Upcoming changes to the Consumer Credit Regulation Regime
Finance Brief - 1 October 2013
- Upcoming changes to the Consumer Credit Regulation Regime
- Does a lender have to disclose commission paid to broker?
- When is default interest penal?
- Jurisdiction clauses: can the lender have it both ways?
- A Chink in the Corporate Veil?
- A Guide to Corporate Jet Finance
From 1 April 2014 the Financial Conduct Authority will take over responsibility for consumer credit regulation from the Office of Fair Trading. The change will represent a significant shift in the way in which consumer credit and consumer hire is regulated in the UK.
What do consumer credit businesses need to do now?
The transition is happening in stages:
- From now and before the end of March 2014, a consumer credit business must register and apply for interim permission. This is a straightforward process and a small fee is payable. If interim permission is not obtained before April 2014, you will not be able to continue to carry on any regulated activities after April 2014. Care should therefore be taken in checking details and the scope of activities that are currently authorised to ensure that you have the correct interim permission in place from April 2014.
- Between April 2014 and April 2016 there will be a transitional period to move across to the new regime under the FCA. During this time every consumer credit business will have to apply to the FCA for authorisation for its business from April 2016. The FCA will contact licensees in batches to request that they make the application.
- From April 2016, the FCA regime will be in full effect.
What will the new regime look like?
The FCA published a consultation paper in March on its intended approach to authorisation. A further consultation with more detailed proposals is scheduled to be published on Thursday 3 October with the final rules available in March 2014.
In broad terms the scope of consumer credit regulation will generally remain the same, i.e. the activities that are currently regulated as either a provision of credit, consumer hire or the various ancillary activities will continue to be regulated activities and exemptions will equally remain available. There are some differences in the scope of the regulation, in particular, peer-to-peer lending platforms will be brought within the scope of regulation.
The change is that the FCA will implement a different approach to both licensing and to supervision. The FCA will also have wider and more onerous enforcement powers.
The FCA has indicated that it will divide the range of activities regulated by the consumer credit regime into high risk and low risk activities. For high risk activities, the will be a significantly more involved licensing regime. This will include:
A deeper and more detailed authorisation process.
Greater individual liability and focus on key individuals in an organisation. It will be necessary to have certain designated officers with compliance functions and responsibility.
Capital requirements for debt management firms.
Enhanced reporting requirements.
There will also be greater flexibility. A big difference is that it will be possible for persons who carry out certain low-risk types of activity to be an "authorised representative" of a licensed body; that is, another body has the full authorisation and there is contractual arrangement with that body providing you with authorisation to conduct the specific activity.
It will also be possible for entities authorised and regulated elsewhere in the European Economic Area to take advantage of equivalent regimes and in effect passporting to obtain authorisation in the UK. However, it is anticipated that all non-EA firms need to be authorised by the FCA to carry on consumer credit activities in the UK and will need to have a UK establishment.