Firms still waiting for their regulatory approval of a full consumer credit licence should not be particularly surprised at the recent decision of the Upper Tribunal:  Judge Herrington has held that where the FCA declines to authorise a consumer credit firm, and the firm contests that decision, the firm's interim permission will lapse at the point at which the FCA issues a decision notice.  

As Marcus noted in his blog last year on the FCA's annual report, approximately 50,000 firms registered for interim permission after the FCA took over the regulation of the UK consumer credit industry from the OFT.    Firm A was one among the 50,000 which acquired an interim permission to continue its debt management activities.   It then applied for the appropriate full Part IV permission under FSMA within the requisite time period.  On the date the FCA issued a decision notice refusing the application, Firm A referred the matter to the Tribunal.

The Tribunal had to determine whether the interim permission ceased to have effect when the decision notice was issued, or continued until the reference was determined and, if dismissed, a final notice given.     

In short, Firm A submitted that the amendment to Article 58(3)(c) of the Order in October 2014 meant that a more commercial and ECHR compliant construction was required:  the reference to a “decision notice” in the Order (as amended) should be treated as a reference to an effective decision notice .  However Judge Herrington considered Firm A had misunderstood the functions of a decision notice – being - 'a staging post on the road leading to the ultimate determination of the matter' that allows the FCA to take the relevant action set out within the notice, whether or not it is contested.  The decision notice in this case performed two functions:  it terminated Firm A's permission but gave rise to the right to refer the FCA's decision to refuse the application to the Tribunal.

Quite understandably the judgment is not lengthy – Article 58(3)(c) of the Regulated Activities Order being (at least in our view) quite clear:  '… the date on which an application is determined is….(c) if the appropriate regulator gives a decision notice under section 388 of the Act in relation to the application, the date on which that notice takes effect.'

The case has therefore confirmed that firms can continue their consumer credit business until the FCA issues its decision notice.   As such it is vital that firms take swift action to identify potential purchasers of their book of business or to run it off effectively as soon as the FCA authorisations team indicates that they are minded to refuse an application.  Firms will be able to continue trading whilst they contest this decision before the RDC, but they will need to plan for the potential that the RDC will find against them, because if the RDC issues a decision notice they will not be able to trade whilst they refer the matter of the FCA's refusal to the Tribunal and await the outcome.   

It is in light of this commercial reality, and presumably in an effort to offer some hope to firms, that the Tribunal recommended that where the FCA was proposing to refuse an application for a Part IVA permission made by a firm with interim permission, the warning notice and any decision notice should make reference to the Case Management Powers under the Upper Tribunal Rule 5 (5). Put simply, this rule allows the Tribunal to direct that the ceasing to have effect of an interim permission be suspended pending determination of the reference.   Judge Herrington doubtedthat it would be 'immediately obvious, except to highly experienced practitioners, that the r.5 process could mitigate the effects of art.58'.   In light of this handy tip, it will be interesting to see if future applicants choose to rely upon this rule.