The FCA has recently imposed a fine of over £6.2 million on HSBC (including HSBC UK Bank plc, HSBC Bank plc, and Marks and Spencers Financial services plc) for their ‘inadequate measures’ to treat customers fairly who are experiencing financial difficulties or falling into arrears.

The regulator uncovered issues with HSBC’s policies and procedures, staff training, and lack of effective measures to detect and rectify cases of unfair customer treatment.

Both HSBC’s censure and the upcoming permanent changes arising from PS24/2, are signals from the FCA that indicate many firms are continuing to take risks by not offering affordable, tailored, and sustainable solutions – whilst being overly automated and not undertaking sufficient personalised solutions.

When combined with the Consumer Duty, the rise in expectations for firms to support customers when they face financial challenges has never been greater. So, it’s a crucial time to take stock and consider the implications of these rules and review where processes may continue to be a risk.

Enhancing safeguards for borrowers

The PS24/2 guidance published in April 2024, aims to set out the final rules which will strengthen protections for borrowers in financial difficulty. Through these rules the regulator is formalising the Coronavirus Tailored Support Guidance (TSG) into CONC and MCOBS as well as further targeted changes to support customers in financial difficulty, resulting in changes to its forbearance rules and guidance – which will be effective from November 2024.

For firms, PS24/2 requirements will apply alongside additional expectations such as:

• Taking reasonable steps to ensure forbearance measures are put in place and remain appropriate, including considering the customer’s individual circumstances.
• Being transparent about the accessibility of forbearance options
• Requiring firms to consider the needs of different customer groups, particularly vulnerable customers who may be at greater risk of harm and taking appropriate action to mitigate these risks
• Monitoring Personal Current Account (PCA) activities for overdrafts to understand if a customer is facing, or is likely to face, financial difficulties by identifying repeat overdraft use
• Encouraging firms to develop data models to enable them to assess overdraft usage and PCA activity to identify those most likely to need support
• Ensuring the effectiveness of any relevant policies and procedures with ongoing compliance to review at appropriate intervals
• Providing relevant information to customers before providing forbearance to allow them to make informed choices about what action to take, including credit file implications

What we know about the HSBC censure case

The FCA has signposted several issues and failures that require further attention from lenders – HSBC, to ensure fair treatment of customers who are (or may become) vulnerable whilst offering customers, appropriate, affordable, and sustainable solutions. These include:

• Entering into payment arrangements or taking payment without conducting appropriate affordability assessments which, in certain cases, could have put customers in a worse financial position
• This lack of information on customer circumstances, together with training shortcomings, impacted the ability to identify and consider whether various forbearance options were appropriate. For example, in the FCA’s view customers suffering longer-term financial difficulty were predominantly offered short-term solutions such as a temporary freeze on interest and token payments, which did not prevent customers from subsequently entering default – instead of exploring all options available
• The process for payment default was (overly) automated and/or system-driven (with no evidence of manual review or intervention) and led to adverse information on some customers’ credit records
• Certain default, litigation, and repossession steps were (in some cases) disproportionate.

The potential causes for the issues outlined above were pinpointed in the FCA’s findings. The regulator highlighted gaps and weaknesses in collections policies, procedures, and frontline staffing, where cues, or behaviour that may flag potential financial difficulty were not recognised sufficiently. Plus, inadequate discussion of management information relating to customer outcomes across a range of governance committees was also raised as a significant cause for concern.

Enlist third party experts to re-define your delivery of fair customer treatment

TCC compliance experts help you review the status quo – and work with you to define your fair value customer treatment strategy. In collaboration with your in-house colleagues, we help you rollout new and revised process and train your teams to address the shifting regulatory landscape. We also provide firms with ongoing support and, where needed, specialised expertise to help you deliver the right outcomes for your customers.

Contact us today to discuss how we can help you address your regulatory challenges.