The FCA wrote to all Credit Unions, on 1 March 2023, regarding the implementation of Consumer Duty. The letter sets out the regulator’s expectations but should also act as a warning as they have stated that they will be carrying out further monitoring of Credit Unions. Some of the key points of their letter are set out below.
How the Duty Applies to Credit Unions
The FCA have stated that Consumer Duty will apply to deposit taking activities (shares and other deposits) as well as consumer credit lending. The duty will also apply to any ancillary services connected to a product falling within the requirements.
As previously reported, if approved, the Financial Services and Markets Bill which is currently going through the House of Lords would allow Credit Unions to offer new products such as hire purchase. These new products will also fall within the new duty.
Focus
The FCA have stated that that Credit Unions should focus on:
1.     Effective Prioritisation– Firms should make sure that they are prioritising appropriately, focusing on reducing the risk of poor outcomes and assessing where most work is required to meet the requirements of Consumer Duty.
2.     Embedding the Substantive Requirements– The FCA are worried that some firms are taking a superficial approach to Consumer Duty and want firms to ensure that they are embedding the substantive requirements of Consumer Duty within the organisation.
3.     Working with Other Firms– They have stated that to implement Consumer Duty some firms may need to share information with other firms to ensure the effective implementation.
They have also set out a number of key areas for Credit Unions including the following points:
- They have stated that Credit Unions should have risk management systems in place to prevent harm to members from going undetected.
- Credit Unions should ensure that the risk of cyber threats and consumer scams are managed effectively.
- Credit Unions should have systems in place against Money Laundering and financial crime.
- Where there is reliance on 3rd parties then these risks for Consumer Duty need to be managed.
- Operational resilience and financial planning needs to take into account that in the current financial crisis that more members will be getting into financial difficulty.
- Credit Unions need to ensure communication to members supports customer understanding and good outcomes especially where the financial crisis will lead to more members suffering difficulties.
How Alexander Sloan Can Help
We can assist Credit Unions in a number of ways including:
- Policy reviews or help creating Customer Duty Policies
- Training on Customer Duty
- Reviewing Credit Union’s compliance with the new requirements
For further information please contact us at creditunion@alexandersloan.co.uk