Proportionality in regulation is becoming a key concern in the asset finance market, given the increasingly onerous requirements of financial services regulators who may not be familiar with the sector’s complexities.
Too much – or poorly targeted – regulation can shut out funding sources for customers whose profile or buying intentions do not match traditional norms. As FLA Chair John Phillipou, Managing Director of the SME Lending division at Paragon Bank, cautioned at the association’s annual dinner, in the consumer credit sector, increasingly stringent affordability requirements have excluded many former customers from the market.
Phillipou points out that to address any worries about poor behaviours, specialist asset finance lenders and intermediaries have a long history of committing to a code of practice and, in the case of regulated business, meeting FCA requirements.
But increasingly the issue is demonstrating that adherence to best practice to the satisfaction of both regulators and consumers.
“How do we make it clear that we are working to the highest standards – in effect, that we are doing the right thing by our customers?” he pointed out.
Broker accreditation
The FLA’s response is the announcement of a new broker accreditation scheme, which Phillipou says marks “a tipping point – it addresses the question of how brokers can show they meet an industry standard but without having to spend increasing amounts on compliance staff.”
But the problem with tipping points is keeping the balance. The FLA’s scheme introduces a single-source broker review via a third-party supplier, which FLA-member lenders can then use in making their own assessments of intermediaries. There is an annual fee to brokers for the service.
As Phillipou acknowledged, brokers may feel “like the meat in a sandwich – potentially they are already paying for FCA or other accreditation and now they are being asked to sign up for something else as well.”
He argues that the scheme also offers other benefits including regulatory briefings based on lenders’ knowledge of the direction of travel at the FCA and other market regulators, giving brokers the opportunity to plan ahead.
One size fit all?
However, some brokers have expressed concerns about the value of this approach for intermediaries, arguing that it is not clear that every lender will accept the FLA accreditation as sufficient evidence a broker meets their standard, so not all the time-consuming form-filling will be swept away.
“Lenders are essentially asking the same questions, so brokers who are FLA-accredited will go through a lighter touch process with an individual bank. They’ll do the main compliance just once, with the FLA, and may then end up answering additional questions from a lender, but it will be much less onerous,” Phillipou said.
Phillipou reported that Paragon, for example, is considering updating the template used to assess brokers by filtering out all the fields already covered by the FLA scheme’s requirements, leaving only a much smaller number requiring responses. This is a key issue for brokers, many of whom will have a keen eye on operating overheads.
“Time spent on non-proactive client management is a thief of their time and without delivering a significant difference to the business,” is how one broker puts it.
Also in the balance is the question of whether or not FLA accreditation should be seen as mandatory. If lenders who do not opt to recognise the scheme continue to carry out their own broker audits, that undermines the value of a single, central source of data on brokers’ performance since brokers who want a wider spread of lending options will face a bigger compliance burden.
In addition, it puts into question how any potential penalties for non-compliance with the accreditation would be sanctioned, if not every lender and broker is part of the scheme.
For Phillipou, the FLA scheme is at the start of its journey – he points to the Specialist Automotive Finance (SAF) initiative which is now viewed as one of a number of equivalent salesperson accreditations, viewed on a par with the BVRLA’s initiative and others.
Aware that accreditation attracts “lots of views and opinions and we need to bring those together”, Phillipou argues that the asset finance sector will be strong if it can show clearly and transparently how it operates “as this is the right thing to do”.
