By Nikki Worden
The FCA has now been in charge of regulated consumer credit for almost a year, and funders, suppliers, dealers and manufacturers alike continue to deal with what feels like a great deal of unnecessary noise and cost as a consequence of the change.
To begin with, there’s been the need to come to grips with the FCA’s CONC Handbook. Under CONC, funders have an obligation to make sure all of their introducers have interim permission.
Some have found that, having organised themselves to set up periodic monitoring processes, those processes no longer work.Short of checking the FCA register on a daily basis, there’s no other way of finding out if an introducer has or has not made a successful formal application for FCA permission.
Other funders, which may have relied on information received from their introducers or who have done more minimal checks, have been finding that their introducers either:
- Have no interim permission at all, or
- Have a permission that sits in the wrong entity, or
- Do not have the correct permission for the activity being carried on (for example, an introducer who is also collecting rentals will need both credit brokerage and debt administration permission).
However, perhaps the main area where the industry has been caught out is in relation to just how broad the requirement is to have authorisation as a credit broker.
Even if all of the deals that an introducer passes on are for business purposes with a value of more than £25,000 (35,000), if they are with sole traders, partnerships of up to three partners or unincorporated bodies, that introducer will still need a credit-broking authorisation.
Oddly, the same does not apply to funders; if a funder is only funding deals at this value for business purposes, it does not need to be authorised.
All introducers are also bound by the new rules that the FCA added into CONC in January.In particular, irrespective of whether an introducer is communicating with a regulated customer or not, the rules require it to state prominently in all financial promotions, emails and letters that it is a credit broker and not a lender.
For any firm which is both an introducer and a funder, the new rules require a prominent statement, where applicable, that the firm is solely promoting its services as a credit broker and not as a lender.
Funders, meanwhile, are grappling with the extent to which they need to monitor the activities of their introducers in circumstances where both are separately authorised by the FCA, but where the funder relies on the introducer to complete a "compliant" sale, for example where the introducer undertakes affordability checks and decides which paperwork to use to sign-up the customer.
Some categories of introducer, such as motor dealers, lack the appetite to seek limited permission authorisation and are looking to third-party principals for help.
Again, given the fact that the funder has "skin in the game" from a compliance perspective, this raises further questions for funders around risk acceptance and impacts on contractual relationships.
Finally, as firms progress through their formal applications for FCA permission, they are beginning to see what is likely to be an uplift in ongoing compliance costs.
For many of the small firms, not only is there a need to create and establish much more formalised and documented processes and procedures, it must ensure that these are followed, or "embedded", and not just put on a shelf.
From a governance perspective, given that the FCA may come calling two years from now, asking for board minutes going back two years, firms need to think about how structured they are in this area, including how they can demonstrate that risks and issues are identified, escalated internally and documented appropriately.
Nikki Worden is a partner specialising in financial services regulation at Addleshaw Goddard