This client bulletin will be of particular interest to:
- Firms that currently hold Consumer Credit Licences issued by The Office of Fair Trading (OFT) under The Consumer Credit Act (CCA) and
- Firms that are considering starting to carry on consumer credit activities.
As you may be aware, the transfer of consumer credit regulation from the OFT to the Financial Conduct Authority (FCA) will take place on 1 April 2014. From that date the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) (FSMA) will replace the existing consumer credit regulatory framework under the CCA. In particular, it will replace the existing consumer credit licensing regime. However many provisions of the CCA will remain in place, for example, the form and content of credit agreements will remain in CCA secondary legislation.
The power to authorise, supervise and enforce against firms carrying on consumer credit activity will come from the FSMA. The legislation gives the FCA power to make new consumer credit rules. Pursuant to such powers the FCA will be introducing a new sourcebook within the FCA Handbook called the Consumer Credit Sourcebook (CONC). The CONC will cover the conduct requirements for consumer credit firms and the prudential requirements for debt management firms.
Consumer credit licensing regime and how the changes will impact upon you
As touched upon above, this article focuses on potential issues for existing OFT consumer credit licence holders and/or firms that are considering starting to carry on consumer credit activities.
Existing OFT licence holders
The OFT and FCA are attempting to make the transition period for firms as straightforward as possible by introducing an "interim permission" period. Existing OFT licence holders will be able to continue carrying on such regulated activities if they apply to the FCA for interim permission. Such firms must apply to the FCA for interim permission by 31 March 2014. An application for interim permission can be made on the FCA's website. It is therefore critical that existing OFT licence holders apply to take advantage of the interim permission, as there are significant advantages to your business in doing so:
- Without interim permission and following 1 April 2014, your firm will be required to seek full authorisation from the FCA before continuing your consumer credit activities.
- The process of securing full authorisation from the FCA will take time and could significantly interrupt your ongoing business.
- With interim permission, your firm will be required to comply with some but not all of the new requirements.
- Securing interim permission will allow you to continue to conduct your business and while doing so allow you to adjust your business processes to meet the new demands of the FCA. It provides an opportunity for gradual adjustment of your business practices to the new regime and new regulations.
Before 1 April 2016, all firms with an interim permission that want to carry on regulated consumer credit activities should have applied for full authorisation.
A one-off fee is payable as part of the interim permission application process.
If an existing OFT licence holder fails to obtain an interim permission (and fails to pay the necessary fee) it will have to stop carrying on its consumer credit activities. If it continues without interim permission from 1 April 2014 then it will be committing an offence and will be at risk of enforcement action.
Firms that do not have an existing OFT licence
If you do not have an existing OFT licence and intend to become involved in consumer credit activities after 1 April 2014 then such firms will need to apply for full authorisation. This is an important period for firms who do not have an existing OFT licence but intend to start consumer credit activities on or around April 2014. Firms in such a position should try and take advantage of the interim permission regime by (i) applying and obtaining the relevant OFT licence as soon as possible and (ii) applying to the FCA prior to the 31 March 2014 for interim permission.
Given the current processing time to apply for licences with the OFT, it is imperative that if you are in a position to commence participation in a consumer credit business you apply immediately for such OFT licences. Delay could increase the likelihood that your application will not be processed in time to secure interim permission from the FCA.