In conjunction with Baker & McKenzie's London Financial Services Team, we have established that consumer credit licences are no longer required for UK special purpose vehicles (SPVs) engaged in securitisation transactions featuring UK assets under the new consumer credit regulatory regime being administered by the Financial Conduct Authority (FCA). This is due to additional amendments to the regulated activities (and related exclusions) and further amendments to the exemptions available under the Financial Services and Markets Act 2000 (FSMA 2000) having been made as a result of the responsibility for the consumer credit regulatory regime being transferred from the Office of Fair Trading to the Financial Conduct Authority from 1 April 2014. The legislative analysis is set out below:

Recent FSMA 2000 Regulated Activities amendments

The Financial Services and Markets Act 2000 (FSMA) (Regulated Activities) Order (as amended) (the RAO) sets out a list of "regulated activities" which trigger a licensing requirement with the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA). The RAO also sets out a list of exclusions to the regulated activities. If a person or activity falls within one of the exclusions, then the person is not considered to be performing a regulated activity. The RAO contains exclusions to the "regulated activity" of the lender or another person exercising, or having the right to exercise, the lender's rights and duties under a regulated credit agreement. 

  1. The RAO contains a new exclusion at Article 60I (inserted by the Regulated Activities (Amendment No. 2) Order 2013 - S.I. 2013 No. 1881 - as from 1 April 2014) under which a person is exempt from the requirement to hold a licence to exercise, or have the right to exercise, the lender's rights and duties under a regulated credit agreement where that person:

    • arranges for another person, who is an authorised person with permission to carry on an activity of that kind, to exercise or to have the right to exercise the lender's rights and duties under the agreement; or  

    • exercises or has the right to exercise the lender's rights and duties under the agreement during a period of not more than one month beginning with the day on which any such arrangement comes to an end. 

  2. Further, under (new) Article 60J of the RAO, a person who is not an authorised person does not require a licence to exercise, or have the right to exercise, the lender's rights and duties under a regulated credit agreement if that person exercises or has the right to exercise the lender's rights and duties under the agreement pursuant to an agreement with an authorised person who has the permission to exercise, or have the right to exercise, the lender's right and duties under a regulated credit agreement. 

Recent FSMA 2000 Exemptions Amendments

Additionally, The Financial Services and Markets Act 2000 (Consumer Credit) (Miscellaneous Provisions) (No. 2) Order 2014 (S.I 2014 No. 506) has inserted a new exemption into FSMA (via The Financial Services and Markets Act 2000 (Exemption) Order 2001) (see Part IV para 55) which exempts certain classes of persons from the requirement to have a licence to perform certain regulated activities. This exemption exempts a person from the licensing requirement where it will: (i) exercise, or have the right to exercise, the lenders' right and duties under a regulated credit agreement; and (ii) to perform debt adjusting, debt counselling and debt collecting in an "exempt period" (i.e. a period of 30 days beginning on the day after the day on which the servicing arrangement came to an end). A person may be exempt if:

  1. it is not the original lender, i.e. the person who provided the credit under the regulated agreement;

  2. it does not grant, is not required to grant, and does not promise to grant credit under the regulated credit agreement under which the person exercises (or has the right to exercise) the rights of the original lender; and

  3. it does not undertake debt adjusting, debt counselling and debt collecting activities, except in an "exempt period".

In order for a person to rely on this exemption in respect to an agreement, the person must have also entered into a "servicing agreement" in relation to the regulated credit agreement under which the person exercises (or has the right to exercise) the rights of the original lender, or the "exempt period" must not have expired. Additionally, the person must:

  1. have arranged for the "servicer" (i.e. the person with whom the person enters into a servicing agreement, where that person is authorised to carry on relevant regulated activities) to comply with certain specific provisions under the Consumer Credit Act 1974 (as amended); and

  2. where the person (and the not the servicer acting on behalf of the person) varies the regulated credit agreement, the person itself will comply with certain provisions under the Consumer Credit Act 1974 (as amended).

The Explanatory Note to The Financial Services and Markets Act 2000 (Consumer Credit) (Miscellaneous Provisions) (No. 2) Order 2014 makes clear that the new exemption provides an exemption from the need to be authorised under FSMA for "persons who have rights under a regulated credit agreement or regulated consumer hire agreement (for example, special purpose vehicles who acquire such rights using the proceeds of a bond issue), provided that the agreement is administered by an authorised person".

This clarification is a helpful development, especially given that the process for obtaining full authorisation under the new regulatory regime can now be expected to take up to six months, and also involves initial and ongoing costs for licence-holders. In any event, since CCA licences were only ever applied for for UK SPVs on a precautionary basis (with the SPV never expected to have to make use of the licence), the new exemptions remove the need to go this extra step in transactions involving UK assets and a UK SPV.