The Financial Conduct Authority (FCA) has issued its detailed proposals for regulation of consumer credit when it takes over responsibility for this from the Office of Fair Trading (OFT) on April 1 2014. The FCA has launched a consultation on its proposals, and organisations are invited to send their comments before December 3. Final rules are expected to be published in February or March 2014.
The full proposals can be viewed at http://www.fca.org.uk/your-fca/documents/consultation-papers/cp13-10
Firms can expect to be classified as low risk or high risk by the FCA. Organisations in the higher risk category can expect to be subject to increased levels of monitoring; will need to obtain ‘full authorisation’ as opposed to ‘limited permission’; will be required to provide more information about their ongoing activities; will be subject to tougher requirements regarding the approval of key individuals; and in some cases will not be permitted to become appointed representatives.
Higher risk activities will include:
- Lending, other than where the organisation’s core business is not financial services and there is no charge for interest or fees
- Credit broking, other than where credit brokerage is a secondary activity for an organisation whose core business is not financial services
- Debt counselling and debt adjusting by commercial organisations
- Debt collection
- Credit information services
- Credit reference services
- Peer-to-peer lending – these lenders may not currently require OFT authorisation, but will come under the FCA regime
Activities classed as lower risk will include:
- Lending, where the organisation’s core business is not financial services and there is no charge for interest or fees
- Credit hire
- Credit broking where brokerage is a secondary activity for an organisation whose core business is not financial services
- Debt counselling and debt adjusting by not-for-profit bodies
- Credit information services provided by not-for-profit bodies
Consumer credit organisations should apply for interim permission from the FCA before April 1 2014. After obtaining interim permission, organisations will then need to obtain full FCA authorisation within two years of the switchover. All applicants for FCA authorisation will need to meet their existing threshold conditions, which relate to the organisation’s legal status, business model, financial resources and fitness & propriety.
Once authorised, firms will need to comply with the FCA’s Principles for Business, and with the requirements of the FCA Handbook. The new consumer credit sourcebook in the Handbook will be known as CONC.
Many of the rules firms will need to follow will be based around the Consumer Credit Act and existing OFT guidance. However, there are a series of new requirements that apply to all credit firms, and further new requirements for certain types of firms.
Some of the provisions applicable to all firms include the need to submit data reports to the FCA; and a widening of the definition of an eligible complainant.
Examples of the new requirements for specific business sectors include:
- Limits on rollovers and use of continuous payment authority by payday lenders.
- The need for risk warnings on payday loan promotional material
- More rigorous payday loan affordability checks
- New prudential requirements and client money handling rules for debt managers
FCA authorisation will not be required for certain members of professional associations, for whom credit is a secondary activity; insolvency practitioners; tracing agents; or cycle to work schemes covered by a group licence. Some organisations will also have the option of becoming an appointed representative – an appointed representative firm does not hold FCA authorisation, but is supervised by another firm which does.