The value of self-regulation, with Anna Roughley

“Please, sir, may I have some more regulation?”

The Lending Standards Board is the primary self-regulatory body for the banking and lending industry in the UK, driving fair credit outcomes by giving lenders a way to hold themselves to a higher standard. I chat to Anna Roughley, Head of Insights at the LSB, to find out how this drives fairer outcomes for lenders and borrowers alike, and why self-regulation can be a strategic advantage in the modern world.

You can read more about LSB at https://www.lendingstandardsboard.org.uk/ (or on their LinkedIn page at https://www.linkedin.com/company/the-lending-standards-board-limited/) or you can email Anna’s team directly at insights@lstdb.org.uk

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards,

Brendan

The full written transcript, with timestamps, is below:

Anna Roughley 0:00

And the way in which we approach that is, we'll review the standards ourselves, we'll make amendments to them, then we create a working group, and then we'll work through that process until we've got a full set of standards that are updated that can be worked to. And everyone understands what they mean. We also engage with consumer bodies, as well to make sure that what we write is fit for purpose for those we actually want to protect.

Brendan Le Grange 0:29

My first job was in a small joint venture, staffed by a group of young American imports and us, a pool of fresh university graduates. I think our CEO was younger than I am now, and if I had to guess, I'd say three out of four of us were in our early to mid 20s.

It was an incredible dynamic. Anything seemed possible. Unless Mike Dredge found out. Mike was the only actual banker in the group, very different in temperament from the rest of us, and he was in charge of compliance. I say in charge of compliance, it was only him - he was compliance, cue the Judge Dredge jokes.

And so while we were ready to try any strategy the data supported, he spent his days running around trying to keep us in check and out of trouble. And we kind of resented him for it. That was a little over 20 years ago and closer in time to Gordon Gekko and 'greed is good' than it is to today. I'm older now and perhaps a little more mature, certainly the profile of compliance teams around the world has been rightfully raised. But I was still a little surprised when I heard that banks in the UK would voluntarily submit themselves to extra self regulation.

Welcome to How to Lend Money to Strangers, with Brendan Le Grange.

Well, Anna Roughley, I'm delighted to have you on the show. For my own accountability, I'm going to call this out here: it is now 50 odd episodes into the show and you're the second Roughley I've interviewed, but only my fourth female guests, so going forward, in the next few, I'm going to work hard on getting a little bit more diversity onto my panel.

But it's great to have you here. You are Head of Insights at the Lending Standards Board, the primary self-regulatory body for the banking and lending industries. So today, we're going to spend quite a lot of time talking about why an industry might want to add more regulation into the mix. But first, let's get some context and talk about your background because it's not true that regulators and bankers are necessarily enemies, you are actually coming from a background in banking.

Anna Roughley 2:54

Thanks very much for having me here today. My experience prior to the Lending Standards Board was in banking, and also in legal recovery.

So I worked at HSBC for a number of years, starting in the motor insurance side of things, in underwriting, and then I moved into the collections and recovery space where I held a variety of roles before then moving to an auditor type role. Moving from there, I then moved to a legal recoveries organisation.

What was key about these two roles is the operational experience that it exposes you to and the direct customer interaction, which is really important. And then sort of leading into the lending standards board. Of course, we're here to support lenders that are registered to our standards and codes, to improve customer outcomes. So that operational experience is really important.

And to your point earlier around that perception of regulators and lenders in the enemy, we certainly don't operate on that basis, we want to work together to create this healthier and better environment.

Brendan Le Grange 3:57

Yeah, and maybe before we deep dive too far into that, we should take a step back and talk about what the Lending Standards Board is.

Anna Roughley 4:04

So the Lending Standards Board (LSB) is the primary self regulatory body for the banking and lending industry and registered firms comprise the major UK banks and lenders: like your high street bank, that's your digital only bank, that's credit card providers, and debt collection agencies.

And our mission is to drive fair customer outcomes. And we do that by setting standards, best practice standards.

But they're not statutory regulations in the same way that the FCA is, for example, and so, as a body, our standards are voluntary for organisations to sign up to, but critically, when an organisation is signed up to them, it's mandatory for them to comply with the standards as we set them. They can't pick and choose aspects of it, they have to comply with it all.

