Speech by Alison Walters director of consumer finance at the Financial Conduct Authority: Shaping the future of the credit market – the road ahead
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Highlights: A more resilient, joined up and trusted credit
market will only be achieved through collective action across
industry, regulators and partners. Firms must go beyond
avoiding harm to actively delivering better outcomes using data,
technology and insight to support consumers in practice, not just
in principle. Bringing Buy Now Pay Later into
regulation will give consumers stronger protections and
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Highlights:
From caterpillar to butterfly: a shared challenge "We all recognise that consumer credit plays a vital role in the real economy and in people's everyday lives, supporting households, enabling opportunity, and helping people manage financial pressures. But the world around us is changing, the credit market is changing and so are consumer demands and needs. With that in mind, it is important to consider whether the market today is fit for the future. If the consumer credit market still feels like a caterpillar - complex, multi-limbed, a bit prickly and lumpy in places, then our shared task is to guide it through its metamorphosis, from chrysalis to butterfly. To become a butterfly, the credit market needs to transform from one that is less prickly for some, fragmented and with areas of brittleness, to one that is more cohesive, resilient, and trusted by the people it serves. That transformation into a butterfly requires a period of transition a chrysalis phase where the industry comes together to metamorphose into something stronger. It will require regulators, firms, trade bodies, policymakers and consumer voices to move forward with shared intent. And that is exactly the journey we are inviting you to be part of today. Our vision is a well-functioning credit market: not just in theory, but in practice. One that works for consumers in good times and bad, and one that we collectively help to shape. The question is not just where we are heading, but how we get there together.
We are keen to hear your views. The caterpillar's origins: 50 years of change To see where we need to go next, it helps to reflect on how far the market has already come and how it already supports millions of consumers and firms. Over the last 50 plus years, since the Consumer Credit Act came into force, both the framework and the market it supports have changed profoundly. We have moved from the days of the Office of Fair Trading to the FCA, from paper-based journeys to increasingly digital, complex credit products and distribution chains. That is why the Government's work to reform the consumer credit framework matters. The Financial Services and Markets Bill has now been introduced. It marks the next stage in delivering a more flexible regime that supports effective competition and innovation, while maintaining appropriate consumer protection both now and in the future. We are working closely with the Government and are already thinking about what the reformed regime will look like. We intend to consult on the key parts of the consumer credit framework previously set out in legislation. But we are not standing still whilst that progresses and actively looking at ways we can respond to the changes in the credit market. That is why, in response to feedback from firms through our Call for Input on the Consumer Duty rule review, we are consulting on whether the current Representative APR requirements effectively support consumer understanding of the cost of credit, or whether alternative approaches could deliver better outcomes. But looking ahead means more than updating the rulebook. We also need a shared vision for what the consumer credit market should deliver over the next five, 10 even 50 years. We need to be forward thinking. Decisions taken now by government, regulators, the industry and consumer groups will determine whether credit builds resilience or potentially can compound vulnerability and financial exclusion, but it also presents a huge opportunity. The FCA has a clear leadership role to play setting frameworks like our recent consultation on improving credit information, but we are not the sole arbiter, and this is where partnership is equally critical. Positive change requires coordination, shared ownership and sustained commitment across the market. That is why the role of organisations like the Credit Information Governance Body are so important, as they provide a focal point for collaboration and drive the changes needed to support better outcomes for consumers over the longer term. It also requires the system of regulation to work better together like our joint taskforce, with the Solicitors Regulation Authority (SRA), the Information Commissioner's Office (ICO) and the Advertising Standards Authority (ASA). We are taking coordinated action to address poor practices in the handling of motor finance claims by some claims management companies and law firms. By bringing together different regulators, we are tackling misconduct more effectively and seeking to reduce harm to consumers. At the same time, there is a renewed focus on confidence and trust in financial services, not least through the lessons learnt from mass redress events, and through work with the Financial Ombudsman Service and HM Treasury to modernise the redress system. These are examples of what can be achieved when regulators and partners act together - bringing different perspectives, powers and insights to bear on shared challenges. That same spirit of collaboration matters when we turn from reforming the framework to enabling responsible innovation and growth. Enabling responsible innovation and growth This evolution brings us to the next challenge: ensuring the consumer credit framework can keep pace with a rapidly changing market. We have moved to an outcomes-focused approach, one that is less prescriptive and gives firms greater freedom to innovate while also delivering good outcomes for customers. This sits within a wider shift in how regulation supports the UK's growth agenda. Since the Financial Services and Markets Act 2023, the FCA has had a new secondary objective to support the UK's competitiveness and long-term growth. But this does not replace our core mission, it sharpens it. Because growth in consumer credit will only be sustainable if it is built on trust, works well or consumers, and firms consistently deliver good outcomes. In consumer credit, this matters in very practical ways. For example, it means considering how innovation can be used to responsibly widen access to credit for those who are currently underserved, which is not without its challenges. And yet, innovation across the credit market remains uneven. The question is: what more can we do collectively to unlock innovation? Because we do want firms to innovate to test new models, harness data more effectively, and design products that meet a broader range of consumer needs. But that innovation must go hand-in-hand with trust, transparency, and a clear focus on delivering good outcomes. That raises some fundamental questions.
