As the UK and European financial services industry braces for further regulatory changes, leasing businesses should take a long-term view and prepare for change, says Stephen Dawson
It is inescapably the case that the regulation of financial services businesses in the UK continues to become more intrusive, more complex and more expensive.
It is beyond the scope of this article to cover every piece of legislation (pending and in force), nor would it make for pleasant reading, but we might start with the early observation that companies engaged in leasing and hire businesses – B2B or B2C – will only see more red tape, not less.
Take, for example, the Consumer Credit Act 1974; while exemptions exist, we know that at its broadest this covers credit (being loans, hire purchase or any other form of financial accommodation) and consumer hire business.
The very definition of ‘individual’ includes sole traders and small partnerships (of three of fewer partners), and the complex list of available exemptions does not allow us to exclude credit or hire arrangements with these kinds of customers where the credit or hire is under £25,000.
If your asset finance or leasing business operates in the small or medium ticket sector, this kind of legislative intent is a very substantial and expensive issue.
At the same time – and as we have watched the partial disintegration of the financial services infra-structure on a pan-European basis – we know that responsibility for financial stability and regulation in the UK is set to change.
The principal change will see the abolition of the FSA in its current form, together with the establishment of three new regulatory bodies: the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
These changes will affect the regulation of financial services across the board, including lending that falls within the current Consumer Credit Act 1974. Listen out for the name ‘Financial Services Bill’; this enormously complicated piece of legislation had its first reading in the House of Commons on 26 January 2012.
Currently it is with the House of Lords, and the committee stage continues on 8 October, when further amendments will be discussed. With proposed, though admittedly graduated, implementation running from 2014 through to 2016, this is a subject to keep a close eye on.
Another example of expensive ‘root and branch’ regulation is the Basel Accord, which was originally agreed in its first incarnation in 1988 by the Basel Committee on Banking Supervision. Now approaching its third incarnation, the Basel III proposals are a long-term package of changes due to commence on 1 January 2013, with the transition period expected to run until 2021.
Essentially, businesses of all kinds engaged in credit and hire/leasing – in the B2B and B2C sectors – must take a medium to long-term view of financial services regulation and to invest in robust internal compliance measures.
Indeed, you are encouraged to join in with your competitors and your trade body and take an active role in shaping the future of your sector.
Stephen Dawson is a partner with UK law firm Shoosmiths