Treasury and the Department for Business Innovation and Skills (BIS) are consulting on transferring consumer credit regulation to FCA. The paper proposes that the transfer should take place in April 2014. In principle, the Government proposes to apply the building blocks of the FSMA regime to consumer credit, so similar requirements and processes will apply to consumer credit as they do to those activities that are currently regulated for FSMA purposes. Among other things, this will mean:
- a more searching application process for authorisation, with firms being assessed against FCA’s threshold conditions;
- an approved persons regime for key individuals within consumer credit firms; and
- tougher supervision and greater regulatory powers of enforcement and redress.
The paper acknowledges that the regime must be flexible and proportionate, and proposes a two-tiered approach to regulation, which will introduce a “limited permission” regime for specific low-risk firms, including those whose main business is a non-financial business and for whom provision of credit is a secondary activity. The Government also believes it will in time transfer several provisions currently in legislation into rules. Although it says it supports carrying forward existing conduct requirements, it also believes the current FSA Principles for Business should apply to consumer credit firms, and wants FCA’s rules on financial promotions and its product intervention powers equally to apply. Other key elements of the proposals are:
- as envisaged in the FS Act, it will be possible for consumer credit firms also to be appointed representatives for appropriate non-consumer credit products, but the Government proposes to restrict this regime to firms with limited permissions only;
- the consumer credit group licensing regime will not carry forward to the new regime, so groups will need to restructure, possibly taking advantage of the appointed representative regime;
- not-for-profit debt advisory firms will fall within regulation;
- the current FSMA regime for professional firms carrying on regulated activities in certain circumstances will apply equally to consumer credit activities;
- the FSMA change in control regime will apply to consumer credit firms, but with bespoke thresholds to make it proportionate;
- there will be a new regulated activity of operating a peer to peer platform;
- the activities of third party tracing agents in tracing debtors will be outside FSMA scope;
- the Government is considering regulating lead generation in relation to credit and debt, but will make a decision on whether and if so how to do this separately;
- to bring relevant activities within the Financial Ombudsman Service’s (FOS) compulsory jurisdiction, which will mean there is no need for the credit jurisdiction; and
- interim permissions so firms licensed by OFT will be able to carry on activities before they have made a full application for authorisation from FCA.
The paper includes draft secondary legislation reflecting specifically the changes to the FSMA (Regulated Activities) Order. The Government seeks comments by 17 April 2013. (Source: Government Consults on Consumer Credit Regulation)