What are the Standards?

The Standards of Lending Practice are voluntary and set the benchmark for good lending practice in the UK. Sponsored by the British Bankers’ Association (BBA) and The UK Cards Association, the Standards outline the way Registered Firms are expected to deal with their customers throughout the entire product life cycle.

Increasing protection for customers and promoting fair lending

The Standards of Lending Practice split into six main areas for personal customers and eight main areas for business customers:

Personal

  • Financial promotions and communications
  • Product sale
  • Account maintenance and servicing
  • Money Management
  • Financial difficulty
  • Consumer vulnerability

Business

  • Product information
  • Product sale
  • Declined applications
  • Product execution
  • Credit monitoring
  • Financial difficulty
  • Portfolio management
  • Vulnerability

The protections of the Standards of Lending Practice for business customers apply to businesses/organisations, which at the point of lending:

  • have an annual turnover of no more than £6.5 million in its last financial year (exclusive of VAT and other turnover related taxes), and;
  • which does not have a complex ownership structure (for example, businesses with overseas, multiple, or layered ownership structures).

The Standards of Lending Practice for business customers will be live from 1st July. In the meantime, the relevant provisions of the current Lending Code will continue to apply.

 

Both personal and business Standards have a separate section which covers governance and oversight, setting out the framework Firms should have in place to ensure that the Standards are implemented and operate effectively.

What products do the personal and business Standards cover?

  • Loans
  • Credit cards
  • Overdrafts
  • Charge cards

A wider range of lending products is currently under consideration.

 

Adopting an outcome-based focus

The Standards recognise that there may be several ways to achieve the right outcome for customers, depending on the specific situation and individual circumstances.

Instead of expecting Firms to rigidly follow a set of rules that may not always be relevant, we look at the ways in which they demonstrate they are achieving the desired outcomes. This offers a far greater level of flexibility and better outcomes for borrowers.

Recognising emerging new areas

Each section of the Standards contains:

  • A customer outcome;
  • An overall statement of how a Firm intends to achieve this outcome; and
  • A detailed set of standards that demonstrate the approach.

While a number of these outcomes are well established within Firms, new areas do emerge from time to time. As and when they do, the Standards of Lending Practice will evolve to help registered Firms develop their approach to them.

Example: customer vulnerability

In the case of consumer vulnerability, the Standards of Lending Practice support Firms in applying a consistent approach to the provision of inclusive products and services across all operations.

Taking a highly proactive approach

The LSB takes a proactive, risk-based approach to oversight and enforcement, with an emphasis on supporting and challenging Firms to meet the Standards.

Our compliance oversight model has been designed to strike a balance. On one hand, it provides the independent assurance that standards are being achieved. On the other, it avoids over-burdening Firms whose processes are subject to regular review by statutory regulators and their own independent assurance functions.

This collaborative, proactive approach significantly reduces the burden on Firms, is proportionate to the risk presented, yet can still be viewed as robust and independent.

Our core methodology is divided into three phases

  1. Assurance: focusing on fair customer outcomes and putting in place the controls to achieve those outcomes
  2. Development: ensuring that the Standards continue to improve the levels of consumer protection
  3. Advisory: helping Firms to meet the Standards and achieve fair customer outcomes

Delivering consistently fair customer outcomes

Assurance takes a risk-based approach, placing a strong emphasis on the ability of the relevant controls to deliver fair customer outcomes. Our assurance work is also designed to identify any weaknesses that could have an adverse impact on this and on the Standards in general. To avoid unnecessary duplication, it excludes areas covered by CONC.

What areas does our Assurance cover?

New applications

Fair customer outcomes are achieved by meeting all the standards. Any firm wishing to sign up to the Standards of Lending Practice will be fully assessed to confirm it meets the required level of good practice – including those areas covered by CONC.

Risk assessment review (RAR)

All Registered Firms who have moved from the previous framework (the Lending Code) to the new Standards of Lending Practice will be subject to a RAR. This will be based on our existing knowledge of a Firm, any new management information, and an on-site visit including discussions with senior management.

The RAR will assess the Firm’s risk management framework as Mature, Progressive or Immature. We then factor in a high/medium/low risk weighting. This combined classification then determines the appropriate oversight strategy:

  • Mature: the Firm is subject to a relationship management model
  • Progressive: a more intensive relationship management model or some element of outcomes testing
  • Immature: may require a more regular programme of outcomes testing and closer level of collaboration

Firms categorised as low risk will adopt the Mature oversight strategy. Those that conduct both personal and SME lending will undergo an assessment for each.

Relationship management (RM)

RM meetings represent a key element of the oversight strategy. Meetings generally involve:

  • A focus on a specific outcome or topic, with front line areas of the business describing how they make sure the desired customer outcomes are being achieved.
  • Input from second and third line areas, plus any recent examples where the topic under discussion has been reviewed.
  • Raising any significant changes to process or policy that might impact the risk assessment classification.
  • Discussion of any failure to meet a certain standard, analysing the root cause and identifying appropriate actions.
  • Discussion of any development or advisory work being considered or already underway.