And so we have a policy team that writes those standards and codes. And they work with the industry to make sure that they're fit for purpose - but we have an independent oversight team. And that's really important function because they will ensure that those organisations that are registered to our standards and codes are in fact combined with them and whether or not they take recommendations on them, and work with them to make sure that they close those gaps.

One of the benefits of self regulation is its ability to act really swiftly in the face of emerging risks. And very often quicker than statutory regulation can. A great example of this is the CRM code protections for customers against authorised push payments scams.

Brendan Le Grange 5:34

Yeah, and I was I was being a bit facetious earlier on, when I spoke about bankers and regulators being enemies, but when I started in lending 20-odd years ago, it was quite similar to that, where we did see, at least those of us in the business, the regulator as a sort of big, scary thing. So if I can continue to play devil's advocate for a moment, a cynic might ask, why would banks, or why would lenders, want to voluntarily subject themselves to more regulation, more mandatory regulation?

What is the goal to your members in putting forward extra sets of regulations to comply to?

Anna Roughley 6:10

Yeah, I mean, many years ago in an auditing capacity, I certainly also experienced that push and pull of compliance, and that relationship for sure. But I think first and foremost, that our registered firms, for them to register with us, it has to be a two way thing - so we want to understand that they are a customer centric organisation and generally speaking, these organisations do want to do the right thing by the customer and so they want to evidence that and becoming a registered firm with the Lending Standards Board really sends a signal to their peers, to their stakeholders, and really importantly, to customers, that they wanted to do the right thing.

And they're almost exposing themselves by actually opening the doors and having to do that becoming a registered firm, reliable oversight, because they want that feedback. They want to know, you know, when they get hit, right, but they want to know when they need to do things better, as well. So I think that's a really important part.

Brendan Le Grange 7:09

One area of the voluntary side of this that intrigues me is that when I moved to the UK about three years ago, the key talking point was 'vulnerability'. And the regulator's push to lenders to make sure that they understood and fairly dealt with consumers who were vulnerable. And we said, 'well, maybe if we look at our data, we can find a better definition of vulnerability, more forward looking, and more data driven, than just, you know, some basic definitions'. Maybe try and see, could we predict vulnerability the same way we might predict credit default or affordability concerns, and came up with a few potential routes there, which we then discussed with industry players at advisory boards and meetings, things like that.

And when we spoke about this approach, people were always very interested. But as soon as we said, 'okay, we can apply these rules to your portfolio, you know, and maybe send you back home with a list of who's red, amber green'... they became very nervous.

And essentially, they were worried that in the future, at some point, this thing that was meant to be speculative, you know, it was maybe one of many different approaches that people were discussing, the Regulator might look back with perfect hindsight and say, 'hey, you had this information on hand, that said, customer X was vulnerable, and yet you carried on lending to them'. So they were nervous about doing innovation in this space, they were nervous that any kind of work in here could be seen as something that they bound to by the regulator in the future. And so they would rather step back from the innovation and wait until they were told what to do.

In the sort of environment, you created the lending standards board, is there that way that they can say, how might we influence regulation? Or how do you think this might be interpreted? Or do they have that flexibility to discuss and innovate?

Anna Roughley 9:04

Yeah, absolutely. I mean, we really encourage those open discussions with our registered firms.

And in fact, we have some forums where we bring together registered and non-registered firms to discuss things like that. And I think one of the things I just want to be clear on, as a self-regulatory body (and from what I understand of regulation) is that no one really wants to stifle innovation, but I know that it can be really hard.

I think we're seeing some really good use of data and EMI and whenever we move to using algorithms to try and predict customer behaviour, etc.

And then there are concerns, aren't there, that we we miss something or we've stepped over something, and I think that those concerns are right to have. But I think if we're using the information that's available to us, and we're using that feedback loop to evolve and to shape these processes that we have, I think that's a really important path.

And critically, we need to be sure about how does that impact a customer. One of the key things that we talked about at the LSB is around those customer outcomes and not making assumptions. How does the circumstance impact this customer individually? Because as people, we all react very differently to different circumstances, don't we?

