The Financial Conduct Authority (FCA) plays an important role in protecting the public interest by looking at the way that businesses operating in the financial services sector operate. Indeed, it is difficult to understate its potential importance given the wide range of items that it has a potential interest in and their general impact on the public. This week provided two cases in point. In one of them, the FCA has not – according to some commentators – covered itself in glory. In the other, it might potentially redeem itself though even then there will be some unhappy punters whatever happens.
Let's take the more negative item first. During the pandemic a number of those who have suffered a negative financial fallout have taken advantage of the opportunity to take a 'mortgage holiday'. Such arrangements are of course very helpful to those faced with short-term cashflow problems through no fault of their own but there are potential negative repercussions such as the possible impact on the credit-ratings of those taking advantage of them. Initially this did not seem to be a problem. When payment holidays were announced by Chancellor Rishi Sunak on 17 March, reassuring noises were soon after made by ministers that credit-ratings would not be impacted. On 20 March, the FCA confirmed this and made similar encouraging statements when personal loan and credit-card borrowings were given similar treatment at the beginning of April.
But according to the Financial Times such reassurances were premature. The FCA subsequently clarified their statements to say that, even if credit-ratings themselves were not affected these are not the only factors that lending institutions take account of when deciding on who to lend money to. In other words, mortgage, loan or credit-card payment holidays could still have an impact on the decisions of banks and other lenders in the future. It is possible that, if the initial government and FCA advice had been different, some of those taking advantage of payment holidays might not have done so.
How might the FCA redeem itself? This week they have taken up the cudgels on behalf of the public in another important area; insurance. There is a widespread perception in some quarters that insurance companies might just be more willing to take our money when we need it than they are to reimburse the public when they need it. In fairness to my insurance provider they were very quick to replace my fridge when it went into meltdown last week but that is an event routinely covered by standard insurance. The financial fallout of the pandemic is something different and some insurance providers have argued that their policies do not cover such exceptional unforeseen events. The FCA has decided to test this out in court.
Specifically, they are launching a test case in the High Court against eight insurers covering 17 specific policies. The outcome could be hugely important. Some 350,000 companies, the majority being small businesses, have policies that are potentially affected by the outcome and therefore have a critical vicarious interest in what happens next. Sides are already being taken with the insurance companies publicly stating their position that the case rests on a legal interpretation that is not supported by existing rules and legislation. Fortunately it is for qualified legal experts to pick the bones out of this; but there are 350,000 businesses out there who have a very strong interest in seeing where we go from here and wishing the FCA all the luck (and sound legal judgement) that it can get.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.