Agnieszka Beata Kowalska, Director of the Non-Bank Lending Institutions Department at the Polish Financial Supervision Authority (UKNF), spoke this week during the Consumer Finance Congress, organised by the European Financial Congress (EFC).

We invite the readers to see the full speech by Agnieszka Beata Kowalska.

Let me start with a quite obvious statement we’re all very familiar with: ‘time flies’. One year ago, on 28 November 2023, I was standing here before you as a leader of a newly appointed department, preparing myself for the task of supervising the non-bank lender market. I talked about our plans for this area of supervision, about what we wanted to do. Today, in my not so humble opinion, I can say that I’ve achieved my goals. Of course, I haven’t done this by myself. This moment right now is the outcome of the very hard work of my whole team. It’s also the outcome of very good relations with representatives of non-bank lending institutions. Thank you all for this.

Looking back, we rocketed into the New Year. On that day we removed, from the Register, 310 entities which had failed to comply with the registration requirements or had applied for removal. We began supervision activities in relation to 101 entities. The Register of Non-Bank Lending Institutions is a living thing. The changes in the Register do not affect the market’s overall performance, though: the entities that left the market were rather small, and the new ones, although ambitious, have not yet managed to fully spread their wings. 

During the first 10 months of supervision we were getting familiar with the specific features of the whole sector and each lending institution. We build our knowledge through the analysis of periodic reports on the lending activity in the area of consumer credit, and in the first period of supervision those reports caused most problems. Many non-bank lenders were not prepared for supervisory reporting. We tried to help those who wanted to fulfil the requirements but, for various reasons, they found it difficult. Where the will to file the report in a proper and timely manner was missing, there were consequences. That created a measurable effect, as two subsequent reporting periods yielded a much better result. One of our priorities is the quality of data. We make sure that the reported data are transparent and consistent, and that there is a uniform understanding of the requirements under the Regulation on reporting. There was a lot to do here, but that difficult phase is over. 

In addition, we hold meetings with the entities and we engage in an extensive exchange of correspondence as part of the analysis of reports and all the matters on our agenda. We engage in an intensive ongoing supervision. We’re open to contact, talks, and dialogue.

‘Quality’ is a key word for me, not only in the context of reporting but also in the context of the relationship between non-bank lenders and the supervision authority, and in the context of quality of the services provided by non-bank lenders. We’re trying to make sure that non-bank lenders operate with professionalism and transparency, creating benefits both to them and their clients. One should remember that taking care of the consumer, being the weaker party to any relationship existing in the financial market, is the first priority in the supervision of non-bank lenders. 

However, this should be looked at from a broader perspective: our area of supervision also involves prudential elements, but in a form that is different from the one in bank supervision. What I’m referring to is, for example, the method of financing the activities of non-bank lenders. It’s a broad topic, very relevant to non-bank lenders. We analyse this issue, we talk with non-bank lenders about how the limitation in terms of available methods of financing affects their business. We notice the shortcomings in the current regulations, and the related doubts. However, we must guard the ratio legis of the prohibition on the financing of the activities of a non-bank lender from the issuances of debt instruments, including notes or bonds. We believe that ultimately the provision of law relating to the financing of non-bank lenders should be amended. We’re working on a new wording of this provision, and this is the provision I want to consult the market about, but before the new regulations come into force, we expect non-bank lenders to comply with the current regulatory framework and to act in line with the wording and objective of the current rules. 

The non-bank lender market faces various stereotypes. The general public still frequently equates it with usury. The role of non-bank lenders is all the more to run the business in such a manner that it won’t be labelled with any new names like that. The goal for all of us – the market and the supervisor – must be to fight for a market of top-quality services. 

