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Recent research has been published suggesting that 32% of motor retailers are unaware of the Financial Conduct Authority (FCA) ban on all discretionary commission models that becomes effective from January 28th and which is linked to other mandated changes.

Recognising that the data will have been impacted by whom the researchers contacted, I still found myself disappointed and concerned by the findings.

The numbers point very clearly to the fact that people in car retailers are unaware of what is very arguably the most significant change to dealer finance in at least the last twenty years and point to a substantial issue and business risk for many dealers. 

At iComply, we have been working with an increasing number of dealer groups and individual dealers, helping them to prepare for the FCA changes for many months. It is evident from this work that many dealers recognise the risks operationally, reputationally and personally of not establishing a new fully compliant approach to finance. Internally, communication and training are critical to delivering on the changes required.

My observations on the challenges facing dealers are based on first-hand experience. In a previous role as the F&I and Compliance Director for a major dealer group. I understand the commercial and operational challenges, but I was also the person with the Senior Managers Certification Regime (SMCR) personal accountability for F&I. Every dealer or group has someone with this FCA accountability, and it is not to be taken lightly. 

Any dealer who has not finalised their plans to meet the FCA changes; commission models, processes controls, training, promotional changes and the interconnected requirements really must act now. I urge you to seek expert help and guidance; the changes required are not a ten-minute fix.

The Senior Managers Certification Regime (SMCR)

Having touched on the personal accountability created by the FCA’s SMCR for someone in every dealer/group for all matters of financial service compliance. I thought a brief precis might help dealers understand the changes because they are linked. The SMCR, which has been in place since December 2019, is designed to ensure:

• Greater personal accountability at all levels
• Minimum standards of conduct
• Staff in key jobs are fit and proper to perform their roles

Everyone promoting/selling F&I products should have already:

• Completed a Statement of Responsibility (SoR) that needs to be updated at least annually;
• Maintained a record of their Continuous Professional Development (CPD) of their F&I training;  

Some dealers have read that the SMCR has been delayed until March 31st. This new date only refers to parts of the implementation that except for the pandemic, should have been in place by December 9th. Most notable of the postponed elements is the need to ensure that relevant employees must have received training on the conduct rules. If 32% of dealers are unaware of the FCA’s ban on all discretionary commission models from January 28th then from an SMCR perspective, some dealers, notably the named senior person in each business, may have plenty of work to complete to protect themselves. 

The FCA has been clear that they will take punitive action where they see it as necessary. This was evident at the start of December when they fined Barclays Bank UK, Barclays Bank PLC and Clydesdale Financial Services, which operated in the motor finance market as Barclays Partner Finance £26m, for operational shortcomings.

The last 12 months has seen a significant increase of regulatory focus of the automotive F&I market. This attention is not unique, across the board the FCA issued more fines than ever before. The pressure for compliance is on for motor retailers and in 2020, this will only increase with FCA changes due to be announced in Q2 and implemented before the year is out. The established motor F&I process and customer experience. Many dealers are already on the journey to change, but with the Senior Managers & Certification Regime (SM&CR) now in place, many senior business leaders are sure to want the confidence that their business is complying with the spirit and letter of regulation. So, what if...

• You could demonstrate complete oversight of your sales processes?

• You felt totally in control of risk management?

• Your business met all the requirements of the regulator?

• The idea of a touch-point with the FCA was a welcome thought not a headache?

• You had the management information that aided the early identification of risk?

• You had the evidence and management information that demonstrates you are doing it right?

• Your compliance partner spoke your language and supported your business?

• Compliance processes benefited your business and your customers?

• The future regulatory landscape was nothing to fear due to your positive compliance culture?

At i-Comply we work in partnership with our motor industry clients. We seek to  assist in developing both a compliance culture and monitoring programme within client organisations that fits comfortably alongside their own organisational directives and operations and adds value to current sales processes and performance.

Please note, a compliance culture cannot be achieved by a tick box sales process and generic documents; this just leads to complacency and heightened risk.

