LSB Chief Executive, Emma Lovell, spoke at the Westminster Business Forum’s ‘Next steps for consumer credit’ event today about the priorities for ensuring fair lending standards. if you missed the forum, you can read Emma’s speech below.
Hello everyone. I’m Emma Lovell, the Chief Executive of the Lending Standards Board. I’m delighted to be here today to talk to you about priorities for ensuring fair lending standards.
The Lending Standards Board, LSB, is the primary self-regulatory body for the banking and lending industry with a clear mission – driving fair customer outcomes within financial services. We do that through independent oversight of the Standards and Codes for which we are responsible.
Adherence to our Standards and Codes is a clear indication to customers and stakeholders that a registered firm is going beyond statutory regulation and is committed to the very best practice in the treatment of its personal and business customers.
Among the Standards and Codes we oversee are the Standards of Lending Practice for personal customers and the Standards of Lending Practice for business customers with a turnover of up to £25 million, which were formally recognised by the FCA last year. The Standards are designed to ensure fair lending and better customer outcomes.
I want to speak to you today about how that can be achieved, focussing on three key topics that our registered firms and non-registered firms should be focussing on to ensure fair lending and improved customer offerings.
Those areas are culture and the critical role it has to play in achieving good customer outcomes, understanding what good outcomes are and importantly how to measure them, and finally, innovation and change and how to achieve that within a firm.
Good culture = better outcomes
There’s been a lot of talk around culture in recent years and the importance of developing a good culture within an organisation. But what is a good culture, why is it so important to ensuring good outcomes and why should it be a priority for ensuring fair lending standards?
Culture is extremely important because it underpins everything a firm does and how it conducts its business. It affects how staff are treated and looked after within the business, and therefore impacts how those staff members go on to treat customers.
The culture of a firm has to be right. It should focus on customer outcomes, what the firm wants to deliver beyond the base line of what is required, what the promise they make to the customer is and ensuring the product and support they are offering is going to be right throughout the customer journey.
Firms should be committed to doing that both at a senior and executive level, all the way down to the first line. Everyone needs to understand their responsibilities and the roles they have to play in achieving good outcomes.
What is a good outcome and how can it be measured?
As I say there, the focus for a firm culturally should be on delivering those good customer outcomes, but what does ‘good’ look like in practice? How can we be sure good outcomes are being achieved?
Defining what ‘good’ looks like for customers must come first. Once that is defined, it’s easier to closely monitor what is and isn’t working and make improvements where necessary to ensure good outcomes are achieved and ultimately ensure your lending practices are fair.
A good outcome essentially means that a customer gets a product that’s suitable for them, that serves their needs and wants and that they get the support they need to be able to continue using that product as effectively as possible. Most customers may not need that additional support and the hope is that they can continue using the product as normal. But understandably, and even more so post-pandemic with current challenges, firms need to be reactive and importantly, proactive in identifying what support needs their customers might have and therefore what support they can and should offer.
That could be support in relation to financial difficulties or vulnerabilities for example, where customers may have different access needs or require further support or signposting. Recognising where customers may have additional support needs and working towards meeting those is a key element of ensuring fair lending and delivering better customer outcomes.
So, how do you measure those outcomes? This is a really important element of the Standards of Lending Practice. Without the means to measure outcomes, firms can’t be sure that they are doing right by their customers and meeting their needs and the senior team and Board can’t have confidence that what they are saying the firm is delivering is actually happening in practice.
Firms need to make sure that their oversight of what is happening with customers is robust. This can be done through various techniques, including quality assurance and second line oversight, ensuring that the oversight is effective and risk based.
You are trying to identify areas in your customer and product journey where there could be customer harm, and then taking steps to mitigate that harm. That includes education; making sure staff are continually developed, learning where things are going wrong a how to put them right, and also learning as a business about what’s effective and what isn’t.
As an example, where policies aren’t working, ensuring there’s a process in place to get that fixed. This culture of continually monitoring and improving your offering helps ensure you are working towards the best practice standards and will help you to ensure a fair lending process for your customers.
Innovation, inclusivity and change
Finally, I’d like to touch upon innovation and change. These are critically important to the banking and lending industry.
Change will continue to happen in our industry, often at a rapid pace. Take digital as an example – there will always be different formats and designs for products, and customer needs will continue to vary. Staying alert to those changes, adapting offerings where necessary and ensuring your strategy is based on the needs of the customer rather than the needs of your business, will help to ensure you can continue to produce the best outcomes for your customers.
Firms need to be adept at managing their innovation and change, making sure that those fair lending standards and good customer outcomes remain at the top of the agenda through any changes that may occur. So, how can that be achieved?
At the LSB and in our Standards there is a lot of focus on the design stage. When thinking about a product change for example, what is it going to involve, what is it trying to achieve and who is involved in the decision making? Are you getting input from various expertise around the business? For example, if you were looking at vulnerability and how certain customers with access needs are able to use a product, what support can and will they be offered? Who is being consulted internally or externally to ensure customers have a voice in that product design so that it is inclusive and who is providing challenge on whether it’s going to be appropriate or not?
By taking these steps you can help to ensure that the product is fit for purpose and your customers feel heard throughout the process.
By having the right culture which feeds through into those good outcomes, ensuring those outcomes are being monitored and change is being managed, and making sure that all of those steps in between, from the design of the product all the way through to the service delivery, firms can ensure that fair lending standards are in place.
These key areas that I have spoken about today should be a priority for firm’s regulated activity, but also areas not captured by regulation, where it is vital that firms carry out that assurance work themselves. By doing that, we can build confidence and trust in our industry and ultimately go on to produce better outcomes and fair lending for customers.