On Tuesday 15 December, the Financial Conduct Authority (FCA) published their Final Notice on regulatory action that resulted in a £26m fine for Barclays.
The reasons for the fine were breaches in both Principle 3 and Principle 6 of the FCA’s Principles for Business and sections of the Consumer Credit sourcebook (CONC).
The Final Notice goes further into the reasons behind this and provides a warning shot for firms handling customers in financial difficulty because of the COVID-19 pandemic.
Behind the numbers
- At least 1.5m customers identified by Barclays who suffered, or were at risk of suffering detriment, because of Barclays’ actions
- Redress of over £273m paid out to the customers
- Original fine of £37.2m, reduced by 30% stage one discount for an early resolution to £26m
Behind the breaches
Barclays customers falling into arrears across several products experienced poor outcomes which were a result of five core failings, the majority of which lay in the Collections function:
- Failing to follow its own customer contact policies
- Barclays’ agents failing to appropriately discuss and understand the reasons behind arrears and the customers' short- and long-term financial positions
- Failures to identify indicators of financial difficulty and / or customer vulnerability
- Failures in understanding of individual circumstances led to Barclays being unable to offer appropriate forbearance solutions for customers
- Systems and controls issues that resulted in administrative and other errors which caused additional issues for customers
The scale of the fine levied on Barclays was down to four drivers:
- Many customer accounts were potentially affected by the failings
- The circumstances of the customers impacted – in financial difficulty and/or vulnerable
- The persistent nature of the issue, covering the period from June 2013 to 2018
- Serious systemic problems which Barclays failed to promptly identify and address
Functional hotspots
- Collections
- QA & 1st Line Oversight/Customer Outcome Testing functions
- Information Technology
Operational challenges and considerations for firms
| Areas of Weakness |
Root Cause Identified |
Considerations for Firms |
| Operating Model |
- Multi-site approach causing independence and inconsistencies in approach
- Frontline business units had insufficient control and oversight of Collections
- Lack of clarity over accountability for good customer outcomes (GCOs)
|
- Does your operating model overcome geographic barriers to deliver consistency of approach and appropriate challenge and oversight?
- How do you know has this held up during the pandemic?
- Are GCOs an individual or collection responsibility for senior leadership?
|
|
Management, leadership, and resources
|
- Collections teams did not have leaders with appropriate seniority and experience
- Insufficient breadth, depth, and continuity of leadership
- Insufficient resource to manage workload
- Inappropriate capability and competence
- High staff turnover
|
- Are your functional leaders tracking the longevity of service in the function?
- How frequently is benchmarking taking place of functional capability, competence, and capacity?
- Where is your staff turnover metric reported to and what is the defined KRI level for this?
|
|
IT systems, controls, and MI
|
- Complex and/or unreliable IT systems
- Inadequate IT-based ‘capture and analysis’ tools made available to Collections teams
- Weaknesses in the control environment
- Weaknesses and gaps in Management Information
|
- When was the last time collections systems were benchmarked and assessed for fitness for purpose?
- Have Management defined their desired reporting and has this all been operationalised?
- Have 2nd Line reviews, Internal Audit and other independent reviews been used frequently enough to provide comfort around the control environment?
|
|
Culture
|
- Lack of emphasis on good customer outcomes and escalation
- Inadequate focus on necessary procedural and cultural changes
|
- What indicators have been defined for Collections, and other function, culture assessments?
- Is remuneration appropriately calibrated to drive desired behaviours and outcomes?
|
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