The dawning of a new age in consumer credit was ushered in on 1 April 2014 when the Financial Conduct Authority (FCA) became the supervisory authority for firms carrying out regulated consumer credit activity, including those in the motor finance sector.
Holders of consumer credit licences under the previous Office of Fair Trading (OFT) regime had until 31 March 2014 to obtain an Interim Permission to make the transition. Firms that didn’t obtain an Interim Permission by this date but continue to carry out any regulated consumer credit activity are committing a criminal offence.
Some firms may not have obtained the required permission because they did not receive the FCA notifications telling them of the requirements.
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Others may have fallen foul of the wider definition of credit broking being amended. Firms which were credit intermediaries were not previously required to hold a consumer credit licence, but from 1 April 2014 this became part of the regulated activity of credit broking. It seems that some simply did not find out about this new requirement until it was too late.
Whatever the reason, firms that failed to obtain Interim Permission have no option but to stop all regulated consumer credit activity immediately. If they wish to continue, they must make an application for authorisation to the FCA which could take up to 12 months. Only when they are authorised can they resume activity.
The vast majority of firms did obtain their Interim Permission, but for them the question now is – what comes next? Just because you’ve obtained an Interim Permission doesn’t mean you can sit back and relax.
Authorisation
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By GlobalDataBy the end of May 2014, all firms which registered for an Interim Permission should be notified of their three-month window within which to apply for full FCA authorisation. For many firms this could be 12 months or more away, however, it’s important that firms begin to consider the requirements of the authorisation application and the documentation they will need to produce in order to avoid a last minute rush or missing their application window. Early analysis of any gaps in a firm’s compliance and monitoring will make correcting those shortfalls easier in readiness for an authorisation application.
Approved Persons
Firms will also be required to have Approved Persons responsible for those functions of the business (known as Controlled Functions) that the FCA deems to be important. As the name suggests, Approved Persons must be approved by the FCA as suitable and capable to fulfil their role.
This approval process also requires an application to the FCA when the authorisation application is made.
Firms should consider who within their business has the experience and capability to take these Approved Person roles. If firms expect new recruits to take on these responsibilities, the assessment criteria used by the FCA should form part of the selection process.
Complaints
The requirements to report and publish complaints information are not relevant until firms obtain full authorisation (or
1 October 2014 if later), however, from 1 April 2014 all consumer credit firms, including those with an Interim Permission, should be recording details of any complaints they receive. You should already have this in place, but if you are not already recording complaints you should begin doing so immediately.
Financial Promotions
Advertising (or financial promotions as they are known by the FCA) should also be reviewed in light of the new regime. The legislation and guidance in this area has largely been brought across to the FCA Consumer Credit Sourcebook. However, there are a number of new or amended requirements.
Credit brokers and creditors must also consider the FCA financial promotion rules and guidance in light of the fact that proactive enforcement and monitoring will be a feature of the FCA versus the reactive nature of the OFT regime.
A transitional period has been allowed until 1 October 2014 for financial promotions, provided that complying with the previous regime has substantially the same outcome as the FCA rules and guidance.
This does give firms some time, but due to the long lead times involved in advertising, firms should be considering the rules and reviewing their adverts as well as the process for sign-off and audit trails.
Updating information
During the Interim Permission period firms are not required to update the FCA about changes to their directors or controllers of the business. However they must ensure that contact details are kept up to date through the online Interim Permission system. This will ensure they receive communications from the FCA and don’t miss important information as happened with some firms which failed to get an Interim Permission.
Once fully authorised, firms will be required to seek prior approval from the FCA before changes to directors or controllers are made.
Summary
Obtaining an Interim Permission was a relatively easy first step in the process of transitioning to FCA authorisation.
There are some requirements such as complaints recording which firms should be complying with now, and others, such as financial promotions or the FCA authorisation process, which firms should be considering in order for full compliance to be achieved.
Act now to avoid getting caught out!
Daniel Bennett is a solicitor at Shoosmiths
