The Financial Services Authority (FSA) has published its consultation on how it plans to introduce a strong and flexible regime to regulate consumer credit. The regime is tailored to address the risks that face consumers without putting undue burdens on firms.
The Government announced earlier today that it would transfer responsibility for regulating consumer credit from the Office for Fair Trading (OFT) to the Financial Conduct Authority (FCA) by 1 April 2014. The Government has also published a consultation on the legislative changes needed to transfer responsibility to the FCA.
The FSA’s consultation sets out the overall approach and framework for the regime that will be administered by its successor body the FCA. The framework will enable the FCA to deliver better outcomes for consumers than the existing regime with the following tools:
- Increased flexibility e.g. rule making powers, including product banning;
- More resource;
- The ability to tackle problems earlier through access to more information about firms, the scope to take a market-wide approach by requiring action from all firms in a sector and proactive supervision of higher risk firms;
- There will be more scrutiny of higher-risk firms before they are allowed to operate in the market and significantly more scrutiny of the integrity and competence of the individuals in key positions in all firms;
- The FCA will have the power to require firms to reimburse consumers when they have lost out due to a firm’s actions; and
- The FCA will be able to apply its full enforcement powers including banning firms and individuals and imposing fines.
Martin Wheatley, FCA CEO designate, said:
“Consumer credit inhabits every corner of our day to day financial lives. It is a broad church spanning everything from overdrafts to hire purchase to credit cards to debt advice, provided by tens of thousands of firms of all shapes and sizes.
“We will focus our efforts on the areas of highest risk, and ensure we use our resources sensibly and proportionately. The work we have done with consumer groups and trade bodies has helped us reach this point and will continue to help us make the transition as smooth as possible.
“This regime is a sensible approach to everyday finances. It will give consumers the protection they expect without placing an undue burden on the firms that service them.”
The new regime will be designed to focus resource on higher risk firms, such as pay day lenders, pawnbrokers, credit reference agencies and debt collection. Lower risk firms will not have to meet such onerous standards and will pay lower fees. These firms include not-for-profit debt counselling, businesses providing lending as a side activity (e.g. a sports club that allows its members to pay by instalment). It also includes credit broking, such as where retailers and motor dealers introduce customers to lenders.
There is a short timetable to the transfer and the FSA is keen to make the transition as straightforward as possible. This means that there will be a phased approach to the transfer, with an interim period starting in April 2014 and moving to full implementation by April 2016.
- From Autumn 2013, existing OFT licence holders can apply for interim permission so that they can continue to operate;
- They will have to provide limited information and pay a one off fee;
- Existing OFT licences will lapse on 31 March 2014 and FCA interim permissions will begin from 1 April 2014;
- The interim permission regime will end in 2016 and firms need to be fully authorised by that time.
Notes for editors
- The Consultation Paper
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013 as required by the Financial Services Act 2012.