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FCA published on 28 February 2014 its policy document for the new consumer credit regime. The policy document gave no real surprises and was in line with what we were generally expecting.
1. Executive Summary – chapter 1
Key proposals and commentary published in the policy document are detailed below:
2. Authorisation and Potential Alternatives – chapter 2
Applications for full authorisation will be staggered starting from October 2014 to January 2016. Early application for firms wanting to operate as principals is being considered. Firms will be given a three month window to apply once informed they can apply.
FCA threshold conditions will apply for applicants. These are basic requirements that businesses must show they operate under. For most dealers this is not going to be a hurdle.
FCA will expect responsible and compliant firms to already have people in place with required skills and experience to be responsible for FCA controlled functions. For small firms a single person only would be needed. Where a person is already approved for insurance a slim-line application only will be required. For firms already authorised for insurance with controlled functions this will be very straightforward. Approved person applications will need to be done at the same time as the full application.
3. Supervision and Regulatory Reporting – chapter 3
Firms will come under the supervision regime as they become authorised. The FCA will continue to work closely with Trading Standards.
Reporting starts from October 2014, but reporting periods will be determined by authorisation date and size of firm. For Limited Permission firms the requirement is just one short annual return.
4. Conduct Rules – chapter 4
From 1 April consumer firms must comply with the FCA Principal of Business Rules. For other rules, providing a firm is compliant with the current OFT, CCA and CCD rules, there is a transition period until 1 October 2014. Most of the current rules are now combined into the new CONC rulebook for consumer credit.
The CCA regime and OFT guidance has been lifted into the rulebook. CCD has not been replaced by FCA rules and will work in tandem. The FCA have watered down some OFT rules, particularly around pre-contractual information and explanation and the assessment of creditworthiness and affordability.
Finance houses have been given responsibility for irresponsible lending and not secondary lenders such as dealers (4.13). However, if dealers are told something specific that will affect creditworthiness they are obliged not to propose a customer. This is likely to lead to new documentation for proposals including suitability questionnaires demanded by the lenders, although the rulebook only gives guidance on the likely questions to be asked (5.2.3).
OFT rules lifted into the rulebook as a rule as opposed to guidance. However, wording would suggest no change. Dealers advised to disclose to customer the existence of commission as per previous guidance and if requested by customer, disclose the amount of commission in good time prior to the finance agreement being entered into (4.5.3/4.5.4). Also, rulebook states lenders may pay differential commission rates based on volume and profitability of a dealer (4.5.2). There is a lift from the OFT irresponsible lending guide but it has been watered down and made guidance only.
Dealers will need updating status disclosure documents from 1 April to show they are regulated by the OFT. Firms may use their existing disclosure documentation and OFT licence number until they are authorised by the FCA. Draft disclosure documents will be available in due course.
The FCA have produced new rules based on existing OFT rules, however, the rules do appear to be as ever unclear. These rules are subject to a twelve month transitional period from 1 April 2014.
Training and Compliance
There is no reference to training and compliance in the policy statement.
Financial incentives are not included in the policy document.
5. Conduct Rules for Debt Advice Procedures and Peer to Peer Lending Platforms (chapter 6)
Does not apply to dealers. However, FCA have confirmed both in their FAQ’s and to us directly, that as long as debt adjustment and debt counselling are secondary activities, dealers can still be ‘low risk’ and hold limited permission. Table 2.1 in the policy document has caused some confusion on the point and we will ask for further clarification.
6. Complaints to the Ombudsman Service and Redress to Consumers (chapter 10)
This is little changed to the current situation with the FOS.
The FSCS scheme will not be introduced for consumer credit but will be kept under review.
7. Enforcing our Rules and Tackling Financial Crime (chapter 11)
Made very clear the FCA stance on enforcement will be uncompromising. They have also stated that they will enforce current OFT/FCA rules from 1 April. Enforcement will include high level rules including PRIN, SYSC and CASS rulebooks plus the CONC one from 1 April 2014.
For further information please contact firstname.lastname@example.org telephone 01788 538336.