FCA proposes new regulatory returns for credit broking and debt services: A move toward streamlined data collection

The proposals in CP24/19 aim to introduce a new regulatory return for firms engaging in one or more of the following activities:

• Credit broking;
• Providing credit information services;
• Debt adjusting; and
• Debt counselling.

This regulatory return follows the earlier introduction of Product Sales Data returns for Consumer Credit agreements, reflecting the FCA’s commitment to improving the amount and quality of data it receives. The current reporting framework, established in 2014, has become outdated due to changes in the market, business models, and regulations.

By collecting more accurate information, the FCA says that it will be getting a better understanding of how Firms conduct their regulated activities, as well being able to better determine their compliance with the FCA’s Threshold Conditions and Handbook standards.

What are the FCA's stated key objectives of the new regulatory return:

1. Identify High-Risk Firms: the FCA will use the data to focus its supervision on Firms presenting the highest risks to consumers and the market.
2. Support Consumer Protection: the return will help the FCA detect potential risks to consumers at an early stage, as well as assessing if firms are meeting the higher standards of the Consumer Duty.
3. Simplify Reporting: tailored questions will make reporting more straightforward, reducing the risk of misinterpretation. It will also avoid the need for ad hoc requests, reducing the burden on Firms.

What is the proposed structure of the new return:

The return will consist of five mandatory sections:

• Permissions;
• Business model;
• Marketing;
• Revenue; and
• Employees.

Firms will then answer tailored questions specific to their permissions and business model using a 'branching logic' approach making the returns more aligned with their business models and activities.

For example, credit brokers will be asked about the types of products they offer, such as hire purchase (HP) or personal contract purchase (PCP), and the relationships they have with lenders. This design ensures that Firms are only required to provide data pertinent to their specific regulated activities. By focusing on areas relevant to each Firm's operations, the new return aims to streamline the reporting process and reduce unnecessary administrative burdens. This targeted approach will facilitate a more efficient data collection process, enabling the FCA to monitor compliance more effectively.

The overarching goal is to enhance the FCA's ability to identify and mitigate risks of harm to consumers earlier in line with its data-led strategy. By gathering more detailed and accurate data, the FCA aims to identify Firms exhibiting high-risk characteristics, prioritise resources effectively, and take prompt action against Firms presenting the highest risk to consumers and the market.

The FCA's proposed changes mark a significant step in enhancing the regulatory landscape for Consumer Credit activities. By streamlining the data collection process and focusing on relevant activities, the new regulatory return aims to improve oversight and reduce unnecessary complexity for firms. This approach reflects the FCA’s commitment to becoming a more data-led regulator, ensuring that Firms continue to meet the necessary standards while supporting their ability to operate effectively. This initiative is part of a broader multi-year plan to replace all existing Consumer Credit reporting (CCR) returns.

Addressing industry concerns:

The FCA acknowledges the industry's concerns regarding the increasing burden of data collection, as highlighted through feedback from the Practitioner Panel Survey. In response, the proposed return aims to consolidate multiple data collections into a single, more comprehensive submission. This initiative is designed to reduce the frequency of ad hoc data requests and provide clearer guidance, making it easier for Firms to understand and comply with regulatory requirements.

The CP24/19 paper also includes a cost-benefit analysis, acknowledging that while the proposed changes will involve costs for Firms such as IT adjustments and familiarisation, the benefits of better consumer protection and market integrity outweigh these costs.

The prototype:

To facilitate the transition to the new returns, it is stated in CP24/19 that Firms will be provided access to the prototype of the new regulatory return as part of the consultation process. The FCA will provide a link to the prototype to all Firms that hold the relevant permissions for the Consumer Credit activities in scope.

We would strongly encourage Firms who receive it to take the time to test the prototype as it will help with getting a better understanding of how the new return system will work. It also provides Firms to opportunity to provide feedback to the FCA. This access will allow Firms to:

• View the prototype and in particular the branching logic that tailors the questions to their specific business model;
• Understand which questions will be relevant for them in the future; and
• Submit test data and give feedback on the process and any difficulties encountered.

Firms should prepare for a comprehensive set of questions regarding their Consumer Credit activities under the new reporting framework. The form will require detailed information about financial products, including the number and value of credit agreements and the total finance entered into. It will also ask for specifics about the types of goods and services offered.

In addition, Firms will need to disclose their relationships with other entities in connection to their credit broking activities with consumers, including the total commission earned and overall credit-related revenue. They will also need to provide details on how they are compensated, whether consumers are informed about commissions, and the methods used to sell products or services. Firms should also expect to report on the marketing channels used and total revenue generated from all business activities. These questions are tailored to assess both financial and operational aspects of the firm’s credit practices.

Next steps:

• Firms and stakeholders are invited to provide feedback on the proposed return by 31 October 2024. By engaging with Firms and gathering input, the regulator aims to ensure that the new return not only enhances data quality but also aligns with the operational realities of the Consumer Credit sector. This collaborative approach will help in refining the regulatory return process, balancing the need for comprehensive oversight with the goal of minimising the reporting burden on Firms.
• The FCA plans to publish the final Policy Statement in Spring 2025, along with responses to the consultation feedback.
• However, although despite that date for the PS, the new return will cover the reporting period from 1 January to 31 December 2025. This means there is a need to consider now how the required data is being collected from the start of next year, before the requirements are formally confirmed.
• Firms will have 40 business days after the end of the reporting period to submit their data, a change from the previous 20 days.
  • For Firms with annual revenue over £5 million, the first six-monthly submission will cover 1 January to 30 June 2026.
• The FCA estimates that over 30,000 firms will be affected by these changes, including both full permission and limited permission Firms