FCA Calls for Credit Rating Reform

The U.K.’s Financial Conduct Authority (FCA) is calling for a reformation of the way credit rating agencies (CRA) in the country operate and are governed.

In a November report, the watchdog noted that the sector is “highly concentrated” and that “almost all credit information is supplied by 3 CRAs,” citing Experian, Equifax and TransUnion. It argued that switching between different CRAs is unnecessarily difficult and that there is a need for better data-sharing arrangements between agencies.

It also observed that large credit information users (i.e. lenders) “rarely switch in full, from one CRA to another, and instead are more likely to adopt multi‑bureau strategies and to move volumes between CRAs.”

On Tuesday (Nov. 22), Experian published a response to the FCA report saying it “shares the FCA’s view that there are opportunities to improve the operation of the credit information market in the U.K., and was happy to co-operate fully with the FCA’s team during the multi-year Market Study process.”

It added that it has already been calling for a common data‑reporting format for lenders and CRAs to improve the consistency of credit information and facilitate easier switching between CRAs.

In the U.S., Experian has attempted to overcome the difficulties created by a thin credit file by pursuing the use of digital identity verification tools to promote financial inclusion.

Meanwhile, debt charity StepChange has welcomed the FCA’s commitment to review the impact credit information has on society’s most vulnerable.

The FCA report is weighing the idea of enabling non‑financial vulnerability markers to be recorded on credit files, which could help inform lender engagement and forbearance strategies. It has also suggested that a “consumer portal” could be created that allows people to view and request amendments to their credit files stored by CRAs.

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