Webinar
Liquidity, financial resilience and the FCA
Liquidity, financial resilience and the FCA
Funders are experiencing enormous pressure in a time of consumer forbearance. What will be the effect on the profit, and loss and balance sheets of funders as a result of “off ramping” and what is the longer-term impact if this is extended beyond three months?
This webinar will discuss regulatory requirements, the liquidity obligations of funders and the importance of building a financial buffer. We’ll also highlight the view from the Financial Conduct Authority on financial resilience and planning, Senior Managers Regime, worse case scenarios and the practical tools available to help.
You can view past webinars at SHMA®ON DEMAND or read the latest news and views from Shakespeare Martineau
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Eddie Flanagan
Partner
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Webinar transcript
(Please note this is auto-generated and un-edited)
0:40
Hello everybody. My name is Eddie Flanagan. I'm an asset Finance partner in the debt and asset recovery team here at Shakespeare Martineau today. Our webinar is on funders financial resilience and the requirements of the FCA. I hope you find this interesting is any queries or issues that you want to raise please feel free to do so.
1:00
And you can contact us after this webinar to put some background to all of this. The consumer credit act in 1974 is the Cornerstone of Regulation here in the UK. However in recent years that's been changed substantially with the onset of the FCA and The Conch sourcebook as I'm sure many of you are used to dealing with that.
1:29
We've seen a surge of requirements for advice and assistance since the outbreak of the covid pandemic.
1:40
So the world has been somewhat turned upside down since the middle to late March and we can see that our clients indeed many organizations are struggling with the Regulatory and financial issues that this pandemic has thrown up global trade has been affected and of Not as affected trade in the UK now with many webinars, they're all doom and gloom and there they tell you what to look out for what to be afraid of and they create a sense of fear here at Shakespeare Martineau where we're taking a completely different view to that. So with our clients and Industry colleagues were very much trying to give you an insight into what is going on.
2:29
On but we're also trying to assure you that there are tools that are there to help you and that although you will face considerable hurdles in the coming weeks and months. We are sure that people address this correctly.
2:47
We will be in a position whereby you will not only Prevail but will prosper in the coming months and years and again if we can do anything to help you with that you only have To contact us in that regard. So if we look at some of the problems that have been thrown up by this crisis the UK has got a very regimented regulatory framework for the treatment of consumers. I'm sure that many of you are very familiar with principal 6, which is treating customers fairly. That is something that's really been.
3:29
In our minds since 2013 2014 and that is how funders should interact with customers. The label itself could not be clearer treating customers fairly. So it's behaving in a correct and proper manner making sure that any notices that have to be sent are sent out promptly that they're sent out in accordance with the regulatory framework.
4:00
And that wet people need systems assistance is required.
4:06
However, we have seen the very urgent messages that have been coming from government and indeed from the financial conduct Authority as there has been considerable alarm with the intensity of this crisis and how it has very quickly affected the whole of the country and I don't think any industry will set Actor has been spared the ravages of what has gone on. So we the the government and indeed EFC a very quickly saw that with the huge amount of people being furloughed who are on reduced incomes or more. Unfortunately, those who are in more extreme financial distress that certain incomes have been almost wiped out straight away. We have heard the phrase used many times.
4:59
which is called a payment holiday the FAA and indeed the FCA and now really dislike that expression as they believe that it can mislead consumers quite rightly into thinking that although there may be granted forbearance of between one month and three months that the expression holiday could be misleading both the FCA and Ethel a actually apps actually prefer wording, which is a deferral and you will see moving forward that the periods of Grace which the FCA have urged their funders to provide is now called a payment deferral and that the technical expression and used within the industry is off ramping. So it's the off ramping of debt for a small period for borrowers.
5:53
And again, my colleague Jane Gardener can help you in regard to issues around debt collection and what you can And can't do or what you should and shouldn't in that regard. But essentially we've seen situations where funders have very urgently had to provide a deferral in regard to the payments that they're receiving. Now that created an immediate regulatory problem in that had as one provide this do you need to have what is called a modifying agreement under Section 82 the consumer credit act or do you your can you simply Grant a concession?
