Supporting a well-functioning Credit market

#FinancialServices #FinancialRegulation #FCAGrowth #EconomicGrowth #FCA #CreditWeek #CreditStrategy #CreditAwards Luke Broadhurst Kitty Wood Louis Bryant

Supporting a well-functioning credit market

There are few sectors that touch almost every stage of our financial lives like credit.

I still remember my first experience financing a car - assessed not by an algorithm, but with a steely glance over the bank manager’s rimmed glasses. Thankfully creditworthiness assessments are a lot more sophisticated nowadays, as are our credit markets – more varied and more essential not just for consumers, but to the economy too.

The FCA’s latest Financial Lives Survey showed that around 80% of UK adults used some form of credit in 2024. At the FCA we want credit markets to thrive - helping people manage money, cope with unexpected costs, and contribute to economic growth. To do that, we need a regulatory framework that is modern, proportionate and fit for purpose.

The FCA’s vision, laid out in our Strategy, is to deepen trust, rebalance risk, support growth and improve lives. We aim to deliver that through our four strategic priorities:  

Helping consumers navigate their financial lives to boost trust, stimulate product innovation and ensure consumers get the right support at the right time.  

Being a smarter regulator - ensuring we are predictable, purposeful and proportionate.

Supporting growth by enabling investment, innovation and ensuring the continued competitiveness of our world-leading financial services sector. 

Fighting crime by focusing on those who seek to use the fact they’re regulated to do harm. 

 Embedding the Consumer Duty

The Consumer Duty is central to our work to help consumers navigate their financial lives. It’s already encouraging firms to improve outcomes and we’ve been pleased to see firms across all sectors acting to deliver positive change.

But we recognise that culture change takes time. We have been clear all along that this wasn’t just a one-off compliance exercise, but a fundamental shift in mindset.

The Duty’s high standards and flexibility give us an opportunity to look again at wider expectations of firms. We are identifying opportunities to streamline the rest of our Handbook and reduce unnecessary friction or barriers to innovation.  

And we know that the credit sector includes a very large number of small firms, so we’re enhancing our communications and outreach to ensure all firms – regardless of size – have the clarity they need. We’ll continue to highlight good and poor practices to support firms in delivering consistent, positive outcomes.

Buy Now Pay Later (BNPL)

At the heart of our policy approach is a clear principle: to rely on the Duty where possible and only introduce new rules where necessary. 

That principle is guiding our work on Buy Now Pay Later. We have long called for BNPL products to be regulated and welcome the Government’s progress. Once the relevant legislation is laid in Parliament, there will be a 12-month lead time before it takes effect.

We recognise the choice and flexibility that BNPL can provide for consumers, so we want to ensure those who access BNPL can still benefit, and that firms can innovate and grow.

But it is important that consumers are appropriately protected; we have seen the negative personal and economic impacts when credit markets do not operate in the interests of consumers.

Our consultation will quickly follow once the legislation is made, setting out our aim for a proportionate regime that protects consumers, supports innovation, and reflects the unique characteristics of BNPL. 

Being a smarter regulator

Alongside BNPL, the Government launched its consultation on Consumer Credit Act reform - a unique opportunity to align credit regulation with the realities of modern-day products and digital credit journeys.

We will be supporting its work to create a modern, outcomes-based regime. When we consult on the reforms, we’ll be looking to strip out unnecessarily detailed requirements and align with the Duty, to maximise consumer understanding, enable innovation and competition, and drive growth. 

Following feedback to our Consumer Duty Call for Input, we have committed to reviewing outdated credit advertising rules (CONC 3) and to exploring how Annual Percentage Rates (APR) disclosures could be improved. This work will run alongside the reform of the CCA and we will consult with key stakeholders as we progress these reforms.  

We are also making progress in fulfilling our ambition to be a smarter data-led regulator, modernising our data collections and accelerating our use of data analytics. We have introduced a new Product Sales Data return covering more than 99% of credit products – giving us better visibility and enabling more targeted, proportionate supervision.

We understand that new data requests carry a cost, but it is vital that we receive the right data to perform our role effectively. We have decided to pause work to replace the remaining consumer credit returns, while we assess the impact and value of changes already made. 

We are also making it easier for firms to engage with us through our recently launched My FCA platform, where firms can see their regulatory reporting, attestation and status all in one place. 

