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FCA Expectations

The above rules and regulations are now what is expected from all firms offering consumer credit.

Whether you are now approved, awaiting approval or still operating under interim permissions (the last staging dates reach forward into 2016) you should be aware of and implementing these rules. These include a very stringent approach to financial promotions and a very regular requirement to complete extensive online returns, for example.

Firms have been categorised into low and high risk activities where their regulatory responsibilities will reflect their specified status.

Category definitions

Low Risk:

  • Consumer credit lending, goods and non-financial services
  • Consumer hire
  • Secondary credit broking
  • Not-for-profit debt counselling and debt adjusting
  • Not-for Profit credit information services.

High Risk:

  • Consumer Credit lending, all others to become fully authorised e.g. personal loans credit card lending, overdrafts, etc.
  • Credit broking
  • Debt adjusting
  • Debt counselling
  • Debt collection
  • Debt administration
  • Credit information Services
  • Credit referencing agency
  • Peer-to-peer lending
  • Canvassing of trade premises

...and these as you would expect will come with increased regulatory requirements.

You will need to restructure your processes to cope with reporting to the FCA and it is worth noting that there is no guarantee that those who have previously held OFT licences will automatically be granted authorisation under the new regime. Recent reports suggest that there are a number of firms electing to no longer offer these services and their interim permissions have lapsed or been cancelled.

The FCA has gone on record to say that licence holders should expect their regulation to be more intrusive, proactive and focused on good outcomes for consumers than had previously been seen with the OFT and you will be expected to regularly analyse your business models, controls and governance frameworks, making reference to their systems, regulatory reporting mechanisms and consumer disclosure processes.

To explore the differences of the move from OFT to FCA - click here.

The FCA has introduced:

  • Capital adequacy for Debt Managers
  • Conduct standards relating to the way a firm should behave generally and with their customers
  • Explicit systems and controls

All of this is likely to be unchartered waters for many firms operating under Consumer Credit regulations and guidance will be required.

  • FCA supervision introduces fixed and flexible portfolios which, for simplicity, are based upon the size of firms. It will look at three key areas.
  • Firm systematic framework – looking at what is happening and where there could be a problem.
  • Event-driven work – quickly responding to an issue and fixing what has gone wrong, working to remedy the issue in the firm.

Issue and product supervision - work to stop a problem emerging within a firm or sector.

They require all firms to report certain data to them through the existing GABRIEL system. This information will then be analysed to identify potential risks. The type of information the FCA will collect includes turnover, transaction numbers, complaints and the number of customers. Debt managers and lenders will be required to provide more data.

They will use enforcement as a method to deter poor practice with swift action against those causing the most harm, which can include: withdrawal of authorisation, stopping individuals working in their industry, public censure and imposing financial penalties. They will also have powers to apply for warrants to enter and search premises.

To achieve its aims, the FCA will work alongside Local Authority Trading Standards and the Department for Enterprise and Trade in Northern Ireland and their powers will cover:

  • breaches of FCA rules;
  • firms/individuals who are suspected of carrying out consumer credit activities without the required permission (known as unauthorised business);
  • breaches of remaining conduct provisions of the CCA;
  • offences committed under CCA (some of the criminal offences set out in the CCA will continue to apply after April 2014); and
  • Breaches of the money laundering regulations.

Consumer Credit is subject to consumers rights to complain to the Financial Ombudsman Service (FOS) but it will not be included in the Financial Services Compensation Scheme (FSCS) and no levy will therefore payable.

The FCA requires all firms to actively take measures to prevent themselves and their customers from being exploited by criminals. They are not just interested in how a firm protects itself, but also where its action exposes customers, or a third parties to the risk of financial crime.

Most, but not all consumer credit businesses will be subject to the Money Laundering Regulations 2007. The FCA will be very severe with firms who do not comply and where inappropriate measures are taken to ensure sensitive customer data does not fall into the wrong hands.