The FCA has published a note summarising the main differences between the types of activities for which a licence is required under the OFT regime and those which will need to be authorised under the FCA regime.
The scope of the consumer credit regulation will broadly remain the same and there are no significant differences in the types of loan agreements that are exempt from being ‘regulated agreements’.
However there will be some differences in the activities that are regulated and certain businesses will need to review their permissions in advance of the transfer on 1 April 2014.
Peer-to-peer platforms (P2P platforms) – a new regulated activity
Operating a P2P platform is a new regulated activity that covers the facilitation of lending and borrowing through electronic platforms. P2P platforms bring together potential lenders and potential borrowers and make available the loan agreements to be used by the two parties.
The new custom activity for P2P platforms will cover operation of the electronic platform, as well as other connected activities, including:
- presenting the loan agreements to the lender and borrower
- providing information to potential lenders about the financial standing of potential borrowers
- collecting debts and administering the agreements facilitated by the platform
- providing credit information services (including credit repair)
Credit broking and intermediation – a single regulated ‘credit broking’ activity
The current OFT regime has two separate activities of (a) credit brokerage i.e. introducing individuals to lending businesses or other credit brokers; and (b) credit intermediation i.e. certain other activities to arrange a loan. Currently a firm only doing credit intermediation does not need an OFT licence even though overlaps between the two activities exist. To make regulations simpler, the new regime will bring together credit brokerage and credit intermediation into a single regulated activity‘ of credit broking’ for which businesses will need to be authorised.
Credit reference agency – new activity of providing credit references
There will be a new activity of providing credit references which only applies to a firm if its business primarily consists of providing others with information relevant to someone’s financial standing and collecting such information for that purpose. This will replace the current activity of operating a credit reference agency.
Third party tracing agents – exemptions from debt collection authorisation
Under the new regime, a firm (that is not the lender or owner) which solely takes steps to trace the identity or location of a borrower or hirer under an outsourcing arrangement and takes no other steps to collect debts will be exempt from having to be authorised for debt collection. This applies provided the firm does no other activity for which it needs to be authorised.
Appointed representatives (AR) – no authorisation needed if an AR is appointed
- Under the new regime, a business may be exempt from needing to be authorised if it is an AR i.e. it has a contract with a firm (the principal) that allows it to carry on certain activities under the permission of the principal. However a business cannot be appointed an AR for a regulated activity if:
- it does not have a contract with a principal firm which allows or requires it to carry on business
- its principal firm has not accepted responsibility in writing for the regulated activity the business undertakes;
- the firm that the business wants to act as its principal only holds an interim permission for the relevant credit activity;
- it operates a credit reference agency;
- it provides credit (unless the credit is free of interest and any other charges); or
- it is authorised for another activity. However, the exceptions to this are:
- a firm with an interim permission for a credit activity may also be an AR for a FSMA regulated activity that is not covered by its interim permission; and
- a firm with a limited permission for certain credit activities will be able to be an AR for other regulated activities. e.g. a motor dealer with a limited permission to carry on credit broking can also be an AR insurance intermediary.
Professional firms - Credit activities under the supervision of professional bodies
Many professional firms, such as law firms and accountants, currently carry on consumer credit activities under a group licence issued by the OFT. Under the new regime, professionals who are members of certain professional bodies (i.e. Law Societies or Institutes of Chartered Accountants) may be able to carry on credit activities under supervision by their professional body, rather than by the FCA and not need authorisation, as long as the professional body has approved rules in place to regulate those activities by its members.
This only applies if certain conditions are met, including that the consumer credit service is incidental to the professional non-regulated services it provides.
Cycle to work schemes
Cycle to work schemes are used by a number of employers to allow employees to loan bicycle and bicycle safety equipment free of any income tax liability.
Currently, employers participating in the Cycle to Work schemes have the benefit of a group licence issued by the OFT. Under the new regime, Cycle to Work schemes will be exempt from authorisation (for an employee’s equipment up to the value of £1000), so an employer will not need to be authorised for this activity