This drive for continuous improvement will help make us a more predictable, purposeful and proportionate regulator.  

Growth

Better credit reporting will underpin better lending decisions and could improve access to credit.

Our Credit Information Market Study proposed a number of competition-based remedies, including:

o Creating a new independent Credit Information Governance Body to strengthen oversight and coordination in the market. 

o The Industry-led remedies are targeted at improving the quality of credit information and consumer access and understanding. 

o FCA-led remedies designed to improve quality, coverage and consistency of credit information. We are working through these and hope to publish a consultation by the end of the year. 

We have worked with Fair4All Finance to deliver a series of affordable credit workshops, supported their pilot of the No Interest Loan Scheme through our regulatory sandbox, and held a Financial Inclusion TechSprint where we sought innovative solutions to access issues. 

All these measures can help with access to credit for those who can afford to repay but may not currently be able to access credit.  But let’s be clear: more credit is not always the right answer. Sustainable growth depends on responsible lending across the spectrum - from high-cost lenders to credit unions to CDFIs and mainstream institutions.

High-Cost Short Term Credit (HCSTC) cap review 

The High-Cost Short Term Credit price cap has been in place since 2015 - the economic situation has changed markedly since then.

So, we have begun work to review the cap. We want to understand how effectively it is working in the interests of consumers and markets, and if it is still fit for purpose at its current level.

We have not yet finalised our approach and welcome views from stakeholders. There is no intention to remove the cap, but it is right that we review how it is operating to ensure it continues to serve consumers and the market well.

Financial inclusion and access 

A well-functioning credit market should provide everyone with access to the financial products and services they need to navigate their financial lives.  

Consumer protection should not be seen as inherently at odds with innovation and growth. Confident, informed consumers are more likely to engage in the financial system, driving demand, innovation and growth. Likewise, growth can encourage healthy market competition and greater choice for consumers, boosting financial resilience and inclusion. That is why we support the Government’s aim to develop a UK-wide financial inclusion strategy.

Whilst many causes of financial exclusion such as poverty, low financial capability or low levels of digital participation do not fall directly within the FCA’s remit, we have an important role to play in driving greater financial inclusion in the UK. We are actively engaging in the Financial Inclusion Committee and its sub-groups, and will continue to work with the Government and others to build solutions.   

Redress framework 

A predictable, fair redress system builds trust in financial services and confidence to innovate.  

Together with the Financial Ombudsman Service (FOS), in November we published a Call for Input on modernising the redress framework, particularly for mass redress events.

Since then, we have been proactively developing proposals aimed at:

• increasing certainty for firms and investors

• maintaining consumer confidence

• enabling more predictable and consistent redress outcomes  

 We have worked closely with HM Treasury, who have indicated a willingness to consider legislative change if necessary. To ensure a coherent package of reforms, we plan to publish our response to the Call for Input alongside an announcement of HMT’s next steps. 

We of course await the Supreme Court’s judgment on the recent motor finance case, and will confirm within 6 weeks of its decision whether we propose a mass redress scheme.

We know more than 2 million used and new vehicles are bought using motor finance each year. We want to make sure that the motor finance market functions well, with effective competition, so consumers can get a fair deal.

Fighting crime

And we remain resolute in fighting financial crime.

We will continue to root out bad actors - especially those firms and individuals who seek to exploit their regulatory permissions by lending legitimacy to misconduct by creating a ‘halo’ effect.

Although the main responsibility for investigation and prosecution sits with Illegal Money Lending Teams (IMLT) and the police across the UK, the FCA has a role to play.

We work closely with the IMLT to monitor activity, understand trends, and refer cases. Although very few adults in our Financial Lives Survey (0.6%) reported borrowing from an unlicensed moneylender, individuals may be under-reporting, and we remain alert.

We will use all the enforcement tools at our disposal, in conjunction with our agency partners, to continue to stamp out financial crime.

A modern credit market

The UK needs a modern credit market that protects consumers, encourages innovation and supports growth.

This will require a regulatory framework that is fit for purpose, and boosts trust and confidence in financial services.

The FCA has a clear vision and strategy, as well as an ambitious work programme under way to help us achieve it.

Our interventions in credit markets are not without trade-offs, and credit is not always the right answer. But when done well, it can support resilience, inclusion and growth.

For a healthy credit market, its essential we get the balance right and adapt and change when and where we need to.