13May

The announcement that regulation of consumer credit will transfer from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) in April 2014 has provoked a range of reactions from the credit industry. Some may be looking forward to this with trepidation, noting that the FCA has wider enforcement powers and greater resources to supervise firms than the OFT, and that the FCA’s predecessor the Financial Services Authority (FSA) has imposed some very large fines in recent months. Others, however, see the change as an opportunity to improve the reputation of the credit industry.

Firms in areas of financial services previously regulated by the FSA have been subject to FCA regulation since 1 April 2013, and while the rules remain largely the same, the FCA has been granted new powers which the FSA did not have, and these firms have been told that the culture of regulation will change. “The FCA will be more forward-looking, more focused on where firms are heading and more willing to step in if needed,” said FCA chief executive Martin Wheatley in a recent speech. So even for these firms, the regulatory landscape is changing.

An article appears in the May 2013 issue of Credit Today under the headline ‘Raised standards give us a chance to shine.’ In the article, Mark Broadstock, managing director of debt management company Smooth Group, looks forward to being able to demonstrate compliance with the FCA requirements.

He begins by welcoming the creation of the Prudential Regulation Authority and the Financial Policy Committee, which should allow the FCA to concentrate its efforts on monitoring firms’ conduct. “This will ensure that issues such as risk, compliance and treating customers fairly are given greater oversight and consideration,” commented Mr Broadstock.

He goes on to say: “I hope the FCA will be an organisation with teeth,” and expresses agreement with the new power granted to the regulator to ban problematic products.

However, Mr Broadstock also exercises a note of caution, by asking the FCA not to use this power so much that customers are left without access to vital products, and calls on the regulator to “have facts and balanced evidence to hand” before it intervenes in any area of the market.

Detailed rules for credit firms to follow under the new regime are yet to be published. An initial consultation on this issue ended on 1 May 2013, and it is expected that a more wide-ranging consultation will take place in autumn 2013. However, indications are that the rulebooks will be based around many of the requirements of the existing Consumer Credit Act and the OFT’s existing guidance.

Furthermore, not only do consumer credit firms have to comply with the Consumer Credit Act and with OFT guidance at present, but they also need to treat their customers fairly, otherwise they risk having complaints against them upheld by the Financial Ombudsman Service. So many of the same values promoted by the FCA already exist in well-run credit firms.

Generally speaking, firms who treat their customers fairly, who have rigorous internal controls, who keep up to date with regulatory developments and who seek compliance advice at an early stage when in doubt should have little to fear from FCA regulation.