The smoother online tools created by fintech firms may make it tougher to comply with new regulatory consumer duty rules, experts have warned.
The Financial Conduct Authority (FCA) has proposed a new consumer duty to be introduced by 31 July 2022 stating that “a firm must act to deliver good outcomes for retail clients.”
Financial services firms, including peer-to-peer lenders, will be required to test and show that their communications are clear and that consumers are receiving good outcomes.
But Frank Brown, senior director and head of Hogan Lovells’ financial services regulatory consulting service, warns that this could clash with the more streamlined services offered by fintechs.
For example, fintech firms such as P2P lenders pride themselves on providing fast online services that let investors open accounts or borrowers access funding faster than with a bank.
“The user experience design and the desire for faster and smoother customer journeys may not always be compatible with increased expectations to demonstrate that customers, particularly financially unsophisticated customers. fully understand what they have purchased,” Brown warned.
“For some, the underlying product itself may need revision, if it cannot be demonstrated that it offers sufficient benefits and value to the target market.”
Brown said it is important for firms to take action now to ensure they can meet the FCA’s consumer duty expectations.
“Consumer duty presents a challenge for all firms, but those in the fintech sector may have particular issues to contend with,” he added.
“Firms may have evolving and maturing control frameworks which may need to be skilled and staffed up for the increased workload.
“There will be increasing expectations on governance and oversight, which may require more formalised structures to be put in place and greater evidencing of debate and decisioning.”
Read more: Additional P2P regulation predicted