Changes to Consumer Credit Regulation – What every business needs to be doing now
Even the most well run businesses carrying out consumer credit activities should be starting to make preparations for the transfer of consumer credit to the Financial Conduct Authority (FCA) in April next year.
The FCA has outlined its proposals for how consumer credit will be regulated with the detail of a Consumer Credit Conduct of Business Sourcebook to follow later in the year.
The new FCA regime will be very different to regulation under the OFT with a much higher threshold for authorisation and more intrusive ongoing supervision. Firms should be carrying out a review of their processes, systems and controls and documentation now in readiness for the April 2014 deadline to ensure a smooth transition.
When will the transfer take place
The transfer of consumer credit regulation to the FCA will take place on 1 April 2014, at which point the OFT will cease to exist. Only firms who have obtained interim authorisation from the FCA by this date will be able to continue with CCA activities, including credit broking.
The FCA will operate an interim regime for the regulation of consumer credit between 1 April 2014 and 1 April 2016. During this period firms will be called forward to apply for full authorisation. No guidance has yet been issued by the FCA to allow businesses to work out when they will be called forward.
It is proposed that all applications for full permissions will have to be made by 1 April 2016 at the latest. Firms that wish to continue to carry on regulated consumer credit activities will need to have applied for full authorisation prior to this date.
A limited permission regime involving lighter touch regulation will be available for certain consumer credit firms that are deemed to carry on lower risk activities; for, example, businesses such as retailers who only engage in secondary credit broking. Nevertheless, even this regime will involve much greater compliance than the OFT have imposed to date on CCA licence holders.
The HM Treasury and FSA consultations were designed to allow firms to begin to prepare for the new regulatory regime and to become familiar with the approach and obligations on them under the FCA regulation. Affected firms should start to prepare themselves as soon as possible and the FCA will expect to see firms taking the necessary steps to enable them to adjust to the new regime.
Further consultation is expected from the FCA in September when their proposed design for the new regime (in the form of a Consumer Credit Sourcebook) is announced and consumer credit firms should ensure that they are in a position to apply for interim permission as soon as possible following the publication of this paper.
Whilst April 2014 may seem a long way away, it is important that firms take action now. The final rulebook for the new regime is unlikely to be published until just prior to implementation, much too late to allow firms any chance of being compliant unless they begin to prepare themselves now.
Firms should start preparing for the new regime to ensure that they understand and meet the relevant requirements to ensure that the transition to FCA authorisation is as seamless and stress free as possible. The sorts of things that firms should be considering now are:
- Does your current CCA licence cover all the activities that you are / are likely to undertake? - firms wishing to carry out consumer credit activities where they are not already licensed to do so should apply to the OFT now to amend their consumer credit activities or else they will need to apply for full authorisation to obtain any variation once the transfer to the FCA has taken place
- Who will be the approved person or persons in your business once full authorisation is required? – individuals involved in the governance and day to day running of your business will need to be approved, and will be held accountable in the event that things go wrong
- The impact of FCA regulation on your businesses processes and procedures – how do you do business and is it documented? It is vital not only to be doing business in the right way, but it must be documented and there must be evidence that information has been cascaded appropriately to staff
- Can you demonstrate that you have the interests of your consumers and the integrity of the market at the heart of how your business is run?
- Have you carried out a review of the risks to your business? How often and by whom are the identified risks reviewed? How are risks to your business managed? Is this documented?
- What management information do you produce – by whom and how is any management information assessed? Can you demonstrate that where management information highlights issues that these are appropriately followed up?
We have a team of individuals who are uniquely placed to assist you through the transition to the FCA. We have a CCA leader in their field and someone who spent seven years working in the FSA's Enforcement department bringing an invaluable insight into the mind and the workings of the regulator; we are able to combine this experience to provide a complete service covering systems and controls, processes and procedures and CCA compliant documentation.
Who would benefit from our services?
- Firms who currently hold FCA authorisation but whose FCA authorisation will need to be varied to include consumer credit activities.
- Firms who have an understanding of the new regulatory environment, but who might want some assistance through the process or a "health check" to provide additional comfort that the transition to the FCA will be seamless.
- Firms with consumer credit licences who have only been subject to regulation by the OFT and for whom the new regulatory regime is unknown territory.
What we can do for you
- Carry out a high level compliance review (a "health check") of FCA required processes and procedures to ensure compliance with the FCA's requirements and identify any areas for improvement
- Carry out a full review of all CCA documentation to ensure your business is fully compliant
- Review, advise on and prepare standard polices such as:
- Anti Bribery and Corruption Policy
- Treating Customer's Fairly Policy
- Data Protection Policy
- Complaints Handling Policy
- Anti-Money Laundering Policy.
Just to mention a few! Policies should be specific to your business and staff should receive training where appropriate
- A head to toe reworking of your businesses processes and procedures to ensure compliance with the new regulatory regime which is tailored to the needs of your business.
- Provide assistance on specific issues / concerns raised through the interim / full authorisation process eg scope of permissions / approved persons adverse disclosures.
- Staff training on new processes and procedures.
- Support your business through the FCA interim authorisation and full authorisation process eg reviewing the application pack to ensure all relevant information has been provided to minimise delays in authorisation being granted.