Regulator to extend SM&CR to credit rating agencies

The FCA has outlined areas where legislative change is needed such as buy now, pay later­­ (BNPL). Also, extending the Senior Managers and Certification Regime (SM&CR) to payment and e-money firms.

This year’s annual perimeter report will form the basis of a formal discussion between the FCA and the treasury, which will take place before the end of the year.

Buy now, pay later

According to the report, BNPL usage increased threefold during 2020, predominantly driven by online shopping during the pandemic. In that year, total BNPL transactions were valued at £2.7bn.

Since last year’s perimeter report the FCA has been working with the treasury to bring unregulated buy now, pay later firms under its regulation.

Last week (October 21) the treasury published a consultation paper setting out the potential options on the scope and form of regulation for BNPL.

Senior Managers & Certification Regime

The FCA is looking to extend the SM&CR to cover credit rating agencies (CRA) and the payments and e-money sector.

The SM&CR aims to reduce harm to consumers and strengthen market integrity by improving conduct at all levels within firms and enhancing senior management accountability.

According to the FCA, extending SM&CR to these firms will enhance accountability and governance. Hence, it will strengthen the FCA’s ability to supervise firms with a wider range of tools with the intention of driving higher standards and mitigating risks of consumer harm.

Appointed Representative

The FCA identified potential risks of harm within the appointed representative (AR) regime, including insufficient oversight of ARs and inadequate controls over the regulated activities for which they had accepted responsibility.

Firms and individuals may want to be an AR to undertake certain regulated activities without the need to get FCA authorisation.

Earlier this year, the FCA introduced a £250 annual fee on ARs to fund their work identifying and addressing harm from the AR regime. The FCA estimates these fees will raise £7.2m per year.

In a small pilot of this tighter approach, 50% of firms intending to appoint ARs either withdrew their applications or the FCA decided to refuse them.

Mortgage prisoners

The FCA is also carrying out a review on the characteristics of mortgage prisoners, many of whose mortgages are owned by unregulated entities.

The review is considering the effects of the regulator’s interventions designed to remove regulatory barriers to switching for mortgage prisoners.

The financial regulator will report to the treasury on the outcome of this review, which will be laid before parliament by the end of November 2021.