I think that's one of the things from us as a self-regulatory bodies is we want to ensure that our registered firms are taken into consideration. Is this the right thing for this customer at this time?

Brendan Le Grange 10:24

And you're Head of Insights at LSB, how does the work that your team does fit into this picture?

Anna Roughley 10:30

Our primary role at the LSB: the insights team is there for registered firms to embed the standards and codes that we're responsible for, and so we do that by delivering research pieces, qualitative research, we do that through holding roundtables, gathering insights from other organisations and understanding what the industry is doing, where are the pockets of challenges that firms are finding.

And we'll use that to help provide greater insight into what we're looking at what good practice looks like, why the way things are being performed at the moment are maybe not quite working.

Then of course, we will gain insight through doing that work as well. And so there's a feedback back into our policy to our compliance team, so that they understand how firms may be implementing things or why they're experiencing challenges so that we can ensure that the standards are fit for purpose, and I've never been more important, really just come out of that, you know, a pandemic, straight into a cost of living crisis, it's really important that we try to stay ahead of the curve.

Brendan Le Grange 11:29

One of the big complaints comes when you're working in an area where the regulator is seen as disconnected, or this feedback loop doesn't exist, and so to be able to have a self regulatory body, where it's clear that their research in the field, they understand the industry, they're taking context into account, one, it ensures there's gonna be much better regulations and standards coming out, but to also, two, it just reassures the people in the industry that their concerns are being heard.

Now, you're not the Lending Discussion Board, you are the Lending Standards Board, because you actually create and publish sets of standards and codes, and they're there for downloading in plain English.

What is the process around those? Who participates in creating the standards you publish and who can use them in their lending operations?

Anna Roughley 12:18

Yeah, so we have our existing standards. And I said, it's a process that we go through to update them and make sure that they're fit for purpose, as we spoke about before. And that's through a consultative process.

Essentially, we'll use the insights and the management information that we have available to us to identify areas that they may need to be updated. recent example of that is we've done a full review of our personal standards. And the way in which we approach that is, we'll review the standards ourselves, we'll make suggested amendments to them, and then we create a working group largely made up of our registered firms - and then we'll work through that process until we've got a full set of standards that are updated, that can be worked to, and everyone understands what they mean.

And then we'll go through an implementation phase with firms to allow them to update their practices in line with that. One of the really important things to mention here is that we also engage with consumer bodies, as well to make sure that actually we're writing these books for those that we're trying to protect. But it's also an independent process. So whilst we have the working group together, that's made up of industry representatives, we're an independent organisation, and everything has to go through those strict governance processes.

So it makes sure that actually whatever we produce is in line with our mission is improving those standards across across the board.

Brendan Le Grange 13:41

Yeah, and I'm glad you called out the consumer input, because that's a tricky one to get right in this sort of space, as well, where on the one hand you want to make sure you're protecting vulnerable consumers but on the other hand, that consumer might be saying, I want that credit, I've got something to do with it, and you're stopping me. So you've I guess, you've got to try and balance being overly paternalistic with actually ensuring that vulnerable consumers are well served.

In an interview that is actually going out the week that we're recording, I was speaking to Bogdan Plesuvescu in, well, he's in Moldova but he was talking about the Romanian banking industry in the last financial crisis of 2007/ 2008, and he was saying, actually, the Romanian banking industry, it was impacted, like everyone was, but it got through pretty well because they've always had a very strict regulator. And so in the good times before the financial crisis, people were complaining that the regulator wasn't opening up and letting them do some of the growth that some other markets were having, but then there was a renewed appreciation for the regulator after that for, sort of, saving them.

And now, you mentioned that already, but obviously, we've gone through a couple of years of COVID and straight into a cost of living crisis. Certainly we're in turbulent times now. The perceived external risks are way higher than they were three, four years ago. Have you seen a similar growing appreciation for the standards that your lenders have put in place when times were good that maybe now protecting them and protecting their customers?

