Much consideration is involved, for example to appropriately identify the redress population and level of redress due.

Such exercises also require a firm to make appropriate provision for any required remediation and as such, may give rise to concerns about a firm’s ability to pay its debts, potentially leading to either balance sheet or cash flow insolvency.

In these scenarios, firms and their directors will need to consider the options available to them going forwards, be it a formal insolvency procedure (such as administration, to conduct an orderly wind-down of the business) or, if the circumstances warrant it, a restructuring to compromise the redress liabilities via a Scheme of Arrangement.

How can HCSTC firms move forward?

Against this background, firms in this area will need to take extra care to ensure that lending is, at all times, ‘responsible’ and that all current rules/requirements are complied with.

But is this enough? In a constantly changing and tightly regulated market, it seems very difficult for firms to obtain certainty, to understand what is expected of them and to understand whether their business model is viable going forwards.

As a minimum, with the spotlight on HCSTC firms, they must:

• adopt robust CONC-compliant lending processes, ensuring that affordability is correctly assessed. This involves taking a customer’s circumstances into account in order to decide whether the credit provided is affordable and sustainable for them and verifying information as appropriate;
• ensure that policies and protocols adapt and evolve as is necessary in view of the changing regulatory landscape and what is expected. Whilst the onus remains on the firm to put in place appropriate processes, firms must be innovative (for example by looking to open banking and the like);
• maintain records of affordability assessments carried out to demonstrate the decision reached was fair, reasonable and compliant with CONC;
• implement effective complaints-handling procedures, treating customers fairly and carrying out redress and remediation promptly, when appropriate; and
• importantly, ensure early engagement and an open dialogue with the FCA, to stop harm and remedy root causes and to work together to agree an appropriate way forward

Bill McCaffrey is a partner and head of consumer finance at law firm CMS