Introduction
1st April 2014 will bring major changes to consumer credit regulation. The Office of Fair Trading (“OFT”) will cease to exist and all firms that carry on regulated consumer credit activities will be regulated by the Financial Conduct Authority (“FCA”).
The Government’s Objectives
The Government believe that the current division of responsibility between the OFT and the FCA is a major contributor to the current failings within consumer credit regulation. By bringing financial services regulation solely within the ambit of the FCA, the Government is attempting to bring increased clarity and efficiency. The FCA will implement a legal framework based upon the model set out in the Financial Services and Markets Act 2000 (“FSMA”), however, it will be specifically tailored to the consumer credit sector. By removing the statutory regulation of the Consumer Credit Act 1974 (“CCA”) in favour of a rule-based framework, the Government believes the regime will be more flexible and user friendly.
More specifically, the FCA website suggests that the transfer of regulatory responsibility will:
• Deliver stronger consumer protection, particularly in sectors where
widespread misconduct has been identified, such as payday loans.
• Create a proportionate regulatory regime that reflects the different types of
firms and risks posed by them.
• Remove unnecessary regulatory burdens on firms.
• Help to address existing anomalies that result in similar products being
regulated under different regimes.
Key Proposals
Based upon the current Government and FCA consultation proposals, the scope of the consumer credit regulation will remain largely similar to the existing regime. The FSMA will mirror the large majority of the current exemptions under the CCA, however, there will be some minor amendments in areas including peer-to-peer lending. .
The specific details of the new regime are still being consulted upon, however, the key outline proposals are as follows:
• There will be an interim permission regime, operating from 1 April 2014 to 31 March 2016, to help smooth the transfer for firms.
• Stricter conditions of entry for firms, through the full FSMA authorisation process.
• Increased scrutiny of key individuals through the approved persons regime.
• Proactive supervision of higher risk firms.
• Credit advertising will be subject to the FSMA financial promotions regime.
• Wider, and more robust, enforcement powers, with improved access to redress for consumers.
• Reduced requirements for firms carrying out certain lower-risk activities.
• Prudential requirements for debt management firms.
• Limited reporting requirements for certain firms.
• No Financial Services Compensation Scheme (FSCS) cover for consumers.
• The inclusion of second and subsequent charge mortgages in the transfer to the FCA in April 2014.
The Consultation Process
In March 2013, HM Treasury and the Department for Business, Innovation & Skills (“BIS”) published a consultation which was released simultaneously with a paper produced by the Financial Services Authority (the FCA’s predecessor) (CP13/7). In June 2013, HM Treasury and BIS published a summary of the responses. A further FCA consultation is expected in Autumn 2013 which will contain the detailed proposals for the new regime.
FCA Publications
In addition to CP13/7, the FSA/FCA has published the following documents on the consumer credit regime and the intended developments (all articles detailed below are published on the FCA website):
• An Introduction to the Financial Conduct Authority’s proposed consumer credit regime.
• Frequently asked questions: The transfer of consumer credit to the FCA.
• A technical report by Critical Research on “Consumer credit license-holders: Population sizing & segmentation research”.
• Researched by Europe Economics: Transfer of the Consumer Credit Regime: Compliance Costs and Firm Behaviour.
Conclusion
A joint letter (dated 15 July 2013) between the FCA and the OFT requested that CCA licensed firms ensure that their details are up to date on the OFT public register in readiness for the new regime. In addition, firms are to make certain that their current OFT consumer credit licence covers all of the regulated activities that they wish to continue to practice.
Whilst the precise details of the new regime are to be confirmed, it is believed that the FCA consultation which is expected in Autumn 2013 will provide a far more detailed insight into the mechanics of the FCA regime.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Andy Parker at
