John Phillipou: partnership builds better outcomes

As AFC CEO Edward Peck noted “few chairs have ever had such challenges in the period they headed up the association,” citing the FCA’s discretionary commission review, the Court of Appeal shock ruling on commission disclosure and fiduciary duty, and the subsequent Supreme Court appeal.

As David Betteley, AFC community head for auto finance, put it Phillipou, who is managing director of SME lending at Paragon Bank, “could not have expected the rollercoaster ride he signed up for.”

But for Phillipou the regulatory and legislative battleground served to highlight the importance of collaboration.  “I had to be hands on, because I’m someone who can’t sit back, but what really came home to me was all the unseen work done by the senior executive of the FLA.”

This included representing the auto and asset finance industry at high level discussions within Treasury in the immediate aftermath of the Court of Appeal decision, as well as ongoing work to influence developments elsewhere in government, ensuring the sector’s voice was heard.

Broker channel

Phillipou pointed out that the Court of Appeal case appeared to suggest that brokers worked for customers, marking a sea change in the relationships between the lender, consumer and any intermediary.

“But I don’t see banks hiring hundreds of salespeople to replace brokers. We are always going to have a market where there are multiple points of entry for the consumer, including brokers,” he pointed out.

Asked by Betteley whether the audit trail for any interaction was better online, making an online-first strategy attractive, Phillipou maintained that “digital can certainly help in terms of time saving and automating processes so that brokers can upskill and have better conversations and communications, but you’ve got to have a storybook in lending.”

Collaborative working

It is the key role of brokers in the lending ecosystem which makes the recently announced collaboration with the NACFB so significant.  

The launch of a new NACFB Broker Assurance process which shares information with lenders who are patrons of the NACFB, and with governance that includes patron members of the NACFB who are also members of the FLA sitting independently as part of a team, is the realisation of a project started some 14 years ago, Phillipou pointed out.

“The partnership approach began with a paper on working better together all those years ago, and since then there’s been a lot of understanding of the benefits, along with the clashes. We’ve had healthy discussions and now we have reached the endpoint: a joint commitment to best practice and better outcomes,” Phillipou said.

Phillipou said this kind of collaboration between trade associations and the wider lending and brokerage communities, was essential to meet the current regulatory and legislative challenges.

“Our market is robust -we’re an industry with £150bn-plus of lending across our membership, and we are a vital resource for economic growth. We need to be getting the message out about what the industry is and does.

“The sector is not broken and doesn’t need fixing. What it does need is us to get the good messages out there. Yes, we need to identify things that didn’t work well for the consumer so they don’t happen again. But the collaboration between the NACFB and FLA shows that our members have got to live the standards we need to reflect how good we are at what we do,” Phillipou declared.

As part of his own commitment to ensuring the partnership approach is fully embedded, Phillipou has agreed to extend his term of chair until Shanika Amarasekara, Stephen Haddrill’s successor, arrives as the FLA’s head from August.

“Shanika is someone who is very well connected, so knows who to call and how to position the FLA to the benefit of the industry. She’ll be building on Stephen’s five years, and it will be an evolution rather than a revolution,” Phillipou predicted.

As to any predictions for the outcome of the Supreme Court appeal, expected in mid-July, Phillipou would not be drawn, saying “it’s not my nature, but I’m sitting on the fence.”

“It’s that gap between the regulators, the government and the legislators which has started this whole process. When it comes to any redress, the UK needs to be investable, and we can’t expect investors to buy in if the regulators can look back 14 years and levy huge punishments for actions taken which were in line with the regulations then – it goes against the growth agenda.

“And when it comes to claims management companies (CMCs), any redress, if warranted, should go to the client who was affected. The big challenge is how much compensation the CMC takes compared to a fair outcome,” Phillipou pointed out.

There remain fresh challenges ahead, including EU-based regulations on requirements for capital holdings including MREL MREL (Minimum Requirement for Own Funds and Eligible Liabilities) and Basel 3.1.

But Phillipou is an optimist, believing that “we’ve learnt our lessons. As regards commission disclosure, we weren’t exactly asleep at the wheel, but the topic had been brewing for years and not got the attention of some stakeholders. Now we need to be talking about the areas where auto and asset finance can make a real difference, including SME growth and sustainability,” he concluded.

“What’s long been needed to manage the broker/lender relationship is for closer working and that’s finally happening,” he added.

Watch the full interview here.