Oliver Sainter looks at the regulatory regime for leasing likely to develop under the FCA
In March 2007, chairman of the US Federal Reserve Ben Bernanke infamously testified to Congress that: "The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."
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Of course, it wasn’t, and after unprecedented volatility in the financial sector and a perception that regulators failed the public by overlooking consumer and market abuse, the government has been forced to initiate a fresh round of supervisory musical chairs.
The result is a part reversal of post-Barings reform, which so far as it relates to asset leasing, is the most fundamental regulatory shift since the Consumer Credit Act 1974.
From 1 April 2014, the Financial Conduct Authority (FCA) will inherit responsibility for the regulation of consumer credit from the Office of Fair Trading (which obviously includes regulated hire and leasing in a business-to-business context).
In the first instance, the existing regulation of regulated leases is likely to remain intact under a so-called ‘lift and shift approach’.
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By GlobalDataRegulation will then be rationalised into a single regime under a process to conclude in 2019, although it’s unlikely to follow from this that the regime operating under the Financial Services and Markets Act 2000 (FSMA) will apply in its entirety.
It is increasingly the view of HM Treasury and the FCA that much of the existing regulation is capable of being delivered by the application of FSMA-style rule books and general principles. For example, the control of pre and post-contracting obligations, and of documentation requirements, can easily be assimilated into an FSMA-style rule book.
The new rules, however, will extend the existing regime: which is in fact a stated intention of the reforms. Assisted by the likely application of FSMA authorisation and the approved persons regime for key personnel, the FCA intends to apply greater scrutiny to applications for credit licences, making it more difficult for rogue firms to enter the market.
We will also see extended disciplinary powers and sanctions under FSMA – a process started by the 2006 Act – and new rights introducing the ability to ban specific products or features, to issue unlimited fines, and to require firms to pay redress.
While carrying the risk of creating unwarranted barriers to entry, if properly implemented and supported by the effective use of powers by the FCA, the regime should better promote efficient competition, with integrity of the market at the heart of commercial strategy. It should also avoid anomalies caused by the division of responsibilities between overlapping regimes.
This, surely, can only be of benefit to those lessors presently operating within the letter and spirit of the current regime.
It is those businesses that have historically not prioritised regulatory compliance that have most to fear, necessitating, in many cases, the need for a root and branch review of policies and procedures.
Oliver Sainter is a solicitor with Shoosmiths asset finance team