I had announced that in the first year of supervision I would be ready to publicly present the data obtained from supervisory reporting. Preparing myself for today’s event, I was wondering if and how I could present the first market data during the Consumer Finance Congress. There’s a lot to boast about, because the non-bank lender market expands from quarter to quarter. I wanted to highlight the data which showed how resilient and dynamic this market was, but ultimately I changed my plans regarding the public presentation of the sales results. Supervision is not only about monitoring and inspection but also protection of supervised entities. We must protect trade secrets. I’ve decided that I will not present data on sales volumes, as that might infringe the protected interests of entities in our market and distort competition. Among non-bank lenders, we have two very important players whose sales are largely concentrated in the e-commerce channel. With such distribution of forces, an analyst could calculate the estimated sales volumes of competitors. On the other hand, communicating data that exclude the e-commerce channel, particularly Buy Now Pay Later (BNPL) loans, will not show the whole picture of the non-bank lender market or the consumer credit market. 

The truth is that the non-bank lenders represent an advanced and diverse market. We can see that the success and the power of this market – and perhaps to a great extent its future – stem from the e-commerce financing, with deferred payment playing an important part. We have 8 non-bank lenders which create the e-commerce market in which they meet demands other than the ones that classic lenders do. As I mentioned, a large part of this business is concentrated in the hands of two leaders.

The Chair of the KNF, Jacek Jastrzębski, said at a conference: ‘The market of non-bank lending institutions is incredibly agile’, it adapts quickly not only to the changing financial market but also, perhaps most of all, to its clients’ needs. I would like to thank those institutions for building the identity of this market based on social responsibility and consumer-oriented approach to business. In fact, this is the only approach that guarantees success. Creating a prosperous, long-lasting business in the Polish market requires good relations with clients. The firm must assume social responsibility for what it does. If such approach is missing, the supervisor’s intervention becomes necessary. 

The recurring theme today is that one cannot intervene in the market any more, that the market is over-regulated. The need of deregulation is mentioned more and more often. Let me ask you: if not regulation than what? Full freedom, or maybe self-regulation? Are we, as a market, ready to act together and handle this on our own? I support self-regulation and the freedom to run a business. I’ve talked to representatives of non-bank lenders’ associations and I’ve indicated potential areas of self-regulation. I will be working with them and supporting them but I will also be reviewing the outcome of the self-regulation activities. This will be a market maturity test, which will show what balance between regulation and auto-regulation we can now afford. 

So far, I haven’t addressed in great detail the business models functioning in the market because in the first months of supervision we had different priorities. Now I know and I can see that the success of innovative solutions of leaders is something that inspires others. New entities emerge, also outside the non-bank lender market, which want to enter the e-commerce market using shortcuts and ignoring the Act on consumer credit and the principles of social responsibility. In their relations with consumers, they offer solutions that are generally acceptable in business dealings, for example, the ‘Buy Now Pay Later’ contracts or other hybrid constructions, but at the same they try to convince the consumer that the financing of purchased items is not actually a credit solution. I will say it briefly: this way of doing business looks bad. The newly emerging forms of financing of the consumer’s needs with breakneck legal hybrids is something I consider an attempt to bypass the restrictions imposed by the Act on consumer credit. My question is: why are such offers made to consumers in the environment of entities offering consumer credit? The answer seems obvious: the reason behind this may be primarily the intention to optimise the financial result while avoiding the consumer credit regime. I will be analysing those practices from the perspective of my supervisory mandate, in view of the basic objectives, i.e. ensuring consumer protection and maintaining transparency and competitive balance in the non-bank lender market. Some of those pathological solutions and practices will definitely be eliminated with the implementation of the CCD2. However, maybe steps should be taken earlier than that, to improve the rules of transparent lending. At this point I also encourage the market to take actions to do a kind of self-cleaning: to identify and eliminate any black sheep, whose business practices, barely legal or even attempting to circumvent the law, destroy the trust in and the reputation of the entire market.

