The implications of capital payment holidays and the terms of the different Business Interruption Loan schemes may not have been fully comprehended by customers. Anecdotal evidence suggests that some (perhaps many) customers of the Coronavirus Business Interruption Scheme (CBILS) view the 100% government guarantee as a grant which they do not need to repay. This could cause challenges for financial services companies when the time comes to receive payments if customers feel they were not adequately informed of their commitments.
Creditworthiness checks have been relaxed for the Business Interruption schemes. The Financial Conduct Authority also provided guidance that mortgage payment holidays should be approved unless it can demonstrate it is reasonable, and in the customer’s best interest, to do otherwise. The reduced levels of due diligence conducted in these cases increases the likelihood that customers have taken on lending or increased monthly mortgage payments that they are unable to afford. This may result in criticism of the banks that they did not apply prudent lending criteria or appropriate affordability requirements.
Customers who have incorrectly had their applications for additional support declined may have experienced financial detriment. In some cases, customers may have entered arrears or liquidation after their application for support was declined.
The scheme rules and guidelines have not remained static during the crisis. This makes it challenging to ensure the consistent treatment of customers and ongoing adherence to latest rules. Non-compliance may have led to customer detriment and regulatory censure, as well as impacting lenders’ abilities to claim on the government guarantee in the event that customers default on repayments. This will apply particularly if firms cannot provide a recorded rationale for any decisions made.
Anti-money laundering (AML)
Many financial services institutions were already facing challenges in reviewing and dispensing high volumes of know your customer (KYC) /customer due diligence (CDD) and transaction monitoring alerts. These processes may have become even more challenging as screening of customers has been de-prioritised (or in some cases partially switched off) due to limited staff availability.
Furthermore, some customers have experienced lifestyle and employment changes which have fundamentally altered their transactional profiles. Usage of cash has also changed significantly. These factors may have reduced the relevance of existing detection scenarios and the effectiveness of transaction monitoring systems, potentially generating large volumes of false positive alerts.
The increasing numbers of businesses in financial distress may also have resulted in acceleration in the rate of corporate ownership changes. Financial crime operations may also have been disrupted by reduced staff availability and remote working, so financial services companies may have seen capacity reduce just as demand for KYC/CDD resources has increased.