Management information

We use a varied mix of data, intelligence and management information to continuously monitor how effectively Firms are achieving customer outcomes. This information also feeds into risk assessment reviews, as well as providing supporting information for RM meetings.

Outcomes testing

Short reviews focus on a specific principle, outcome or standard to assist Firms rated as Immature or at the lower end of Progressive.

Continuously improving levels of customer protection

Our development work represents a continuous cycle of improvement aimed at creating and continuously enhancing best practice guidance. Post-implementation reviews of areas where we have previously conducted research identify what is working in an individual firm and what is not. We then use any learnings to enhance the Standards and supporting guidance.

What areas does our Development work cover?

Standards development projects

We aim to develop and enhance both the Standards and supporting information on an ongoing basis. To achieve this, we undertake a range of projects covering existing areas of the Standards and those that support them. Desktop research is followed by visits to the firm concerned and discussions with staff to identify good practice.

Research projects

Taking a similar methodology to the above, research projects focus on topical areas of emerging interest. Once an initial report has been produced, we may undertake a campaign to develop the theme and maintain interest by publishing updated research to firms and in industry publications.

Post-implementation reviews (PIR)

A two-stage PIR follows each development project, taking place at approximately six and twelve months. The first involves a ‘stock check’ at a sample of firms, evaluating the implementation of any recommended measures arising from the development project. The second PIR comprises a more detailed assessment of the measures implemented, including the barriers to adoption where recommendations have not been acted on. We will invite firms to work collaboratively with us on these reviews.

Further information

The output of the initiatives described above will lead to additions to the LSB’s Information for Practitioners.

Adding value beyond monitoring and development

Our insight and support work offers a range of value-adding initiatives aimed at helping registered Firms to continue meeting the Standards and achieve fair outcomes. Practical, collaborative and complimentary for all Firms, these services go far beyond our core assurance and development activities.

What Insight and Support services are available?

Benchmarking

In addition to advising registered Firms on their performances in specific areas, exploratory research and fact finding compares different methods of meeting the Standards.

Call calibration

Advice and guidance to help Firms develop and improve their financial difficulty call frameworks.

Workshops

Focus on a specific area of the Standards, particularly where new elements have been added. Sessions can be held on a remote basis for a number of Firms simultaneously, or onsite for individual Firms.

Practitioner support

A range of informal methods provide additional advice and guidance on meeting the Standards.

Supporting the achievement of fair customer outcomes

When it comes to addressing a failure by a Registered Firm to achieve a defined customer outcome or meet the agreed standards, the LSB will hold that firm to account. Our breaches management framework puts a range of sanctions at our disposal, but enforcement action is only ever used as a last resort. We will always work with Firms to support the achievement of fair customer outcomes.

Breaches may be identified by Registered Firms themselves or by the LSB. In either case, all reported breaches and accompanying actions plans are logged internally via the online compliance tool to facilitate tracking and reporting.

Best practice

Firms should have systems in place to ensure they can quickly identify any failure to meet the Standards. Where standards have not been met or outcomes have not been achieved, remedial action should be taken in line with LSB’s breach management and reporting policy.

What happens in the event of a breach?

Registered Firms are expected to promptly inform the LSB of any failure to achieve an outcome or meet a standard, except for those which are classed as minor under the breach management and reporting policy.

Pointing you in the right direction

If you have a problem with your financial service provider, you should complain to the bank, building society or card issuer involved.

They will give you a copy of their complaints procedure, which sets out the timescales they are required to follow in dealing with your complaint.

If you are still not satisfied, you have the right to take your complaint to the Financial Ombudsman Service (Ombudsman), an independent service for settling disputes between financial service providers and their customers.

View the Ombudsman guide

Please note that, although the LSB investigates serious breaches of the Standards, we cannot investigate individual complaints on behalf of customers.

 

Experiencing financial difficulties? 

If you are experiencing financial difficulties, debt-advice organisations can help. The following all provide free financial advice:

 

Advice NI: www.adviceni.net

Advice UK: www.adviceuk.org.uk

Business Debtline: www.businessdebtline.org

Christians Against Poverty: www.capuk.org

Citizens Advice England, Wales and Northern Ireland: www.citizensadvice.org.uk

Citizens Advice Scotland: www.cas.org.uk

Money Advice Scotland: www.moneyadvicescotland.org.uk

Money Advice Service: www.moneyadviceservice.org.uk

National Debtline www.nationaldebtline.co.uk 

Payplan: www.payplan.com

StepChange Debt Charity: www.stepchange.org

 

Other companies may charge for offering advice or managing your debts. Please make sure you check the fees involved before asking these companies to act on your behalf.

Check out our Insight Centre for further information and publications by the industry.

Financial institutions which sign up to the Standards demonstrate their commitment to fair lending as Registered Firms. The LSB Registration Rules are currently under review.

To access the existing Rules click here.