The FCA takes over licensing in a whole new style
Any business
providing credit to consumers, or introducing sources of credit, needs a
consumer credit licence. The requirements and standards have increased
gradually since licensing came in back in the 70’s. Back then, almost all
applications were granted and hardly any licences were revoked. The OFT has
never put much resource into the system and has taken a light-touch approach.
That will all change when regulation moves to the financial services regulator,
the FCA, in April 2014.[1]
The FCA is a
far more demanding regulator. It is used to dealing with large institutions
with full-time compliance officers, and the resources to apply detailed, complicated
rules. The FCA has the resources to deal effectively with complaints and to
make life miserable for those it suspects of transgressions, and it is not
known for sympathy with small businesses struggling to comply. Apart from the
largest consumer credit businesses, which are already FCA-regulated, consumer
credit licence-holders may be in a for a shock.
Until now,
the main sanction under consumer credit legislation was the threat that agreements
might be unenforceable due to non-compliance. Although a whole industry grew up
around this, not many defences based on technicalities were successful. The OFT
was unlikely to take action unless the whole business model of the
licence-holder was objectionable. The OFT’s expectations were set out in
guidance notes, which did not have the force of law.
The FCA has
said that it will act very differently. It is used to dealing with individual
complaints and sanctioning businesses for isolated non-compliance, as well as looking
carefully at the overall suitability of a business. It expects rigid compliance
and self-reporting of breaches. Directors and those performing “controlled
functions” will be subject to personal sanctions, as they are in other FCA-regulated
businesses. The FCA will be translating the OFT’s guidance into enforceable
rules. There will also be Principles of Business, High-level Standards and
Conduct Standards – in other words, a whole new regulatory environment for
businesses to learn and understand.
The FCA does
promise some relaxation for lower-risk businesses. Giving deferred payment
terms at no cost to buyers of goods and services or introducing them to sources
of credit, hiring goods to consumers and not-for-profit debt advice all require
licensing at present but are to be the subject of exemptions, and there is to
be a new status as authorised representative of an authorised firm, allowing
businesses to rely on the compliance of their consumer credit supplier.
All
licence-holders have to apply for interim permission from the FCA, with
applications stating in September, accompanied by payment of a £350 fee –
likely to be the first of many. Full authorisation must be applied for by 2016,
and aims to ensure that regulated firms
are well-run, recognise the risks they face and have appropriate strategies,
systems and controls in place and the right people in important roles. Individuals
who perform key “controlled functions” will be vetted and monitored.
Recommended
first steps for licensed businesses are to check that your details are correct
on the existing Consumer
Credit Register and to sign up to FCA
consumer credit emails. Any business contemplated consumer credit
activities would do well to apply for an OFT licence before April, as otherwise
it will be subject to the full rigours of FCA authorisation.