If our rules, our framework, or the way we operate are getting in the way tell us. Engage with us. Our teams are here to help. We recognise that confidence to innovate depends on both flexibility and predictability, and we take that seriously. But this is not just a challenge for the regulator. Let me ask: what more can firms do to bring better products to market, and what more can the FCA do to support that ambition? This is exactly what we asked attendees at our recent access to affordable credit workshop, the latest in a series of workshops delivered in partnership with Fair4All Finance over the last few years. We gathered stakeholders from industry, government, regulators, consumer organisations and fintechs to consider what else can be done to provide access to affordable credit that consumers can afford to repay. And where credit is not the solution, what support can be provided. For example, referring a declined credit customer to a community lender with a higher probability of providing the credit, as well as discussing what new types of products could help consumers achieve better outcomes. We want to see a greater culture of referrals between mainstream lenders and others, and see no reason why this can't be done. It was great to see so much collaboration and engagement in the room, but we need momentum to drive this forward. We will continue to convene market participants and collaborate with others to support consumers as they navigate their financial lives. We welcome ongoing innovation to support inclusion and have had some productive conversations with firms in our Innovation Zone over the last couple of days. You may have seen our stand in the foyer. Thank you to everyone who came to speak with us. We look forward to hearing from many more of you through our Innovation Hub services. You can find out more on our website. Technology, AI and the consumer of the future And when we talk about innovation today, we cannot ignore the role of technology in increasingly shaping the next generation of products and decisions. The consumer credit market of today may look very different from the market of tomorrow both in terms of the products and consumers of those products. Expectations around speed, hyper-personalisation, digital journeys and support are evolving rapidly. As technology becomes more embedded in everyday financial decision-making, consumer behaviours will continue to shift. And the pace of change is accelerating. Some metrics suggest that AI capabilities are doubling every 7 months far outstripping traditional rates of technological progress. Therefore, this is not a shift we can simply observe. Because it is not just the technology that is evolving - business models and consumer needs are too. This is not a temporary disruption; it is a metamorphosis. The challenge for the market is how it adapts: how to harness these new capabilities to meet changing consumer needs, without leaving people behind or introducing new forms of harm. Our approach to AI reflects that balance. Its principles based and outcomes focused, grounded in existing frameworks such as the Consumer Duty and the Senior Managers and Certification Regime, rather than new, AI specific rules. That means the focus remains firmly on whether firms are acting in consumers' interests, and governing risks effectively. We are working with industry through our AI Lab. We have a world first partnership with Nvidia to offer free advance computing power and data to smaller firms and fintechs inside our supercharged sandbox, to give them the confidence to experiment and test new ideas. The idea is to have an environment where firms come in and test and bring their solutions to life in a safe and responsible way. We will also be publishing examples of good and poor practice on AI later this year to support safe and responsible adoption. And later this summer we expect the outcome of the Mills Review which has been looking at how AI could reshape retail financial services by 2030. But technology will only deliver better outcomes if it is supported by better data, better infrastructure and a clearer view of how those tools are used across the market. Data, open finance and smarter regulation Data, open finance and open banking will be central to the future of the credit market. Financial services sit at the heart of the Government's Smart Data agenda, and open finance has the potential to transform how consumers navigate credit. Our open finance roadmap sets out a clear path to delivery between now and 2030. Open finance can offer significant benefits, including:
But strategy and infrastructure are only part of the story. The bigger question is what we choose to do with these tools. How do the various parts of the credit ecosystem lenders, fintechs, data providers, banks, advisers and regulators fit together to deliver the future we are aiming for? How do we ensure open finance translates into better outcomes in practice, not just new capabilities? And where can firms use data not simply to meet expectations, but to go further, innovate responsibly and raise standards across the market? The same discipline applies to us as a regulator: if data is to improve the market, we must also use it intelligently in how we supervise and intervene. That also raises a further question: how we, as a regulator, use data well. As we look ahead to the future of consumer credit, being a smarter regulator is not an optional extra. It is a necessary part of building a market that can adapt, innovate and remain resilient in the face of change. But being smarter does not mean being softer. It means regulating in a way that is more targeted, more proportionate, and more closely aligned with how the credit market operates. A core part of that