Business Age – With a year of tightening financial regulation, when can we expect the bite?
In retrospect, 2023 had a recurring theme across the financial sector and associated industries. From gambling to financial services, and from conveyancing to consumer credit, all saw a very similar uptick in expectations from both the government and their individual regulatory bodies. The underlying themes remained consistent: prioritise the wellbeing of your customers and play your part in preventing financial crime or face an increasing risk of punishment. So here are my predictions for 2024.
A focus on customer wellbeing & circumstances
The Financial Conduct Authority (FCA) has made it clear that the well-being of the client comes first in all financial transactions. Regulations on consumer duty, which were recently implemented, required firms to protect customers from harm, give clear information, and guarantee fair treatment at all times. This regulation lays the ground for a fundamental transformation, requiring firms to prioritise the individual requirements of each client.
The impact on consumer credit and lending was significant. Firms were expected to demonstrate proof of positive client outcomes. In order to protect borrowers who were at risk, lenders were required to provide tailored solutions and forbearance, giving special consideration to each case. This proactive approach will carry on into 2024, significantly transforming the lending landscape over the course of the year.
Firms will be expected to demonstrate a deeper understanding of their individual clients’ financial circumstances. This transition will require a change in approach, forcing organisations to reevaluate their approaches to place customer interests at the forefront of their operational approach.
Increased fines and penalties
One of the significant projections for the coming year revolves around an escalation in fines and punitive measures. The enforcement trend is expected to intensify, highlighting the necessity for firms to prioritise compliance rigorously. As regulators tighten the reins, firms must strengthen their compliance procedures, in order to avoid significant financial penalties.
Enhanced anti-money laundering (AML) rules
Aligning AML laws across industries is expected to be a big step forward. The recent consultation by HM Treasury on modifying the AML/CTF supervisory system, in line with commitments from the Economic Crime Plan 2023-6, emphasises the urgency of the issue. Money laundering and funding of terrorism are threats to the people and economy of the UK. This alignment suggests a more cohesive and strict regulatory framework, with the objective of supporting the prevention of money laundering. In order to mitigate the risks associated with non-compliance, financial services firms will need to gear up for more comprehensive compliance measures and ensure conformity with the evolving AML requirements.
Tailored client services
It will be essential for organisations to delve deeper into the unique financial situations of their customers. This aligns with the evolving expectations that call for firms to specifically tailor their services to cater explicitly to individual client needs. In addition to ensuring compliance, a better grasp of customers’ financial situations will be necessary for more personalised and impactful service provision.
Looking ahead: Challenges and opportunities
The upcoming year is expected to see a crackdown as regulatory bodies show a more assertive stance. The FCA’s last webinar, which took place on December 6, highlighted the urgency for enhancing customer protection by implementing more stringent measures. The webinar underlined the need for firms to provide good outcomes for customers. The FCA emphasised the possibility of resorting to more formal tools in the case of persistent poor misconduct causing significant harm, including the use of substantive enforcement such as fines or public censure. The emphasis remains on fostering an environment where firms prioritise customer well-being and promptly address issues to prevent harm.
Businesses that invest in robust systems and embrace innovative technology such as Open Banking will be better able to navigate these regulatory changes.
In conclusion, 2024 may prove to be a crucial year for financial services. As the regulatory landscape tightens, firms will need to adjust their strategy, putting customer-centricity at the forefront while strengthening compliance procedures. The evolution towards a more customer-focused approach is not merely a regulatory requirement but a strategic shift that can potentially enhance customer satisfaction, loyalty, and trust. If they get it right, it’s good for everyone.