Following a recent consultation, the Solicitors Regulation Authority (SRA) has confirmed that it will be sufficient for most law firms who practise debt collection activities, or certain other consumer credit activities, to be regulated by the SRA for this activity. Provided that their credit activities are ‘incidental’, then there is no need for the firm to also be regulated by the Financial Conduct Authority (FCA), which is the UK’s main regulator of consumer credit and other financial services.
This should ensure law firms do not need to comply with the rules of both regulators, whilst also maintaining protection for clients.
The SRA has been conducting extensive work with the FCA and with HM Treasury in recent months with a view to securing this exemption.
The SRA intends to issue new guidance shortly on what exactly is meant by ‘incidental’ activities in this context.
Law firms that carry out certain activities that are covered by the Financial Services and Markets Act 2000 should not expect to be able to rely on this exemption. This includes:
• Lending money
• Exercising a lender’s rights and duties under an agreement
• Entering into a consumer hire agreement as owner
• Exercising an owner’s rights and duties under a consumer hire agreement
• Operating a peer-to-peer lending platform
The following specific activities also cannot be covered by the exemption:
• Use of Continuous Payment Authority
• Taking articles in pawn
• Entering into credit agreements that are secured on land, or that have variable rates of interest
• Providing debt management plans
• Taking fees for credit broking activities
In the case of lending money, or exercising a lender’s rights and duties under an agreement, the exemption can only be relied upon if the credit agreement relates solely to disbursements or payment of fees to the law firm.
The legal regulator will now seek final approval from the FCA and the Legal Services Board to adopt this stance, and hopes to be able to update the SRA Handbook accordingly by April 1 2016. The proposed changes to the SRA rules will include:
• The need to communicate in a ‘fair and transparent’ manner
• The need to assess clients’ creditworthiness
• The need to provide sufficient information to allow them to make informed purchasing decisions
• The need to allow clients to choose to allocate payments to two or more outstanding agreements in any proportion they see fit
• The need to make clients aware of the number of lenders the firm has access to, when promoting credit broking services
Crispin Passmore, executive director for policy at the SRA, said:
“This is a positive step forward. Everyone at the SRA and FCA has worked exceptionally hard to ensure that the proposals offer a balanced and proportionate approach to regulation for firms following the transfer of responsibility for regulating consumer credit from the Office of Fair Trading to the FCA.”
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 the facts, circumstances or legal position may change after publication of the article.