FCA cautions NSF over regulatory standards in Provident bid

The Financial Conduct Authority has sent a letter to the chief executive of Non-Standard Finance highlighting the need to stick to regulatory standards after it offered £1.3bn for larger rival Provident Financial.

NSF, whose nil-premium offer has the backing of more than 50% of Provident's shareholders, disclosed on Thursday that Philip Salter, director of retail lending at the FCA, had sent a letter to its chief executive John van Kuffeler a day earlier.

Salter said in the letter that any change in controls or shift in culture towards one that is driven by profits and incentives at the cost of good customer outcomes resulting in unaffordable lending will be something the FCA acts on immediately.

"As we discussed, any changes to the business model of Provident will need to be consistent with our expectations of a firm satisfying FCA threshold conditions and our requirements relating to the provision of high-cost credit," Salter said.

"The offer document states NSF intends to capitalise on its operational and commercial success by acquiring and transforming Provident to unlock substantial value for all shareholders of, and stakeholders in, both Provident and NSF. Given the potential value that might be attributed to the transformation of Provident, we are writing to underline the regulatory position on standards in the market and the considerations we would apply to any transformation plans.

"High-cost credit remains a priority for the FCA and protecting consumers, especially vulnerable consumers, is at the heart of everything we do as a regulator. We therefore consider the sector as presenting high risks of harm to consumers - particularly from unaffordable and repeat lending and poor treatment of customers in arrears."

NSF reiterated that its transformation plan for Provident will be subject to the regulatory approval of the FCA and the PRA. "Neither the FCA nor the PRA has expressed any opinion regarding the merits of our offer," the company said.

Meanwhile, Provident Financial - which said on Wednesday that it had "substantially resolved" all of its regulatory issues with the FCA and outlined its growth plans - insisted that it aims to operate "at the highest FCA and PRA regulatory standards to ensure good outcomes for customers and attractive, sustainable returns for shareholders".

Once again, it urged shareholders to take no action with regard to the NSF offer, which it believes undervalues the group and its prospects as well as presenting "significant" operational and execution risks.