The annual Finance and Leasing Association Dinner in London was attended by around 1,500 guests this week, including industry leaders and Members of Parliament. In his opening address, chairman Richard Jones highlighted the value of the industry and its future importance in delivering environmental progress.
My first priority is to welcome our new Finance and Leasing Association Director General, Stephen Haddrill.
I also want to recognise members’ efforts during 2019 for reaching the new milestone of the £140 billion contribution that they made to the UK economy.
This is a modest rise of 2% on 2018 and reflective of our wider economic circumstances.
Asset finance new business grew by 6% to reach a record £35.7 billion, whilst consumer finance lending was flat at £56.7 billion, although December consumer lending was up.
Finally, we saw growth of 3% in motor finance, driven mainly by a 2% uplift in used car finance volumes.
Our members help the UK to grow, buy and borrow. We fund households. We keep the UK moving by financing vehicles of all shapes and sizes, and we fund a vast array of assets to support all parts of the economy, everything from airplanes to hospital theatres, to vital energy infrastructure.
We should all be proud of the role that our members play, and the FLA is proud to represent you.
The UK political agenda has moved forward in the sense that we have a government with strong a mandate to “Get Brexit Done.”
Whilst I am not convinced that anyone yet really knows what that means, it does seem that we have reached the end of the beginning.
However, the economic outlook remains uncertain and the regulation impacting FLA sectors continues to intensify.
Consumer confidence remains fragile, while global trade is still under threat from domestically charged policies and now from a potential global pandemic.
UK economic growth remains weak, although as we prepare for life outside the EU, we are in good shape relative to the Eurozone economy.
Encouraging proportionate regulation
The financial services regulatory agenda is intensifying and has become increasingly more interventionist, driven by the FCA, PRA, CMA, and the increased remit of the Financial Ombudsman Service.
Indeed, we are currently awaiting the change of rules following the FCA’s consultation paper on commissions and disclosures.
We have a new governor of the Bank of England and soon we will see a new chief executive for the FCA.
We hope they will be proportionate in their new roles, not judging their success by the volume of rules written under their tenure.
There is a live Treasury consultation on the future of the financial services regulatory framework.
We must emphasise that regulation must create and support the right conditions for business and not unnecessarily impede it. We also have a collective duty to deliver clear and fair outcomes for our clients and customers.
We urge regulators and policymakers to collaborate more and keep listening to industry as well as other stakeholders, to act on feedback, and above all, to ensure that the regulatory regime they design is proof against unintended consequences.
Our members continue to voice concerns across a number of areas in this regard; for example, concerns with the FOS, which can redraw regulatory boundaries and legal interpretations and risk setting precedents that the FCA has not intended.
Beyond politics, regulators and economics, we have a new driving force of change that will eclipse everything else - climate change.
With heightened climate change awareness and a sustainability focus for all business sectors, the FLA and its members have a vital role to play in supporting the UK’s ambitious sustainability agenda.
Four areas of focus for 2020
Thinking about what we do, and the assets we fund, I see four core areas were we must dial up our focus in 2020:
1) Ensuring key regulation can support lending against new types of assets
The cornerstone of lending regulation is the Consumer Credit Act, acknowledged even by regulators as one of the most complex acts on the statute books. The FLA has argued for several years for CCA reform to deliver long-overdue improvements to protection and information requirements for individual consumers. Whether it is comprised of principles, rules or some combination of the two, it must provide certainty that firms can rely on. The CCA is too rigid to be the main regulatory regime that underpins the kind of product innovation that could help increase the uptake of low emission vehicles. For example if a car is comprised of more than one asset (for instance – the battery and the rest of the car), then the CCA doesn’t cope with it.
2) We need clarity on Road to Zero
Asset risk transfer from consumers and business to funders is core to effective operation of our markets.
The majority of UK transport assets today are financed or leased, often including some form of residual value risk transfer. That’s cars, buses, trains, planes, vans, lorries, taxis, bikes. There is no definitive measure of the total residual value at risk, although it is safe to assume a number above £50bn exists today. What happens if the political and regulatory worlds cannot deliver the clarity that business needs? The risk of volatile residual values goes up, so prices go up, customer and business affordability is impacted and we create real risks to the economy.
3) We need to see a Government led investment plan for a Zero carbon economy
That requires much greater investment in infrastructure NOW to support electrification. A recent FT study forecast that £90bn is required to electrify the road network and upgrade the electricity networks in order to support the UK’s net zero ambitions. So far only 1 major announcement has been made by the Government, for £400m. Contrast that to over £100bn for HS2. We have heard about several changes to end goals, that’s the easy part. Now it’s time to start literally building a road that can get us there.
4) We need a managed, progressive transition plan to get the UK to a net zero carbon economy
A long-term plan that gives the biggest issue of our time the respect it needs. With FLA members’ expertise we can offer much to shape that plan and help to deliver it.
The government needs our input, and therefore one major development area for the FLA during 2020 will be adding our expertise to help increase the uptake of low emission vehicles and support sustainability initiatives across our sector.
Let’s work together to support regulatory reform for a successful 2020 and a greener, sustainable future for the UK.
* This is a summary of the speech delivered at the FLA Dinner on February 25, 2020 in London. Richard Jones is chairman of the Finance and Leasing Association and managing director, motor finance and leasing, Lloyds Banking Group.