Anna Roughley 15:15

We've certainly seen really good engagement from our registered firms. And they're really eager to understand how we can make things better, how can we ensure that they're combined with the standards that we've already set. So during the pandemic, for example, we had to make some adjustments to the business standards that we have and so we have a very positive relationship with our registered firms. Albeit, you know, we have that independence point that I mentioned previously.

But I certainly have seen when we work with firms that appreciation that you take the time to understand a their organisation because they've all got their own personal footprint. And I think that's really important to recognise, but also the fact that we're clear with our messaging about what our expectations are, in respect of customer outcomes, and good customer treatment, and working closely with them. To help them achieve that. I think it's been quite a positive experience across the board, and one that we want to continue to see evolve, and because things continue to be uncertain, don't they?

Brendan Le Grange 16:13

They do. And I'm going to be a bit cheeky here and use your own words to lead into the follow up question from there, "the government has announced a support package, which should be helping customers in financial difficulty through this cost of living crisis, but what can financial services firms do to play their part?"

Anna Roughley 16:31

Really important: firms need to listen to their customers.

And by 'listen', I'm not talking about just that traditional face to face banking or on the telephone, but however their customers and they choose to engage with each other. Making sure that they've got the processes in place to enable them to understand their customer. We all know that we're in a cost of living crisis, we're still moving through that process, aren't we we're going to see that compound and become more challenging for people. So we know that that's coming.

So we would be expecting firms to be proactively looking at how can we identify those customers who might be affected? Now, those who are going to be affected in the future? What's going to be the trigger? And what can we put in place to help reduce that harm? That might be looking at those that fall into arrears, for example, actually making sure that we're doing a look back and understanding, are there any common factors, and then seeing if there's any interventions that they can put into play? When we're having those conversations with customers, it's making sure that we're truly understanding their circumstances and the impact to them, and how we can tailor those outcomes for them.

One of the really important parts of that is making sure that our employees are upskilled. To understand a, what kind of things are happening at the moment? And how can that impact our customer base? And therefore, what are our expectations? What should a good conversation look like? Making sure that they're trying to pick up on triggers probing a little bit further, so they've got that full picture of their customer circumstances, because they may have a wealth of tools to support those customers, and then they can use the right tool to help them. And then critically, I think it's ensuring that they understand how to effectively signpost customers, I think there has to be some recognition that the bank or the lender, they can't solve all problems. And that's not what they're there to do.

What they can do is support customers by signposting them, the right third party organisation that can but it's doing it at the right time in the conversation, so it feels relevant, it's making sure that they understand how the organisation can support them, and then genuinely giving them the time to approach that organisation get the support that they need, so that they can have that healthy relationship.

Brendan Le Grange 18:44

Yeah, and it's a topic that's come up when we were talking about the impact of COVID with a few different people in the collection space. So the one silver lining being that it does seem like lenders are taking more human approach and trying to get consumers past that fear of being yelled at, you know, the old school - it's obviously an exaggeration - but where you're fearing the knock on the door and then the big scary men with baseball bats sort of giving you a big stare and demanding your money back.

You know, people were scared to address the financial concerns. And so, by the time they actually had the conversations, it was too late and it was really hard to recover. Whereas if we can create a more welcoming environment where your lenders are having the right conversations, giving the right signposting immediately with empathy in a human context, we can hopefully have those conversations when there's still time to recover. So hopefully, as we eventually move back to better times, the one thing that will remain of this is her reevaluation of how collections is seen by lenders.

Anna Roughley 19:48

Trust.

Typically, a customer won't know to disclose that information to their lender, they won't think about what that might look like, until something's gone wrong. So very often they don't actually know by the support that is available to them. So there's another really important role to play here from banks and lenders, and that is to ensure that that trust is built. And so the customer feels comfortable to disclose information, and ideally early on in the process as well.

And so I think that that happens, not just in the collection space, but I think that's a really good example where reputations things have enhanced and changed over time, these organisations can use things like the websites to provide really useful information about maybe cases about how people have been impacted and how they've helped them and lenders and banks have access to information or they're able to put information in good faces, or they're able to gather information, so that they can provide prompts, for example, and that's where that probing piece when you're talking to someone is really important as well, and being aware of current issues, for example, because that means that we can have really positive, proactive, upfront conversations and interactions with our customers could really be critical.

