Understanding the drivers for Barclays’ £26 million fine for treatment of customers in financial difficulty

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 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:
  1. Failing to follow its own customer contact policies
  2. Barclays’ agents failing to appropriately discuss and understand the reasons behind arrears and the customers' short- and long-term financial positions
  3. Failures to identify indicators of financial difficulty and / or customer vulnerability
  4. Failures in understanding of individual circumstances led to Barclays being unable to offer appropriate forbearance solutions for customers
  5. 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?

 

For further insights on getting started on implementing or fine-tuning your vulnerable customers framework, please download our Insights deck here>

For any questions on the above or to set up a no-obligations chat with our Risk Consulting Director, Ross Molyneux, please schedule a call below

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Topics: Featured, Risk Management, Banking, Consumer

December 15, 2020
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Ross Molyneux
Written by Ross Molyneux

Ross leads our Risk Consulting proposition and specialises in risk management and regulation. He has worked extensively across non-financial and financial risk management engagements in his time in consulting in both the UK and New Zealand. After starting his early career in industry working across different financial services institutions, Ross moved into consulting in 2011 with Deloitte, primarily leading and performing financial risk engagements including capital adequacy, liquidity, credit risk, and recovery and resolution planning. Following time in Aviva’s Internal Audit function, Ross moved to help build EY’s North of the UK extended assurance practice, leading and performing a range of engagements across both financial and non-financial risk, including extensive engagement with large banks, asset managers and investment firms as they continued to face into the challenges of revisions to existing regulation and new requirements, such as the Senior Manager & Certification Regime (SMCR). In 2017 Ross made the decision to spend time overseas, joining KPMG New Zealand’s Auckland Consulting practice. Joining as an Associate Director, Ross was quickly promoted to Director and co-led the firm’s response to emerging conduct and culture challenges arising from the Australian Royal Commission (ARC) and new operational resilience requirements arising from the Reserve Bank of New Zealand’s (RBNZ) Outsourcing Policy. Working with a range of entities since being in New Zealand, Ross has led engagements ranging from internal audit co-source support to preparing entities for acquisition through ensuring they meet licensing conditions via uplifts of frameworks and policies. Choosing to return home in 2020, Ross is looking forward to supporting FourthLine’s clients as they face into current and future risk and regulatory challenges.