is using the right data, for the righ purpose. Take product sales data in consumer credit. On its own, it tells us what is being sold. But when it is linked to outcomes, it tells us something far more valuable how consumers are engaging with credit in practice, whether firms are supporting them to achieve good outcomes, and where risks or opportunities may be emerging. That's why we are increasingly focused on activity-based data, including returns such as the new regulatory return for ancillary credit firms (CCR009). This kind of data helps us see the shape of the market as it is today, and how it is changing over time. It tells us which credit products consumers are using, how firms are structuring those products, and where potential pressures may be building long before harm crystallises. Crucially, this approach allows us to be more forward looking. It helps us intervene earlier, and more precisely, focusing on where we see the most harm with less intensive supervision for those achieving good outcomes for customers. In May this year, we published our final rules on the Retail Banking Business Models (R2B2) data collection. Going forward, firms will provide granular financial and volumetric data on an annual basis on key product segments, including mortgages, personal and small business banking and lending and wholesale funding. Each year, we will publish a set of aggregated statistics and insights based on our analysis of the data, which we expect will offer transparency around trends in personal and micro-SME lending. And this is what smart regulation looks like on the road ahead: not more data for its own sake, but better data, used intelligently to protect consumers, support well-run firms, and create the conditions for a consumer credit market that can thrive with confidence. Cost of living pressures and consumer resilience As we look ahead to the consumer of the future, we must also respond to the realities many households face today. Cost of living pressures continue to shape the context for much of our work and how the system responds when households are under strain is vitally important. We have clear rules requiring lenders to proactively support consumers who are in, or at risk of, financial difficulty, placing a strong emphasis on early intervention, appropriate forbearance, and signposting to free, impartial debt advice. Introduced in Covid, and made permanent in 2024, they set the framework for firms to support consumers through cost of living challenges and pressures on household budgets. The Consumer Duty reinforces this. We are using it to raise expectations, shift behaviour and move firms beyond a narrow focus on compliance towards consistently delivering good consumer outcomes. Under the Consumer Duty, the expectation is clear: firms must be able to evidence better outcomes on an ongoing basis, not just frameworks or good intentions. That, in turn, builds trust and confidence, which drives stronger engagement, higher customer satisfaction and, ultimately, greater loyalty. But as I've said regulation alone cannot deliver this. Who can firms learn from or partner with across technology, advice, debt support and insights to consistently deliver better consumer outcomes? We are already working with stakeholders and monitoring the cost-of-living situation closely. And we stand ready to act further, alongside Government and others, to ensure appropriate protection for consumers. Responding to a market in motion Those pressures sit alongside a wider picture of regulatory reform and market change that matters right now. But do we want to be a moth or a butterfly? You will be very aware of the pace of change across the credit landscape through legislation, policy reform and our supervisory focus. Our Consumer Finance Regulatory Priorities Report published in March sets out what we expect to see now and over the course of this year. As you know, this report replaces our portfolio letters and brings together in one place, the issues that matter most to us and the actions we expect firms to take. The key question for firms is: what does good actually look like in a modern credit market? Is it simply avoiding harm, or actively building resilience? Is it meeting regulatory standards, or choosing to match and exceed them where firms have the capability to do so? Because many firms already have the tools data, technology and insight - to go further. For example, many firms now have 'Tell Us Once' approaches that allow consumers to share their support needs with multiple organisations in one go. That is welcome. But the real test is what happens next and whether those commitments are consistently translating into better consumer outcomes in practice. However, we recognise that one size does not fit all. Smaller firms make up most of the firms we regulate in the Consumer Finance sector, and it is important they feel confident applying the Duty in a way that is proportionate, practical and focused on outcomes not box ticking. That is why, since the Duty was introduced, we have published a range of good practice materials. These cover the key elements of the Duty in detail and provide practical, real-world examples of how firms can meet our expectations. We are also piloting a new initiative to provide more targeted support for smaller firms in navigating our requirements. We have chosen credit brokers as a starting point, and last month published a Regulatory Guide for Credit Brokers. This is designed to help smaller firms, particularly those with fewer than 10 employees, understand clearly what we expect of them and how to apply the Duty in practice. Engagement with firms continues to be a priority. Through our Open-Door regional events, we are placing particular emphasis on supporting