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.