28Aug

FCA Explains Process To Be Followed For Consumer Credit Authorisation

With a little over six months to go until consumer credit regulation transfers to the Financial Conduct Authority (FCA), firms should ensure they fully understand the process to be followed. The FCA has provided plenty of guidance on this subject.

In early September 2013, the FCA wrote to all consumer credit licence holders. The top of the letter reads:

If you can answer Yes to the following, you must take action

• My business holds an Office of Fair Trading (OFT) Consumer Credit Licence.

• My business intends to continue with activity covered by this licence after March 2014.

The letter goes on to explain that those who can answer Yes to both questions must apply for interim permission from the FCA. It explains that the standard application fees are £150 for a sole trader and £350 for a firm, but that a discount of 30% will apply if the application is made by the end of November 2013, i.e. sole traders will only pay £105 and firms will only pay £245. The letter concludes with a vitally important statement to the effect that, if a firm does not obtain interim permission by April 1 2014, it will be unable to continue with credit activities.

Much of the same information is contained in the FCA’s leaflet on the subject, however this also provides the answers to a number of frequently asked questions. The leaflet highlights the need for firms to check that the information the OFT holds about them is correct by visiting oft.gov.uk/changemydetails, before they make any application to the FCA via fca.org.uk/clicked. Two important issues highlighted on the leaflet are, firstly that if you apply early for FCA authorisation, you must still retain your credit licence until March 31 2014; and secondly, that there are some changes regarding exactly who will require authorisation, further details of which are available on the FCA website.

For the most part, organisations currently regulated by the OFT for credit business will need to obtain FCA authorisation prior to the switchover date, but there are some circumstances in which those not currently regulated by the OFT will require FCA authorisation, and vice versa. One way that a credit business can avoid the need to be authorised is to become an appointed representative. The term ‘appointed representative’ currently has no relevance to OFT regulation of credit. However, this is an option under the FCA regime, and is currently used by many financial advice firms who are members of networks. Essentially the appointed representative (AR) firm does not hold an FCA authorisation, but is supervised by another firm which does, known as the principal firm. The regulator will hold the principal firm accountable for any failings in the AR’s activities.

A further FCA leaflet explains the step-by-step process to be followed in obtaining interim permission. The FCA has taken out advertisements in many newspapers which suggest that the application process via its website takes only a few minutes.

Comprehensive information regarding the changes are available via the FCA website at http://www.fca.org.uk/firms/firm-types/consumer-credit. Applications for interim permission are already being accepted via the site, and with the discount period ending in November, firms would do well to make addressing this matter a priority.

22Aug

FCA Outlines Differences In Authorisations Required In New Credit Regulation Regime

On 1 April 2014, the Financial Conduct Authority (FCA) will become the new consumer credit regulator in the UK. For the most part, organisations currently regulated by the Office of Fair Trading (OFT) for credit business will need to obtain FCA authorisation prior to the switchover date, but there are some circumstances in which those not currently regulated by the OFT will require FCA authorisation, and vice versa.

Examples of these include:

Appointed representatives – the term ‘appointed representative’ currently has no relevance to OFT regulation of credit. However, this is an option under the FCA regime, and is currently used by many financial advice firms who are members of networks. Essentially the appointed representative (AR) firm does not hold an FCA authorisation, but is supervised by another firm which does, known as the principal firm. The regulator will hold the principal firm accountable for any failings in the AR’s activities. It is not anticipated that lenders or credit reference agencies will be allowed to become ARs, or that firms can become ARs where the principal firm holds only interim FCA permission.

Credit intermediation – current OFT rules allow firms to carry out certain activities related to arranging loans, defined as ‘credit intermediation’, without having a consumer credit licence. However, under the FCA, all activities currently defined as intermediation will be —-classed as ‘credit brokerage’ and will require authorisation.

Peer-to-peer lending – this activity involves bringing together potential lenders and borrowers via electronic platforms. To operate the standard peer-to-peer model currently requires authorisation under the OFT under the credit brokerage and debt administration categories. From the switchover date, the activity of peer lending will be regulated by the FCA.

Credit referencing – only firms whose main activity is providing credit references are likely to receive permission to carry out this activity under the new regime.

Professional bodies – members of professional associations such as law and accountancy institutes may be able to continue with credit-related activities under the supervision of their association. This exemption will not apply where credit is a major part of the firm’s business, or where the firm requires authorisation for other activities regulated by the FCA.

Insolvency practitioners – these individuals will not need authorisation for this activity.

Tracing agents – there will be no need for these agents to be authorised, provided they confine their activities to tracing borrowers and do not take steps to collect any debts.

Cycle to work schemes – an employer currently covered by a group consumer hire licence for such a scheme will not require FCA authorisation.

Local authorities – Councils which carry out unsecured lending are expected to be granted interim permission under the new regime, but details of how this will operate are still being finalised.

Any organisation in doubt as to whether they will require FCA authorisation is advised to seek professional advice as soon as possible. The FCA can accept applications from credit firms for interim permission via its website from 1 September 2013.