A recent letter was issued from the FCA to the CEO’s of UK banks and building societies  outlining key priorities for mortgage lending activities and the risks they viewed as the greatest concern.

In this article, we will touch on a few of the key points within the letter and consider ways that banks and building societies can ensure compliance with these priorities.

Consumer Duty

In recent years, Consumer Duty has been the cornerstone for many regulatory changes in the UK. This regulation requires financial firms to prioritise customer interests, deliver good outcomes, and adhere to higher standards of care. Some examples of this are providing clearer communication, fair pricing, and enhancing product suitability.

A recent Consumer Duty Board study highlighted areas of best practice for reports, such as having clear focus on outcomes, good quality data, analysis of different customer types, clear processes for production of the report, and a focus on culture throughout the firm.  The report went on to showcase areas where organisations can improve, such as having improved data quality, a comprehensive view across distribution chains, analysis of different customer types, challenge from the board, and taking effective action.

This showcases that having access to good data could help meet some of these key aspects. Quality data will provide a more accurate view on customer types and will enable banks and building societies to improve the reporting on their outcomes. Access to real-time, centralised data has become a must for financial organisations looking to scale and remain competitive. Sudden shifts in customer behaviour or new trends can be identified sooner, enabling financial institutions to shift their operations and react to customer behaviour sooner. Taking a proactive approach with customer service will leave consumers feeling confident in the service they receive and improve retention.

Similarly, smaller firms face challenges such as governance and monitoring and outcomes due to a lack of dedicated compliance, MI, or auditing within their organisation. However, the report showcased how these smaller organisations utilise data from other services and seek outside impartial feedback on their Consumer Duty approach. At SBS, our customers see the value in regular user groups, bringing similar organisations together to share their challenges, and successes, and find ways to make use of best practice. In some instances, this can involve sharing relevant community data that some of their smaller counterparts can consider when making changes to their products and policies.

Operational Resilience

Within the letter, the FCA shared their Building Operational Resilience Policy final rules, including how Artificial Intelligence (AI) had seen rapid development in the form of productivity but also introduced significant risks. Development of AI in recent years has been controversial in many ways, therefore there is a great deal of importance in getting AI integration right to support digital infrastructure, consumer safety, improving data, and supporting operational resilience.

AI is supporting businesses in many ways, including identifying risk scenarios, predicting future consumer trends, segmenting customers based on preferences, and analysing consumer data. When considering the introduction of AI to operations, it is important to consider parts of the business that would have a low risk profile, but high impact on operations. It’s important to note that what is right for one business, isn’t necessarily right for another. Differing systems mean that there will be various technological weaknesses. This is especially important to consider when looking at implementation to ensure you are not inadvertently opening a door to greater risk.

The need for an operational resilience plan is well highlighted in the disruption caused by the COVID-19 pandemic. Businesses of all shapes and sizes were forced to immediately shift operations to ensure they were able to continue functioning day-to-day but also remain competitive. One of the ways this was achieved was thanks to cloud and SaaS services. This highlighted the importance of having reputable and dynamic service provider, with cloud services integrated across their offering, who can keep pace with immediate and substantial change.

This is a good example of the importance for banks and building societies to consider how they will continue to offer products and services through different potential scenarios. Identifying key business services and being confident that they can remain within impact tolerances and proactively testing potential scenarios is crucial. The FCA have an expectation that they should see a maturity of the industry’s testing mechanisms and that robust action plans are implemented to ensure readiness. Areas to consider when conducting these tests is the reliance and resilience of third-party partners, how to clean up poor ‘cyber hygiene’, and ensuring adequate control over data.

Customers Experiencing Financial Difficulty

Life happens, and things do not always go to plan. It goes without saying these situations can be incredibly emotionally charged and the outcomes of how a bank or building society addresses the financial difficulty of an account holder can have a considerable impact on client satisfaction and in some cases, have larger implications. Recently, the FCA recently fined a large bank over £10million due to the system and controls lacking secure fair outcomes. There is an expectation for all firms to respond appropriately to ensure repayment plans are realistic, there is thorough training to help staff understand customer circumstances, and staff will prioritise and assess individual customer circumstances.

The FCA guidelines highlight how appropriate support for those who are at risk and a wider range of forbearance options should be considered, in addition to signposting customers to impartial money and debt advice. In a previous SBS Empathetic Lending article, we explored concepts of empathetic lending and showcased that it is not just about listening to the customers and empathising with their current situation. Instead, it is proactively finding new ways to improve the customer or member experience, pre-empting when an account holder might be experiencing financial difficulty and work to implement new agreements that will reduce the likelihood of default. Customers and members will remember how they were treated through challenging personal situations, and this can have a significant impact on retention.

Access to Channels

Since 2015, UK banks and building societies have closed a total of 6,228 branches, which is around 53 per month, albeit branches are still a pillar in a number of communities. There are several reasons for these closures including a necessity to remain profitable, loss of footfall in the area, and consumers increasingly using digital channels.  While the FCA do not outline the channels a financial organisation should offer, it details how firms should consider that some customers or members might lose access to the support they need if they cannot use the digital channels that account holders are frequently being pushed towards.

There are ways that this can be addressed such as offering educational services around the use of digital banking services. However, there are concerns of how this might impact the older generation who are viewed as having a higher reliance on cash, as well as people who live in remote areas across the country who may not have access to reliable internet. While there is a rise in digital channels such as online and mobile banking, banks and building societies need to also consider alternative ways they can continue to support these consumers, such as offering mobile branches and other travelling community services. One thing that is for certain here is that it’s important to get the balance right and not isolate anyone, as this will lead to them using alternative banking services. In addition to this, many smaller financial organisations do not yet offer mobile banking solutions, which leaves them vulnerable to larger competition.

It is important here to consider how organisations can improve their customer journey to not only meet the FCA guidelines, but also to compete against the rise of digital banks, particularly due to the changing attitudes and uptake by younger generations. Here, it is key that there should be seamless transition between online and offline channels and that the account holder has a consistent experience across all channels in their end-to-end journey. Aligning strategies with environmental, social, and governance considerations will help to promote responsible banking processes that retain and attract customers.

Conclusion

These are just a few points from the list of key priorities for 2025 by the FCA and their commitment to upholding these standards is clear. Many of the reoccurring themes reviewed in this article can be linked back to having a robust platform in place with the support of trusted third-party partners, ensuring compliance, resiliency, and bringing additional features that enhance customer relationships and satisfaction. Selecting the right partnerships can make or break an organisation’s plans at growth.

With this guidance being issued, now is a good opportunity to review current plans, identify weaknesses or gaps in compliance, and set out detailed action plans to tackle new regulations head on.

Ben Verdin, Head of Product Strategy & Management – UK Lending, SBS