Brendan Le Grange 20:58

Yeah, and it is definitely trust, because I remember when we were in lending, we would be nervous in the collection space, you know, we'd say, 'okay, if you pay back half of what you owe us, we'll we'll write the rest off, and we'll call it quits' and that'd be okay, but then everyone else is just gonna phone in and say they only want to pay off half. And there was an approach that we couldn't trust the customer base. But if you've got consumers that you trust, and they taking out a loan in good faith, obviously setting aside fraud and that side of things, but you're just in your customer base, most consumers are out there looking to do the right thing, they've got good intentions, they're going to try their hardest.

So yeah, hopefully that momentum remains

Anna Roughley 21:35

What's important now. We've just come back to that outcomes piece there. And that example that you gave, you know, offering, if a customer can pay half, for example, and that you might write off the other half, and then you have a lot of customers that might call it offering the opportunity. When we talk about customer outcome, it doesn't always mean that the outcome is what the customer might have wanted.

Initially, it's about doing the right thing by that customer. And it's a journey. So that's where that understanding their circumstances, and what's going to be the right outcome for them ultimately. So that might be that they pay that balance off in full, for example, because that's what their credit, fine, etcetera, and their circumstances allowed for that. And that's what's really important like that tailored individual outcome. So lenders, collections organisations, they have those processes to allow those conversations, to allow flexibility to arrive at the right decision with that customer. And then critically explaining to them how you have you all arrived at that journey. It may not be what they wanted, initially, but they'll understand why you got there. And it feels fair. I think that's a really important part of it.

Brendan Le Grange 22:42

If it wasn't complicated enough, with all the socio economic stuff that's happening as well, we've now got a move to digital, and the emergence of a whole lot of new alternative lending channels that have to some extent been accelerated by the lockdown and everybody moving out of the offices. So how does the Lending Standards Board look at, and think about, both, I guess, the opportunities as well as the challenges that are presented by these new approaches and these new market entrants?

Anna Roughley 23:11

Yes, so first of all, the way the standards and our code are written, they're not just for high street banks. And so we would welcome discussions with alternative lenders, for example.

And I think some of the opportunities are that it's opening those doors for other products, and other organisations for customers to go to. But as you say, you know, there's challenges and risks associated with that. And so, it is important that these organisations where they can, you know, engage with us, for example, and consider becoming a registered firm, because this will really help them reputation, they, it helps us to help them to make sure they've got the right processes, assurance and governance in place so that they are doing the right thing by these customers. I didn't want to say great, a recent example is the rise and scale of buy now pay later, more customers are taking out buy now pay later products, they're not able to take account of their other lending that they have, they're not always clear on the impact of those.

So there's, there's a risk right there that we can see quite imminently and against a backdrop of the cost of living prices. It's something that needs to be balanced by the industry and regulators as well. So one of the ways we help the industry to protect against that is we'll engage with these different organisations, see where they're able to sign up to the standards, but we'll also review the standards to enable other organisations to sign up to them. Yeah, it's the responsibility of us all, isn't it to put customer protection in place?

We do need to work together on that.

Brendan Le Grange 24:39

Yeah, indeed. And you spoke earlier about trust. On the flip side of that, unfortunately, we've also seen a lot of scammers emerge to try and take advantage of the confusion that was caused by this rapid digitization. We're in all types of frauds, but I'm thinking here of your work on authorised push payments.

Can you talk about 'what is authorised push payment fraud' and why you've just published a series of updates to your contingent reimbursement model code?

Anna Roughley 25:08

Absolutely. The Lending Standards Board is a self-regulatory body, we look for opportunities where there is customer harm or potential detriment so that we are able to put a framework of protections in place for those customers, because that's a really important part of self-regulation.

