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Consumer Credit Regulation: making the move from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA)

15 July 2013

On 27 January 2012, the UK Government announced its decision to transfer responsibility for the regulation of consumer credit from the OFT to the FCA. The Financial Services Act 2012 included certain provisions which allow the transfer to take place.

The FCA will transfer responsibility for consumer credit on 1 April 2014. It consulted on high-level proposals for consumer regulation during March and April of this year and will consult on detailed rules in autumn 2013. The full regime for consumer credit regulation is intended to come into effect in 2016, replacing the interim regime.

HM Treasury (HMT) also consulted on the new regime and both consultations gave rise to a number of issues, some of which are summarised below.

Consumer Credit Industry concerns

FCA rules: the move from a highly prescriptive regime under the Consumer Credit Act 1974 to a principles-based one is not trivial. The FCA’s Principles for Business (PRIN), the Senior Management Systems and Controls rules (SYSC) and the Approved Persons’ Regime (APER), for example, will be entirely new for currently non-FCA authorised licensees and will therefore require significant changes in terms of frameworks, oversight and IT systems. There are concerns that the Government has considerably underestimated the likely scale of withdrawal of credit provision and the economic and social consequences of such withdrawal.

 Implementation timeline: the new rule book is not even in draft form but the Government proposes that it, plus accompanying new regulation, be implemented in less than a year’s time with final draft rules only being published a month before implementation. Previous amendments to the conduct of business regime for credit have been introduced over much longer periods and the industry is calling for extensions to the proposed transitional arrangements to avoid serious consequences for the industry and its customers.

Competition: the OFT consumer credit licensing regime will cease to exist at the end of March 2014 and the FCA will not commence full authorisation until October 2014. The six-month lacuna could give rise to a barrier to entry which has a serious impact on competition. Further, although an interim regime is intended to apply between April 2014 and April 2016, the FCA will start directing “batches” of firms to apply for full authorisation from October 2014. The FCA has not provided details of how the FCA will select each batch and there are fears that its selection criteria could have anti-competitive impacts.

Next steps?

HMT published the draft secondary legislation as part of their consultation process in March 2013. The FCA will be unable to launch its interim permissions regime until that legislation has been passed. As a result, HMT currently intends to publish a summary of responses to its consultation paper in June 2013, along with the revised secondary legislation. The Government currently hopes that the Parliamentary debate on the legislation can be completed prior to the summer recess.

The FCA is now expected to publish a policy statement to follow up on its March 2013 consultation in the autumn (rather than the summer as originally intended). This will be in conjunction with consultation papers on the proposed Conduct of Business Rulebook and the new framework for financial promotions.