smaller firms, helping them understand our expectations and apply them effectively in their day-to-day business. Next month, Deferred Payment Credit (DPC), also known as Buy Now Pay Later (BNPL), comes into regulation, so consumers get the protections they would reasonably expect in line with other forms of credit. But firms shouldn't be focused only on regulation day. The real test is what happens beyond that point. We want firms to ensure that consumers receive the right information, at the right time, to make informed decisions. We are mindful that there could be some consumers who have been regularly using BNPL who find it harder to access once there are affordability checks in place. However, we think it's important that people aren't building up unsustainable levels of debt. And if a consumer does get into financial difficulty, under our rules, BNPL providers will be expected to provide them with support, including signposting to free debt advice. Read my blog on why BNPL will benefit consumers. We also recognise the role of high-cost short-term credit (HCSTC) in supporting consumers' short-term financial needs, and we are reviewing the price cap. We have now completed a series of round table discussions, where we engaged with firms offering HCSTC, trade associations and consumer groups, with broad stakeholer preference to retain the current cap for appropriate consumer protection and stability while acknowledging trade-offs with access. We are considering findings but currently see no evidence for change. We hope to conclude our work shortly. If that is the picture of change in front of us today, it would be easy to focus only on individual reforms and initiatives. The next question is where all of it is taking us. So, we are deliberately stepping back to ask a bigger question: where do we want the credit market to be in 5 years? Or in 10? And what should that look like? Shaping the flight path together This brings me to the next stage of evolution. We want to move the debate forward towards a shared vision for the consumer credit market. Not a regulator designed blueprint, and we are purposefully inviting you to help shape what comes next. Because consumer needs and expectations are not standing still. They are changing driving demand for smarter product design, clearer communications, and support, which genuinely reflect people's real world circumstances.
That in turn raises a broader challenge about how we work together. How can the industry, the FCA and others collaborate more effectively and not in isolation, pulling in different directions but moving with shared intent towards a common north star? Earlier I spoke about our work with the CIGB to improve credit reporting and enable fairer lending decisions. That is one example of partnership in action. I also highlighted the role of the joint taskforce in bringing regulators together to tackle harm and raise standards across the market. But true collaboration cannot just be a concept, it needs to translate into action. So let me ask:
Shaping that will require coordination across the system. The market will keep changing. The real question is whether that change works in consumers' interests and is anchored in principles that will stand the test of time. When we look back in 50 years, what would we want to say defined a credit market that truly worked, not just for firms, but for consumers and the wider economy? What principles, behaviours and outcomes will still matter then? Because shaping the future is not about creating perfection. It is about making deliberate choices now, choices that keep us moving in the right direction, and that define the kind of market we collectively want to see. Moving beyond silos But even the smartest regulation will only take us so far if the wider system is not moving with it. For the FCA, this means being an adaptive regulator, willing to change what needs to change. It means being open about where our understanding of new emerging trends, and where we need to foster partnerships to navigate complexity. It is about stepping back and thinking end to end about how consumers actually experience the market and working collectively to identify and remove friction, rather than designing solutions in silos. If today the market is a caterpillar with many legs, how quickly do those steps need to move to complete the metamorphosis and emerge as a butterfly? Because that transformation will not happen through isolated action. It depends on how effectively we work together. Whether that means working closely with HM Treasury, and regulatory partners (including industry bodies) and consumer representatives. Joining up insight, aligning incentives, and acting with shared sense of purpose across the market. There will be areas where the FCA leads building frameworks like the Consumer Duty. But in many others, progress will depend on partnership to create the interior design within those frameworks. Conclusion: from transition to transformation Earlier, I described the consumer credit market as a caterpillar - complex, multilimbed, a bit prickly and lumpy in places. The challenge now is how we bring these efforts together so that, from a consumer perspective, the market works as a coherent whole, not a set of disconnected parts. But caterpillars don't transform without effort. When that metamorphosis succeeds, what emerges is stronger, more resilient, and better suited to the world around it. Our ambition is a credit market that earns trust, adapts to consumer needs, and gives firms the confidence to invest, innovate and grow. Because the question is not whether transformation will happen, but whether we shape it with enough ambition, and coordination to create a credit market fit for the people it serves." |