A number of financial advisory firms are becoming increasingly frustrated by the lack of clear guidance over whether they require consumer credit authorisation. At present, this authorisation comes in the shape of a Consumer Credit Licence issued by the Office of Fair Trading (OFT), but from April 2014 it will be the Financial Conduct Authority (FCA) that is responsible for consumer credit regulation. The FCA is already accepting applications from firms who will require its authorisation from April onwards.
It is fairly clear that any firm engaged in any of the credit activities currently regulated by the OFT requires a licence for this. These activities are: consumer credit, consumer hire, credit brokerage, debt adjusting, debt counselling, debt collecting, debt administration, provision of credit information services and acting as a credit reference agency.
The FCA currently regulates most first-charge mortgage business, which includes all standard residential mortgage contracts. Most mortgage brokers, while their primary authorisation is with the FCA, also choose to take out a Consumer Credit License to allow them to transact other types of loan business. For example, second charge mortgages currently fall under the OFT’s licensing regime.
Since the start of 2013, FCA-regulated firms giving pensions and investment advice have been subject to the requirements of the Retail Distribution Review. One of the new requirements is the need to charge their customers fees for the advice given, with advisers no longer permitted to receive commission payments from providers. Any firm which allows a customer to spread their advice fee across more than four instalments requires a credit license.
The biggest area of doubt at present is whether investment advisers who may give generic advice on debts during the course of their work fall under the licensing regime. For example, an adviser who offers investment advice may see that a customer has several personal debts, and may advise them to pay off those debts before considering investment of a lump sum. Does this constitute debt counselling?
Unfortunately, it appears there is still no final answer from the authorities on this. In September 2013, Positive Solutions, one of the UK’s largest financial adviser networks, said all its members would need a licence “to be able to talk to clients about their full financial situation, including their debt arrangements, and to be able to introduce or refer clients to other brokers”. You may take the view that it is better to be safe than sorry on this issue, but many advisers are understandably unwilling to pay fees for credit authorisation without unambiguous confirmation that it is required.
In November 2013, trade magazine Financial Adviser was still reporting that the FCA and OFT had failed to provide definitive guidance and had instead suggested firms take independent legal advice on this issue. The magazine first raised the issue back in July under the provocative headline “Do you need a consumer credit license? Don’t ask FCA or OFT.”
It is to be hoped that additional clarification on this matter will follow very shortly.