Hersch: Regulation is coming – we need higher standards and a code of conduct

There have been signs of this happening for some time and those signs took a step closer to being confirmed at the end of July.

The House of Commons Treasury Committee urged HM Treasury to extend the remit and powers of the Financial Conduct Authority (FCA) in efforts to avoid potential harm in the future caused by unregulated SME lending, among other areas.

My big concern about regulation is that, when it comes, the FCA will create regulation for the bad apples, not those lenders that follow best practice.

Consequently, it won’t be light touch and it will impact the whole market, which will increase costs and dampen innovation.

This will be to the detriment of some customers as much as it protects others.

Code of conduct needed

We may be too late to convince the regulator that short-term commercial lending can operate more effectively in the best interest of customers without regulation, but we still have the time and ability to influence the shape of that regulation.

This is why, as an industry, it is so important that we agree across the board to a code of conduct that protects our investors, our borrowers and our sector.

We must place greater emphasis on high standards of underwriting, training and education, and we must do this sooner rather than later because it could save the industry from over-zealous regulatory intervention.

We have a window of opportunity for lenders to support an organisation like the Association of Short Term Lenders (ASTL) so that it may take the lead on having the industry follow a code of conduct that ensures customers get the best deal and are not misled.

This might encourage the FCA to take a pragmatic approach to regulation.

Can lead to lower standards

Currently, it is possible for a lender to set up without having adequately trained staff and there is no requirement to equip staff so that their skills are fit for purpose.

Similarly, it’s not uncommon for lenders to poach junior staff from competitors and give them senior positions.

This approach can easily lead to lower standards among lenders and we should all put greater emphasis on sharing knowledge and best practice.

This is another area where the ASTL is taking the lead and delivering best practice training and seminars to maintain high standards.

Regulation is coming. But with an aligned approach and commitment to high standards and customer focus, we can help to influence what form it takes.

Now is the time to come together and shape the future of our industry.