On 10 July 2018, the FCA published the outcomes of its pawnbroking sector review.
The review itself highlighted a number of positive aspects of the sector as well as risks. Positive features included:
- business models focused heavily on customers with quality of service and relationships being paramount;
- product terms were flexible and personalised in the interests of customers; and
- robust controls to minimise the risk of criminally obtained items, alongside strong relationships with local police forces.
However, FCA concerns included:
- when an unredeemed pledge is sold above the redemption value, taken together with the expenses of sale, customers are not always receiving the ‘surplus’ money owed to them;
- expenses relating to the sale of an unredeemed pledge are not always reasonable. The FCA reminds pawnbrokers that if challenged, the onus is on the pawnbroker to show that their fees are reasonable under s121(7) Consumer Credit Act;
- pawnbrokers may be at risk of being exploited for such criminal purposes as money laundering. Weaknesses were found with regards to Money Laundering Reporting Officers (MLROs). MLROs are required oversee all activity within the firm relating to anti-money laundering – however many pawnbrokers reviewed lacked knowledge of the requirement to report suspicious activity reports to the National Crime Agency. Firms are advised to familiarise themselves with the Money Laundering Regulations 2017 and 6.1.1 of the Senior Management, Systems and Controls sourcebook; and
- customers may not be aware of the absence of equivalent consumer protections when entering into unregulated agreements.
The FCA expects pawnbrokers to act upon the potential failings and will assess this in future work.