From 1 April 2014, the FCA will take over responsibility from the OFT for the policing of the UK consumer credit industry. This means that all firms carrying on consumer credit-related regulated activities will need to be authorised by the FCA or the PRA (if they are a dual-regulated firm) unless they are exempt (ie an appointed representative). Failure to seek such authorisation is a criminal offence and could also result in enforcement action and any credit agreement being unenforceable against the consumer.
The FCA published a consultation paper in October of last year which sets out detailed proposals for the new regime. Below is a summary of how this may impact on insurers and brokers.
The rules will distinguish between lower and higher-risk consumer credit activities. As defined, higher risk activities will pick up firms whose main business is financial services and which includes not just consumer credit lending but also credit brokerage (ie the introduction of consumers to lenders). Whilst the political spotlight is currently on pay-day and other retail lenders, insurers and brokers are likely to be performing such high risk activities if they introduce customers to premium finance providers or credit arrangements are put in place by the insurer for the payment of annual insurance premiums.
These activities will require full authorisation. The FCA has explained that FCA authorised firms who currently hold a consumer credit licence from the OFT will need to submit an interim variation of permissions application to the appropriate regulator before 1 April 2014,. All OFT consumer credit licences will expire on 31 March 2014. So firms should be getting their application forms together now. That done, there is a little time before the regime enters into full force, and so firms may wish to consider the following in advance:
- Disclosure: in light of the FCA's current thematic review of brokers' conflicts of interest (see Financial Services Blog), brokers should consider whether it should disclose the basis upon which it selects a premium finance provider (ie whether it is based on a fair analysis of the market in the same manner as for selection of an insurer);
- Oversight: firms should consider appointing an individual with sufficient, knowledge and expertise of the new regime to oversee compliance in this area; and
- Training: firms should ensure its employees are provided with training on the new regime and how it will impact on the business.
We will update on this when the FCA publishes its Policy Statement and final rules – expected this month or next.