Compliance with FCA regulation has certainly held dealers collective feet to the fire over recent months. However, the changes required really not be as onerous as many dealers fear. It is a belief founded upon many years in financial compliance, notably in the motor industry and exposure to the FCA.

With a measured and positive approach, compliance can be quite straightforward. This applies equally to the development of the required processes and the application for authorisation.

Working with a wide range of dealers from major groups to independent operators has enabled us to see that the fear about change is worse than the reality. Having audited current processes and procedures, developing appropriate action plans has largely taken place seamlessly and successfully.

The key word to dealers is ‘proportionate’. The FCA does not expect a 500 page essay as a Business Plan. They simply want evidence that a dealer has a clear strategy. Clear monitoring is necessary, but this can be integrated with current processes; financial promotions can be delivered with a little thought and a recognition that transparency can be a good thing, increasing showroom traffic and website ‘stickiness.’

The changes required are not simple tick boxes, nor should the quickest, easiest solution be seen as the best change. It is as much, if not more, about the people as the systems. Appointed Representative status may appear quick and easy. However, to date there is limited option in the market. If for any reason this option was no longer available, or had limited access to finance providers, then the impact upon a dealer could be significant.

FCA authorisation and compliance does not need to be onerous. The greater change is the cultural one that will need to evolve to create a customer centric and commercially successful environment. Our experience to date is that these need not be mutually exclusive.

On December 9th 2019, the Senior Managers and Certification Regime (SMCR) comes into force for all Financial Conduct Authority (FCA) regulated firms; this replaces the Authorised Persons regime and affects all dealers offering finance and insurance products.

In this brief article, I aim to provide a high-level overview of some of the key actions dealers need to take; please note it is not an exhaustive list, there are more!

The basic regime

Senior Managers Regime. The most senior individuals within a firm must be approved by the FCA, after the transition period.

Certification Regime. Senior roles below SMF level must be certified by their employer as “fit and proper”.

Conduct Rules. All employees promoting/accountable for F&I services must comply with the new conduct rules.

SM&CR Categories 

 The SM&CR has three categories:

• Limited scope firms which will be subject to a reduced set of requirements (similar to limited permissions currently);
• Core firms;
• Enhanced firms.

For further guidance, search online for the FCA’s Guide for FCA solo-regulated firms.

Three Priority Areas to Have Prepared

1. Senior Manager Statements of Responsibilities  (SoR)

Each Senior Manager must have a SoR that sets out clearly what they are accountable for, based on their role and the template provided by the FCA.

2. Certification Regime: ‘Fit & Proper’ (F&P) Assessments

Dealerships should already be assessing the fitness of their employees promoting F&I. This should include vetting them on appointment and then monitoring performance through annual appraisals. Under SMCR, this becomes more formal. Firms must now:

Carry out F&P assessments at different points in the employee life-cycle for all Certified Staff, and Senior Managers;

Complete an annual assessment for all Certified Staff and issue a dated certificate as evidence.

3. Conduct Rules and Training

Individual Conduct Rules:

• You must act with integrity;
• You must act with due skill, care and diligence;
• You must be open and co-operative with the FCA, the PRA, and other regulators;
• You must pay due regard to the interests of the customer and treat them fairly; and
• You must observe proper standards of market conduct.

Senior Manager Conduct Rules:

• You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
• You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with relevant requirements and standards of the regulatory system.
• You must take reasonable steps to ensure that any delegation of your responsibilities is to
• an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
• You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
• When exercising your responsibilities, you must pay due regard to the interests of current and potential future policyholders in ensuring the provision by the firm of an appropriate degree of protection for their insured benefits.

Training of all staff included in conduct rules is mandatory. Training should include:

• Managerial training on how to assess F&P;
•  Conduct Rules training for Senior Managers;
• Conduct Rules training for Certified Staff.

Next Steps

 There are just three months to the SM&CR going live; please do not leave it too late to ensure you are ready and if we can help, just ask!