The Financial Conduct Authority has published its second annual ‘perimeter report’ – an analysis of which activities fall inside the scope of FCA regulation and which remain outside its jurisdiction, and what the implications of this are.
The regulator believes that some of the key issues relating to the perimeter of its powers are:
- The firms it regulates may also offer unregulated products and services, where consumers do not enjoy the benefits and protections afforded by regulation
- Firms (sometimes deliberately) act on the edge of the perimeter, offering products and services that are similar to regulated financial services activity, but are unregulated
The report adds that technological advances may lead to more issues related to the perimeter arising in the future.
What the FCA regulates is a matter for the Government, rather than for the regulator itself.
Under the current regime, the FCA can sometimes take action where regulated firms engage in misconduct relating to unregulated activities. Although the FCA obviously does not have a rulebook covering activities outside its perimeter, all firms under the FCA’s jurisdiction remain subject to the Principles for Business at all times. The FCA may also be able to take action under the Senior Managers & Certification Regime against individuals for activities that fall outside the perimeter.
The FCA is especially likely to take action where the unregulated activity:
- is illegal or fraudulent, or
- has the potential to undermine confidence in the UK financial system, or
- is closely linked to, or may affect, a regulated activity carried out by the firm
As an example, the report mentions the FCA’s ban on the mass-marketing of speculative illiquid debt securities (such as mini-bonds) and preference shares to ordinary retail investors.
The report then goes on to list what the FCA sees as some of the principal areas that fall outside of the perimeter, and the current position regarding each of these:
- Unregulated debt advice lead generators – where these firms either offer debt counselling or aim to give the impression that they are a debt advice provider, then they are likely to be in contravention of existing FCA rules and the regulator’s current powers allow them to investigate further
- Mass-marketing of high-risk investments to retail consumers – the Government is considering new measures which would require any firm wishing to approve such a financial promotion to obtain the prior consent of the FCA
- Pre-paid funeral plans – the Government is expected to introduce legislation, before the end of 2020, which will bring these products within the scope of FCA regulation
- Unregulated mortgage book purchasers – the FCA is continuing to examine ways it can make it easier for borrowers with unregulated lenders to switch to better deals elsewhere
A section of the report is also dedicated to what the FCA describes as ‘credit-like’ products. Specifically, this refers to two arrangements that will feature heavily in the review of the unsecured credit market that will be led by Christopher Woolard, whose term as interim chief executive of the FCA has just come to an end. These arrangements are:
- Employee salary advance schemes – these allow early advances of wages, usually for a fee, and are promoted as alternatives to high-cost credit. They do not usually involve the provision of credit, and so are unregulated. The FCA is concerned about certain features of these arrangements, including the potential for escalating charges, the risk of dependency and the fact that they may not be suitable for consumers with persistent underlying financial problems
- Credit agreements to finance the purchase of goods from retailers (Buy Now Pay Later) – These agreements are exempt from regulation because they are interest free. Since creditworthiness checks are not required there is the potential for unaffordable borrowing, with consumers at risk of default and incurring increased levels of indebtedness
Mr Woolard’s review will make recommendations to the FCA Board in early 2021, including any strategies for dealing with potential consumer harms related to the ‘credit-like’ products.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article