However, this doesn’t address historic failures.

Going the extra mile and reviewing past customer data can safeguard your business from potential penalties. Your company has an opportunity to proactively resolve past mistakes through customer remediation, avoiding compensation claims and FCA intervention.

4. Forbearance

What Is Forbearance?

Forbearance involves providing temporary relief to borrowers going through financial hardships without resorting to actions like repossession.

How Does Forbearance Impact Your Company?

You must ensure that your financial institution has robust systems in place for providing forbearance. A lack of such mechanisms or mishandling cases can escalate the risk of regulatory audits.

A precise and well-controlled remediation programme will allow your business to document communications and prove you provided suitable support before taking further action.

5. Defined Benefit Pension Transfers

What Are Defined Benefit Pension Transfers?

Defined Benefit Pension Transfers involve the transfer of pension benefits from one plan to another. While the aim is to benefit the customer, sometimes these transfers can result in policyholders unwittingly giving up guaranteed pension benefits.

How Do Defined Benefit Pension Transfers Impact Your Company?

Any misjudgment or misadvice could lead to regulatory scrutiny. Your company can reduce this risk by conducting an internal audit of pension benefit transfers and proactively remunerating customers negatively impacted by policy changes.

6. Know Your Customer (KYC) Checks

What Are KYC Checks?

KYC checks are processes implemented by financial institutions to verify the identity of your clients, ensuring they're not involved in any illicit activities.

How Do KYC Checks Impact Your Company?

Inaccurate or insufficient KYC checks can expose your firm to numerous risks, including fraud, so regularly reviewing and updating your KYC processes is crucial.

Meeting Regulatory Requirements Through Remediation

It’s more important than ever for financial services companies in the UK to be transparent and take proactive action in the event of a miss-step rather than waiting for customer complaints to trigger a response.

For many firms, remediation has become a front-line response for managing critical incidents to avoid further regulatory investigation. While remediation is a powerful tool for quickly and appropriately addressing compliance issues, some companies need more tools to run efficient remediation programmes.

To help your business run remediation projects that meet FCA expectations, Aptean has released a new playbook detailing how to lower the risk of regulatory intervention for your financial services company.

Download your free remediation playbook to build compliant processes and address how to:

  • Resource your remediation projects

  • Collate customer data

  • Define case treatments

  • Use remediation software to automate customer communications

  • Monitor and reporting on project progress

  • Create robust audit trails for regulatory review

Ready to invest in remediation software like Aptean Respond? Read more on How Aptean Respond Can Improve Your Remediation Process.

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