I can’t keep quiet about the fact that we’re also identifying weakness of the market. My goal is to find out where the problems of this market come from so that I can eliminate or at least minimise them. It’s a difficult task, which may encounter a kind of resistance or misunderstanding in the market. We can and we want to use the experiences of the last months to implement the CCD2. I want to stress that the implementation of the directive is not the responsibility of the UKNF. The person authorised in this respect is the President of the UOKiK. We as the financial supervisor feel obliged, however, to speak about this and share the knowledge and experience that will be relevant when the provisions of law are to be amended or extended. Implementation of the CCD2 may become an opportunity for creating regulations that go beyond the CCD2 but are needed as a response to the current needs of the market. We would like to supplement and amend some provisions of the Anti-Usury Act, and we can see what can be regulated further or which gaps should be filled. 

Imprecise provisions are problematic not only for the market but also for public institutions, which are bound by statutory law to guard them. Only clear and predictable law builds the confidence of citizens in the state, this is what I believe. 

The first year of supervision will soon be a history. Besides looking back and learning our lessons, as a supervisor and a team leader I want to look forward and I am looking forward. I am planning, assessing risks and anticipating. We already have new ambitious plans for 2025.

Today I can finally tell you that we as the supervision authority will be trying to amend the rules on entry in the Register of Non-Bank Lending Institutions: our goal is to introduce stricter requirements for entities wanting to start providing services as a non-bank lender, and a wider scope of documents and information required for registration. If the goal of supervision, which is the high quality of services for consumers, is to be something more than empty words, we need to choose, right from the outset, the entities that are aware and mature as businesses and which guarantee top-quality services. We want to modify the registration procedure in a way that is closer to the licensing procedure, so that we can check, right from the start, who runs the institution, how prepared that person is, and whether they provide satisfactory assurance of compliance. 

Looking back and planning our initiatives and activities as part of the second phase of professionalisation of the non-bank lender market, we have to consider the geopolitical context too, which translates into our supervision activities. We want to make sure that each entity admitted to the regulated market guarantees transparency of its activities. What I mean by that is transparency in terms of ownership structure, sources of financing, and origin of funds.

We live in extremely interesting times, not only in the general sense but also from the perspective of the consumer finance market. We all should strive for a consumer finance market which can operate in a safe way but can also grow steadily. It has been said for many years that consumer protection and acting in the best interest of consumers are an absolute priority in the consumer finance market. This is the direction that the Polish and EU legislators have committed to go in. And it’s the right direction. Nevertheless, a market develops properly – in a balanced way – if the interests of both parties are secure and well-balanced. 

Lastly, I would like to ask a question regarding the protection of interests of businesses operating in this market. It is easy to notice a new emerging trend in the financial market in general, not only in the non-bank lender market: the progressing instrumentalisation of the application of consumer law which actually goes beyond the goal of consumer protection and which might be conductive to the development of business activities aimed at, for example, acquiring and attempting to pursue consumer claims on a massive scale. This is why it becomes so crucial to enact acts of national law and to interpret it so as to prevent any loopholes that might enable practices which would undermine the ratio legis of regulations and which would be based on the shortcomings or imprecise provisions in the national law, and which would be supported by referring to the objectives of EU law. 

For many years, the Polish financial market, including the non-bank lender sector, has been among the world’s leading trendsetters in innovation. This has been in line with the economic policy of public authorities and with the priorities of the financial supervision authority. We want to build a strong, advanced financial market which is competitive not only internally but also internationally. That success can be achieved only with predictable state bodies, with legal certainty, and with dialogue between the public sector and the private sector, i.e. the market. The best functioning regulated markets are those where the supervisor and supervised entities communicate with each other, and where there is room for dialogue, predictability and confidence in public authorities. This is the path we have chosen.  

Events like today’s conference help us come up with and bring us close to new solutions, and provide a good platform for exchange of thoughts and for the broadly defined dialogue. As always during such events, if you want to share your thoughts, I would like to invite you to talk to me backstage. 

Photo from the event