6:29
Letter now the regulatory Matrix or framework behind that is very complicated and funders have been struggling on a very urgent basis to address that and when we say funders, these are non Bank funders as well as Bank funders. These can be brokers who have got their own books leasing companies dealers and so forth, but one has to be very careful about how you engage with your consumers.
6:59
Could you must I am fairly. So one needs to be very careful to look at pre covid situations. If there's been a real sore distress in that area and then simply compare that again with those consumers who are struggling as a result of covid and the implications that has had on their finances now many funders. I've got to grips with that and we can see that people are now a good 6 to perhaps even eight weeks.
7:30
In dealing with those issues and what has come about many funders have made the decision as to use concession letters. They've all or they might use modifying agreements.
7:41
You have to make clear decisions as to whether you're going to charge interest or other charges as that tend to dictate what method you use but that's thrown up another regulatory issue, which is really quite pronounced The Conch and the consumer credit Act and the Coexisting regulations set out clear guidance as to when we should use the relevant notices and summarize these using notices of sons in arrears or notices of default the more serious notice. Normally. Those should be set out at set periods as set out in the legislation that governs that now the problem is that seems counterintuitive when you're trying to give somebody some forbearance.
8:30
Or you're making a payment deferral should you then notified credit reference agencies or should you do any act that should damage their credit rating? Well that is obviously counterintuitive to what you're trying to do. You are trying to work with these consumers and you're trying to help them. So then we find a situation whereby some funders have very good engagement with experience and other credit reference agencies.
8:58
So they're working very Hard to make sure that any act they do does not damage or impinge on their customers ability to see credit or to have their credit rating damaged in any way then making decisions between themselves and the consumer has Pompey do with the notice of sums in arrears. And obviously they're making contingency plans as to what they do with the default notice as well.
9:25
So there's a huge amount of Engagement part of the financial resilience that we're going to come to examine today is very important about how you engage with all of your stakeholders that is from your Regulators shareholders the owners of your business your employees, and of course vitally your customers.
9:44
So it's very careful that you keep all of these stakeholders informed and that you have a clear roadmap of where you're going now many funders have got to grips with this deferral period that there Cussing and they should be measuring the effect of off ramping and map out the different models of how that will affect your business moving forward. So you can see that you're off ramping say a certain amount of regulatory debt, but in reality, I'm sure you doing the same thing with non-regulated debt and your commercial customers. Obviously that will leave cash gaps to the business and will affect you.
10:30
In your day-to-day running of the business and the cash that's coming into the business. So that is a clear issue for you as a regulated entity part of being a regulated entity and some of the issues that had that you have to deal with with your contacts at the FCA is that you must make sure that as a business notwithstanding the effects that you have.
10:59
Countered by granting off ramping or deferral to your customers that you must May maintain your financial resilience moving forward and that is a key consideration that you have to bear in mind for all of this. It sounds quite ominous. But even last December we saw situations, whereby the FCA were urging businesses and this works closely with the senior managers regime as well.
11:29
They had to look at the issues in relation to modeling. So if the business is to encounter a particular scenario, how can it maintain its Financial resilience? How can it maintain adequate Capital reserves and what liquidity and buffers does it hasn't have in place to deal with any issues that may arise it was somewhat ironic that this accrued.
11:58
Last December and then we find ourselves in March and we're facing a very real and the Very cogent example of of how we need to deal with these matters as we move forward. It's very important that you look at your financial resilience. Look what capital that you have to hand. Look at the liquidity buffers that you have and I would urge you to keep a good relationship.
12:28
Ation ship with your regulator some of you know, your contacts at the FCA and that I think they will only applaud you for engaging with them. It's very important that you start from the top of the business downwards. Look at your senior management team.
12:47
You've all encountered the senior manager regime's recently and I know many businesses are probably still struggling with that and in now a reskin of the statements and The functions that Senior Management have but as part of your senior management team you need to be able to map out who is responsible for what in this crisis and I will though I hate to bring this into the conversation part of your contingency planning should be what should happen.
