FSA is consulting on how FCA will regulate consumer credit firms after April 2014. It proposes a tiered approach, with full implementation by April 2016. It reiterates Treasury’s focus on high risk firms, saying these include payday lenders, pawnbrokers, credit reference agencies and debt collectors.

FSA proposes that existing OFT licence holders can apply for interim permission from Autumn 2013, and will have to provide limited information and pay a one-off fee to FCA. Interim permissions will begin from 1 April 2014 and OFT licences will lapse. Firms will then have until 2016 to obtain full authorisation. The paper explains how FCA will implement the proportionate approach, including that it does not propose to impose capital requirements (except on debt collection businesses), nor that consumer credit firms be subject to the Financial Services Compensation Scheme. It says it will regard as lower risk activities consumer credit lending with no interest or charges, consumer hire and credit broking as a secondary activity. These firms will be granted “limited permissions” which means they will be subject only to reactive supervision, face lesser information requirements and pay less in fees. These are the firms which might also consider becoming appointed representatives.

The paper explains how FCA will apply parts of its rules to consumer credit firms:

  • the threshold conditions, which it will assess according to the risk categorisation of the firm;
  • approved persons: FCA proposes to apply most of the significant influence and required functions to consumer credit firms except those with limited permissions. There will also be a requirement for debt management firms to appoint a person to the function of “protecting clients’ money and assets”;
  • it will consult on turning OFT’s various guidance papers into FCA rules or guidance; and
  • the firm systematic framework (FSF) for supervision will apply proportionately to consumer credit firms.

The paper also considers enforcement and financial crime compliance and consults on a new fee regime for the consumer credit sector. FSA has also published a factsheet on the proposals. There will be a further consultation with detailed rules towards the end of 2013. FSA asks for comment by 1 May 2013. (Source: FSA Consults on Consumer Credit Regulation)