Industry and Regulation Year in Review 2023
Mike Ward, Armalytix Chairman, writes:
2023: A year of setting expectations, with the crunch still to come
As 2023 draws to a close, it’s hard to overlook the significance this year held for numerous industries. Many of the sectors we work with, 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.
A year after the Financial Conduct Authority (FCA) set the stage for tighter consumer duty regulations, they finally arrived on July 31st. Financial services have often paved the way for other industries on addressing important issues like money laundering but this was a leap forward ensuring that financial advisers now had a duty to prioritise the needs of their customers. They were now required to take measures to prevent them from harm, provide clear and accurate information, and treat them fairly throughout any transaction. While certain aspects may seem subjective, such as defining ‘fair value’ for a customer, this was the clearest form of communication from a regulatory body – emphasising that customers must come first.
Consumer credit and lending felt the impact. The new guidelines demanded firms provide evidence that customers were receiving good outcomes. The FCA specified that lenders offer forbearance, even waiving debt in extreme cases, and extend appropriate support to safeguard vulnerable borrowers from worsening financial situations after obtaining a loan. Lenders were now obligated to offer much more tailored resolutions for customers in arrears based on their individual circumstances. This proactive approach from government and regulators in helping consumers is a trend that’s set to continue into 2024.
Gambling followed a similar trajectory. The April Whitepaper caused a big stir and plenty of headlines, calling for greater player protection and harm prevention, while eliciting pushback from those who felt the suggestions were invasive. New checks to prevent player harm were proposed. Through our partnership with Betsmart, which provides operators with up-to-date gambling compliance laws and regulations, we were right at the forefront of helping operators in aligning with these expectations. However, the changes are still ongoing.
These regulatory changes revolve around the same theme: regulatory guardrails to ensure organisations offering products or services potentially causing harm must check customers’ financial circumstances.
Another interesting narrative this year was the increased focus on combating money laundering, with industries taking a firmer stance with their anti-money laundering (AML) checks. The source of funds checks, originally witnessed in conveyancing, spread to other sectors as the UK made steps to stop money launderers pivoting to find new loopholes. Sectors like accountancy, insolvency and gambling were urged to enhance AML efforts in their businesses, and we are beginning to see significant progress. Advancements in Open Banking technology facilitated accurate customer financial analysis without the invasive checks some feared, yet greater education is essential across these sectors to manage and guide both firms and consumers through these practices effectively.
We anticipate more headlines in 2024 as these regulations take effect and are enforced. Many of the aforementioned processes were softly introduced to allow industries time to adjust and adapt, but there’s no denying that penalties will intensify. We’ve witnessed fines for AML failures in gambling for giants like William Hill, and a complete restructuring of St James’s Place’s investment management fees following the new Consumer Duty FCA guidelines. Law firms and conveyancers have also been impacted and expect these penalties to increase in 2024 as the SRA and CLC take a firmer stance.
So, it’s been a year of increasing pressure to stamp our poor practices, introduce better money laundering checks, protect consumers from harm and achieve good customer outcomes. The question then: what lies ahead? How severe will the FCA’s punishments be for breaching consumer duty regulations in 2024? Will the FCA introduce guidance for Source of Funds checks that aligns with other regulators? It’s encouraging to see that with the introduction of consumer duty and the white paper on gambling, a more holistic and coordinated approach to consumer protection is emerging across UK regulators. However, there is still too much divergence in AML guidance and enforcement between regulators, which allows bad actors to exploit these loopholes. This needs to be addressed so that the UK can maintain its position as a global leader in customer protection and AML.
The technology exists to help companies in understanding their customers’ finances. We introduced new income, affordability and risk insights tools this year, which should be a great benefit in staying ahead of the curve. For those investing in the right processes and appropriate technology, the future looks bright. For those who neglect this, the road ahead may prove challenging.