13:17
Unfortunately, if key people get ill so look at the governance of the bill and the business look at what the business how the business is managed what roles are of each if you within the Senior management team look at the modeling the worst-case scenarios that you could have moving forward see what resources that you have for dealing with these issues as they arise. So you have the government sector of your business you look at how the business is managed you plan for if keep people should the get ill then beneath that who are your key employees who are dealing with different departments who are dealing with your finances who is dealing with your credit card.
13:58
Troll and how is that function being done? Is it is it correct in a regulatory matter? What where can you provide forbearance? Where should you not provide forbearance? Remember? This is not an excuse to forgive all kinds of bad behavior. You have rights as well as obligations. And if you're unsure about that again, you just seek help, you know, you're not the only people who are struggling with these issues at the moment. Look at your business continuity plan.
14:28
How has that changed since the outbreak of this pandemic have you looked at that? Are you formulating that the FCA will expect you to keep modifying that you've got many employees at home. Are they getting the support that they need both Technical and and line Management's Ford are they able to deal with issues remotely in a manner that complies with all the regulatory needs equally then after looking at government.
14:58
Look at stakeholder management and by that we mean anybody that touches and engages with the business from your owners from your fundus. Have you got good relationships with your funders? Have you got adequate cash reserves? Have you got adequate resources that you can draw on the buffers that you need to deal with this matter? When should you inform the FCA? When should you when do you not have to engage with them and then looking at other states?
15:28
Like holders, make sure that your employees know what you're doing. So the employees can see the plan. They know what they're working out. Even if there's a short interim plans that are capable of variation. How are you engaged with them then finally, how do you engage with your suppliers? Are they on the journey with you? One of my clients used a wonderful expression as to how he was dealing with this how he was getting into work and that he was said that in these days of extreme.
15:58
Situations everybody needs to win a bit. So as long as everybody comes on the journey with you your funders your Regulators your consumers. You will have a good business to move forward with keep that business continuity plan working. Make sure your systems can also deal with what you're doing. So, for example, we know several clients who had to make adjustments to their systems to make sure that they had correct.
16:28
No, Applications going to the credit reference agencies that they were dealing with that they could model the effect of off ramping in terms of payment holidays how that was affecting their business and they cash flow. So everybody is in the same boat here and I'm sure there are many businesses wrestling with a number of scenarios that they're unsure of you have to deal with the urgent urgent problems first.
16:58
Have to make sure that you've got a stable Workforce you got stable funding and that you can model what is happening as we move forward because as we come to the end of the first three months deferral period we will need careful engagement with The Regulators to see what their thoughts are moving forward. There's a huge difference between deferring three months and a massive difference if that three months becomes six months.
17:25
However, we do know that people like the FMLA and Other trade bodies are speaking with the government speaking with the treasury and that they will be looking at some of the modeling and some of the support that is needed for the industry. So we don't know whether they be guarantees given certain funders if more forbearance is needed or in regard to the writing of new business.
17:52
What will be to hand there to help funders now the FCA have said as part Of financial resilience, please ensure that you make use of all of the tools that are available to you. There are many tools available to Industry in general and funders are no different. So C bills bands back loans fixed terms all the all the following and all of the other Financial system that is in place from the government.
18:28
You should carefully consider if that fits your business and if it is of assistance to you, so there are plenty of issues to look at in terms of the regulatory framework and the operational framework for your business is moving forward. But those that managed to map out the scenarios those that managed to prepare for the future will not only Prevail but will prosper in the coming months and years.
18:58
So try not to be too fearful of this there are plenty of tools that are there to assist you. And where's the firm are happy to do that. I appreciate this is a short webinar. Do feel free to contact us. You'll see that the smile on demand provides a whole range of webinars and former informative tools that are there at your disposal. But you must feel free to contact us.
19:27
We are here to go on the Journey with you we're here to support you in the coming months and years as this situation unravels, and I'm sure that we will mutually Prosper moving forward. So, please feel free to send us your questions and we'll do our very best to help you and thank you for taking part in the webinar today.
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