And so authorised push payments fraud is where a customer has made a payment to someone that they believe was the legitimate payee... and it turns out that they're actually a scammer. And I think it's fair to say that we've all been at risk of falling for one of these kinds of scams, that 'hi mom and Dad, I need some money to pay a bill' or it might be Royal Mail phishing, where you've missed a pasel or click this link in or DHL sending messages about buying COVID test kits, for example, and about vaccine - and scammers prey on vulnerabilities to scam people out of quite significant money sometimes.

And so the contingent reimbursement model code was put in place in 2019, the CRM code we'll call it for ease. And the CRM code has three key objectives that's to detect, prevent and respond to authorise push payments scams.

And it was really the first and only set of protections of its kind for customers against APP scams. And it also covers reimbursement. So where a customer has fallen victim to a scam, where their their banks or payment service provider is signed up to the CRM code, but it can expect to be reimbursed for the fallen victim to that scam through no fault of their own.

But of course, that monetary reimbursement does it explain to those feelings of guilt, shame, embarrassment and distress, very often calm when you fallen victim to a scam. So that's why that detection and prevention piece is just so critical in this space. signatories to the CRM code are expected to use the information available to them to identify people that may be more vulnerable to certain types of scams, and to put prevention steps in place. And that prevention looks like education and awareness campaigns to customers to make them aware of the kinds of scams that are going around and how to protect themselves. And it also looks like presenting warnings within the bank payments process to suggest that you think about making that payment if it looks like it's at risk of being a scam. So part of our role as the governing body for the CRM code is to make sure they still provide that level of protection that consumers want. And we're talking about really sophisticated people here that are scamming customers. And they'll look for loopholes in the system to try and scam people.

And so that's why it's really important that we update the code periodically, which as you rightly point out, we have done recently. And we'll continue to do work in that space to make sure that we can understand anything that's coming on the horizon that might impact the CRM code.

Brendan Le Grange 27:55

You're right, you could easily do it. And at the same time, you feel so stupid that you click the link and you start to worry, and certainly if you'd open your bank account and paid some money, this is not just about the money you lose, which is sometimes quite significant, but even if it's a relatively small amount, there are all these other human costs in there. And yeah, it's it's a big part of life these days. And I'm glad that there's genuine work being put in to try and address it.

Anna, thank you so much for your time today, you and your team are clearly doing a lot of valuable work at a time when it's never been more important. What is next on the agenda, where's the area of focus?

Anna Roughley 28:35

In the future, we'll continue to talk about scams and how we can ensure those protections are still in place for customers. A key focus in this area is more firms signing up to the code. And so anyone that's listening here that isn't a signatory to the CRM code, we would absolutely encourage you to sign up so that you're able to give up those protections for your customers and also help fight the battle against scams.

Another area that you'll hear from shortly around is inclusion. And we're just working on a particular piece around business banking and inclusion. And it really focuses on customers with disabilities and other access needs, and the importance of ensuring that they're able to access the services and products that they need. And some considerations for lenders in that space to help them improve those services.

Brendan Le Grange 29:25

You spoke here about organisation signing up, I see Virgin Money, the sixth biggest bank in the UK, is the latest one to sign up fully to the CRM code. But if anyone is listening and is wanting to get involved, either by signing up or learning more about the work that you're putting out, where is the best first port of call?

Anna Roughley 29:45

We'd welcome people to have a look on the website at the lending standards board. And they'll be able to find out information about the CRM code itself, but also the work that we're doing in this space. I would be very happy to hear from any of your listeners if they want to understand that way. For greater detail, or if they have inquiries about signing up, and they can just email us at insights@lstdb.org.uk

Brendan Le Grange 30:09

Great, and I'll put that in the show notes as well. And thank you, again, really good to hear a new way of thinking about this and how industries are genuinely looking to create better sets of rules, better sets of standards and codes, and to hold themselves accountable to those.

Anna Roughley 30:26

Thank you for having me.

Brendan Le Grange 30:27

And thank you all for listening. If you haven't done so already, like, share and subscribe to the show. How to Lend Money to Strangers is written, hosted and edited by myself Brendan Le Grange. The theme tune and show music is by Iam_wake and you can find show notes written transcripts more in-depth articles and details on how to book me for speaking engagements at www.HowtoLendMoneytoStrangers.show

I'll see you again next Thursday.