CONC Creditworthiness Assessments in Practice

CONC Creditworthiness Assessments in Practice: What Lenders Must Do

Few areas of consumer-credit regulation have generated more remediation, complaints and enforcement attention than affordability. The rules sit in CONC 5.2A of the FCA Handbook, and while they are principles-based rather than prescriptive, getting them wrong has forced lenders through costly remediation programmes and, in some cases, out of the market entirely. This article sets out what a creditworthiness assessment actually requires in practice, and what a compliance function needs to have in place to evidence it.

It is written for compliance leaders, heads of credit risk and finance leaders in FCA-regulated lending firms — and it is particularly timely, because the regulatory perimeter is expanding to bring new lenders into exactly these obligations.

Credit risk and affordability risk are not the same thing

The single most important idea in CONC 5.2A is that creditworthiness has two distinct components, and firms have a natural incentive to attend to only one of them. The first is credit risk — the risk that the customer will not repay, which is a risk to the lender. The second is affordability risk — the risk to the customer of not being able to make repayments in a sustainable manner, without incurring financial difficulties or experiencing significant adverse consequences. Firms have a strong commercial incentive to assess credit risk. They have far less commercial incentive to assess affordability risk, which is precisely why the FCA made it a rule.

A creditworthiness assessment that looks only at whether the firm will get its money back, and not at whether repaying will push the customer into hardship, does not meet the CONC 5.2A standard however sophisticated the credit-scoring behind it.

The proportionality principle

CONC does not prescribe a fixed checklist. Under CONC 5.2A.20R, the extent and scope of the assessment — and the steps needed to make it reasonable — are dependent upon and proportionate to the individual circumstances of the case. The factors that raise the required level of rigour include the cost of the credit, the total amount payable both in absolute terms and relative to the customer’s circumstances, and any indication that the customer’s financial situation means the credit could have a more significant impact on them.

In plain terms: a small, low-cost, short-term advance may reasonably require less information than a large, long-dated or high-cost commitment. The firm must exercise judgement, but it must be able to show the judgement was reasonable in the individual case — proportionality is not a licence to do less, it is an obligation to match the assessment to the risk.

Income, evidence and what you cannot rely on

CONC is clear that firms generally cannot rely solely on a customer’s own statement of income without some independent check — for example, credit-reference-agency data or third-party documentation — where that matters to the assessment. Equally important is a rule firms sometimes miss: under CONC 5.2A.14R, when considering affordability risk, a firm must not take into account any security, guarantee or indemnity. The question is whether the borrower can afford to repay from their own means, not whether the lender could recover from a guarantor or asset if they cannot. Guarantor lending has drawn particular regulatory concern on exactly this point.

Policies, procedures and the audit trail

CONC 5.2A does not stop at the individual assessment; it imposes firm-level governance requirements that a compliance function owns directly. Firms must set out, in writing, the principal factors they take into account in creditworthiness assessments. Those policies must (other than for a sole trader) be approved by the firm’s governing body or senior personnel. They must be reviewed periodically to confirm they remain effective, with deficiencies addressed. And firms must maintain a record of each transaction where a regulated agreement is entered into or credit is significantly increased.

That last point — the audit trail — is where firms most often come unstuck. The requirement is easy to state and hard to sustain, particularly for running-account products such as credit cards that may stay open for years across numerous credit-limit increases. A compliance leader should be able to reconstruct, for any given lending decision, what was assessed and why it was reasonable. A firm that reaches a sound decision but cannot evidence how is exposed regardless of the outcome.

Where firms most often fall short

The FCA’s research across the consumer-credit market has found problems at both ends. Some firms under-comply — carrying out insufficient checks, relying too heavily on a customer’s own statement of income, or treating a good credit score as if it answered the affordability question when it does not. Others over-comply, building burdensome procedures that are costly and restrictive without improving outcomes. The regulator’s aim is neither: it wants a reasonable, proportionate assessment matched to the risk of the individual agreement.

For a compliance function, the practical failings to guard against are consistent: conflating credit risk with affordability risk; failing to verify income where verification matters; applying a one-size-fits-all process that is too light for high-risk lending and too heavy for low-risk; and — most commonly of all — being unable to evidence, after the fact, why a given decision was reasonable.

Automated decisioning is allowed — but it must be effective

Nothing in CONC prohibits automated creditworthiness assessment, and most lenders rely on it at scale. What CONC requires is that the firm can be reasonably satisfied the automated process is effective in making a reasonable assessment in each case. That is a meaningful condition: a firm cannot hide behind an algorithm. It must understand how its model reaches decisions, be able to show the model actually assesses affordability rather than only credit risk, and monitor it for drift and bias. Where AI or machine learning is used, this connects to the wider governance and model-risk obligations that now apply to AI in regulated finance — the firm remains accountable for the outcome regardless of how automated the decision.

Why this matters now: the expanding perimeter

These obligations are not static. From 15 July 2026 — Regulation Day — Buy Now Pay Later lending is brought within FCA regulation, and the FCA has confirmed it will apply the CONC 5.2A creditworthiness rules to BNPL lenders, including on low-value agreements. The Financial Ombudsman Service jurisdiction is being extended to BNPL activity. For a swathe of lenders new to regulation, affordability assessment done to the CONC standard — and evidenced — is now a live compliance requirement, and one many will be building from a standing start.

What good looks like

A firm meeting the CONC 5.2A standard in practice has a written, board-approved affordability policy that is genuinely applied rather than filed; a proportionate approach that flexes with the risk of each agreement; independent verification of income where it matters; a clear separation of affordability risk from credit risk in how decisions are made; and an audit trail that lets it evidence any decision after the fact. Building and maintaining that is a senior compliance responsibility, and it is one of the areas where regulated lenders most need experienced compliance leadership.

FD Capital recruits the compliance and credit-risk leaders who own exactly this — heads of compliance, MLROs and risk leaders who can build affordability frameworks that satisfy the regulator and stand up to scrutiny.

Call 020 3287 9501 or email recruitment@fdcapital.co.uk to discuss a compliance, credit-risk or MLRO appointment at an FCA-regulated lender.

FD Capital — Regulated-Firm Compliance Recruitment

Fellow of the ICAEW | Placing compliance, credit-risk and MLRO leaders into FCA-regulated lending and consumer-credit firms since 2018. We recruit permanent, interim and fractional finance leaders across the UK. 4,600+ network. 160+ placements. Shortlists in 3–7 working days.

This guide is general information for finance leaders and does not constitute legal, regulatory or professional advice. Businesses should take their own advice on their specific circumstances. Regulatory positions described are current as at mid-2026 and are developing; readers should check the FCA’s latest publications.

Adrian Lawrence

Adrian Lawrence FCA is the founder of FD Capital and a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW). He holds a BSc from Queen Mary College, University of London, and has over 25 years of experience as a Chartered Accountant and finance leader working with private, PE-backed and owner-managed businesses across the UK. He founded FD Capital to connect growing businesses with the Finance Directors and CFOs they need to scale — and personally interviews candidates for senior finance appointments.