Harper James advises fintech businesses on the laws of England and Wales, including the regulatory requirements that apply to consumer credit products and technology-led financial services. Consumer credit compliance starts with identifying the regulated activities, customer relationships and distribution arrangements within the business model.
A fintech offering loans, credit broking, debt adjusting, debt counselling or related services generally requires FCA authorisation under the Financial Services and Markets Act 2000 and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. The Consumer Credit Act 1974 and the FCA Consumer Credit sourcebook, known as CONC, then govern matters such as agreements, pre-contract information, creditworthiness assessments, arrears handling and customer communications.
The business should map each activity against its permissions before launch. This review should cover the lender, platform, introducer, broker, payment provider and any appointed representative. It should also establish who contracts with the consumer, who makes the lending decision, who receives fees and which organisation is responsible for complaints and customer support.
Firms must assess creditworthiness, including affordability, using information that is sufficient and proportionate to the product and customer. Processes should address vulnerable customers, financial difficulty, arrears, forbearance and the fair treatment of customers throughout the relationship. The FCA Consumer Duty adds requirements concerning consumer understanding, support, product and service design, and fair value.
Financial promotions must be clear, fair and not misleading. Advertisements, comparison tools, influencer content, pre-contract information and automated customer journeys require review against FCA financial promotion rules and CONC. A fintech must also control promotions issued by introducers, affiliates and appointed representatives, rather than treating those communications as outside its responsibility.
A compliance framework normally includes documented policies, senior management responsibility, staff training, monitoring, management information, record keeping and a process for regulatory reporting. Consumer credit firms also need procedures for handling complaints under the FCA DISP rules and for cooperating with the Financial Ombudsman Service. Credit decisions and customer communications should be sufficiently documented to support audits, complaints investigations and supervisory enquiries.
Credit underwriting and open banking integrations involve personal data, automated decision-making and data sharing. The business must establish a lawful basis for processing, provide appropriate privacy information, apply security controls and complete a data protection impact assessment where required. Compliance is therefore a product design function as well as a legal review, and should be tested before launch and after material changes to the algorithm, pricing, customer journey or distribution model.