Financial watchdog sets out credit information market improvements

The Financial Conduct Authority, FCA, has published a final report as regards its market study on the credit information market. This report builds upon the interim report and discussion paper published in November 2022 (EventID 18382) and presents a comprehensive overview of the findings and feedback received on various aspects of the credit information market. The final report thereby addresses issues such as governance, data quality, competition, innovation, and consumer engagement, provides insights into key challenges in these areas, and presents potential remedies to overcome these challenges.
##### Background
In an effort to improve data quality from credit reference agencies (CRAs), enhance access to credit data for individuals and firms, and promote two-way information sharing between credit providers and data users, the FCA launched the noted discussion paper, in which it proposed high-level regulatory measures to bring about the needed changes. The proposals stemmed from market study findings which revealed that
– CRAs often lack(ed) sufficient data on creditworthiness leading to varied assessments for the same entity;
– individuals had / have limited access to their own data;
– the data held was / is often incorrect and correcting credit scores is difficult.
As a consequence, the FCA suggested various measures, including mandating data contributors (e.g. banks and building societies) to provide information to designated CRAs, instituting standardized reporting formats and frequencies, and mandating CRAs to inform consumers about credit data access and correction methods. Additionally, the FCA suggested a central portal for credit information and the creation of an industry standards through the „Steering Committee on Reciprocity“ (SCOR) – „a cross industry forum established in the 1990s to oversee the sharing of consumer information to help support lending decisions and reduce fraud“ for more transparency and accountability among CRAs and contributing firms.
##### Feedback and way forward
Generally speaking, respondents largely agreed with the FCA’s key findings and the need for improvements. Some of the key issues discussed by commenters was the difficulty in matching or linking credit information about individuals from different lenders, especially in cases of common surnames or shared first names and initials within families. In that regard, respondents confirmed that standardizing reporting formats both within CRA firms and between industry participants could improve this situation, leading to more efficiency and accuracy in the data held. However, concerns were raised about potential technical and operational issues, as well as the impact on the resources of smaller firms. Therefore, many respondents emphasized the need for a proportionate approach to minimize costs and operational challenges and the importance of industry involvement in the development of a common data format. In same context, most commenters agreed to the benefits of more timely reporting of key credit data to designated credit reference agencies, but warned about the costs and human resource constraints to implement more frequent reporting obligations. There was also large support to raise consumer awareness and engagement in the credit information industry to improve comprehension over and access to such information and to mandate efficient approaches to have wrong credit information corrected by CRAs.
In response to the feedback received, the FCA will now take forward many of the proposals outlined in the discussion paper. These include, among others,
– the establishment of the credit information platform;
– the establishment of a common data reporting format to improve consistency and granularity of credit information across CRAs to prevent wrong and redundant data;
– the requirement of CRAs to establish processes to help consumers dispute errors in their credit information file;
– the requirement of all FSMA 2000-regulated data contributors (banks, building societies, mortgage lenders, etc.) to report loan information to designated CRAs; and
– the requirement of firms to signpost to consumers the availability of and possibility to review their own credit information.
Furthermore, the FCA plans to install a new Credit Reporting Governance Body (CRGB) which will be responsible for developing and overseeing the implementation of the concluded proposals by the end of 2024. This body shall act alongside the regulator and be composed of consumer groups and industry stakeholders. The key objective is to have the CRGB in place for an extended period of time, addressing potential challenges in the CRA market and issues consumers are facing. A corresponding Interim Working Group (IWG) to oversee the creation of the CRGB has also been launched by the regulator. The terms of reference of this group outlining its key responsibilities may be found here.