March 2017 Credit Management magazine

OPINION
FAST
MOVERS
David Sheridan of ARC (Europe) considers the year ahead, the role
of smaller collections agencies, and the outlook for the Debt Recovery
sector in the UK.
THE UK Debt Recovery sector has undergone a
seismic transformation in recent years heralded
by the appointment of the Financial Conduct
Authority (FCA) as the industry’s new Regulator.
What went before was a relatively broad framework
of operational compliance requirements that in practice
gave firms a significant amount of leeway. What we have
now, is regulation that is very prescriptive and includes
a rigorous assessment of business models that must put
the Customer at the heart of the business and embed
the principles of Treating Customers Fairly (TCF). This
is further augmented by the need for all firms to have in
place robust governance assurances frameworks. This
has meant significant change for all organisations in the
sector.
I would argue that this has perhaps been more
challenging for the smaller firms in this sector. Whilst
they can be more responsive, they have had to inject
resources (be it temporary or permanent) to cope
with the additional compliance burden that the new
environment has created. Larger firms, by their
nature, have larger resources that can support these
requirements, and therefore are arguably better placed
to manage the increased workloads without impacting
‘business as usual’ activities. Smaller firms have had to
juggle both.
I am not aware of any business that has
more than ten percent of their collection levels
coming from their online capabilities. This really
is an exciting area of opportunity. Customers
want instant service – so the more firms can do
to mirror great retail experiences the better.
DETAILED SCRUTINY
Last year, we saw businesses in this sector undergo
detailed scrutiny by the regulator as their interim
licenses were reviewed. Many of us, I am sure, worked
hard to deliver a robust application and then continued
to work very closely with clients to discuss and agree
operating standards that supported their own required
standards of compliance.
Notwithstanding this overwhelming need to
secure authorisation, firms still had to maintain their
profitability. I believe that the industry has seen some
very lean years in terms of profit as the burden of focus
has been so heavily balanced on meeting the demands
of the new regulator. Lending levels have fallen, new
credit is tough to come by for customers, and collection
levels are down because affordability must be absolutely
endemic throughout any customer contact point. In
addition, back office costs have increased because
the level of scrutiny by clients and their oversight
requirements have increased (often disproportionately),
which means that the bottom line for many firms is
evaporating quickly.
I do believe though, that common sense is starting to
emerge regarding the need to balance both conduct and
commercial objectives. It is in the customer’s interest to
be free of debt sooner, and it is in the firm’s interest to
understand customer situations and establish affordable
and sustainable repayment plans. This will mean that
default rates will lessen, and therefore the need to have
lengthy, and sometimes intrusive, financial assessment
calls with customers also decreases.
This brings me back to the challenge faced during
these times by the smaller firms – does the sector
benefit by having a strong makeup of smaller to medium
size collection firms?
26 March 2017 www.cicm.com
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