Growing regulatory bill risks limiting credit availability for consumers - new CSA report

A new report from the Credit Services Association, the UK trade body for the debt collection and purchase sector, is recommending that an in-depth review of rising financial services regulatory costs, and their impact on innovation, growth and competition, is carried out as soon as possible. 

The new report, “The Compliance Conundrum: The challenges of a rising regulatory bill” warns that if the sector continues to face rising regulatory costs, firms, markets, and consequently consumers, risk being inadvertently harmed.

Ten years into the FCA’s regulation of consumer credit, some debt collection firms have seen their regulatory costs more than double, while some debt purchasers have seen their regulatory bill increase by more than 700% in that time. At a time when financial inclusion is at the forefront of regulatory considerations, it is often overlooked that without a functioning debt purchase and collections sector providing a viable route to recovery, lending criteria would be tightened, the cost of credit would increase, and access to credit would suffer as a result.  

Report author and CSA Head of Policy Daniel Spenceley said: “For any regulator to be effective, it needs to be appropriately funded and it is entirely reasonable that it should draw funding from its regulated population. However it is reasonable to ask whether the dramatic increases in FCA regulatory costs over the last ten years are in fact proportionate, especially when firms also face frequent regulatory change and increasingly complex data demands from the regulator.

“Regulatory change is part and parcel of working in a regulated sector, but the pace of change in financial services has become relentless. At this point, the cost of regulatory intervention is not limited simply to implementation costs; it contributes to diminished investor appetite, which risks stifling innovation, growth and competition.”

CSA CEO, Chris Leslie added: “Our sector adds significant value for the wider economy, because creditors need healthy balance sheets in order to offer credit onward for customers in wider society. This report challenges regulators to properly undertake true cost and benefit assessments of each new regulation, so they can understand and appreciate the impact on creditors, their balance sheets, and the impact on credit availability for customers. 

“The level of regulatory administration required of firms is now reaching disproportionate levels: in 2023 there were 19 FCA publications of possible relevance to the sector – excluding fee and levy consultations and policy statements, quarterly consultations and handbook notices. Across those 19 publications were 1,560 pages of material for firms to digest and determine their relevance (or irrelevance) to the firm. Tolstoy’s War and Peace comes in a few hundred pages slimmer and there is no statutory obligation to have read that.”

With a new government focused on delivering growth, the regulator must ensure that it is striking an appropriate balance between consumer protection and creating an environment in which firms can operate and innovate with proportionate regulatory and compliance costs. Proportionality is critical in creating that environment and, right now, it does not exist.

Read the full report here.