On 20 March, the Financial Conduct Authority (FCA) produced a regulatory publication to inform firms that held 'debt counselling' activity they are likely to hold the incorrect limitation, writes Aileen Lynch.
Until this point, the limitation ‘limited to counselling not debt management' was the only one the regulator would have previously approved.
The FCA has now, however, confirmed that when a firm re-brokers existing credit into another credit agreement - for example, re-broking a commercial buy-to let-mortgage - it will need to change the existing limitation for debt counselling on its permission, as this is now classed as a debt management solution.
In addition to the publication referred to above, the FCA will be corresponding with all firms that have this permission and will offer firms the opportunity, without charge, to vary their debt counselling permission to reflect the new and correct limitation.
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Please note this is not relevant where the firm re-brokers existing credit onto a regulated mortgage contract (first and second charge mortgages and consumer buy-to-let), as this specific activity is exempt from consumer credit rules under the MCOB rules.
Due to the change in permissions, firms will need to appoint a person who has responsibility for compliance oversight - a CF10 - if they do not already have one. This will generally only affect mortgage and insurance firms, as investment firms already have a CF10 on the FCA register. (For reference, the CF10 - Compliance Oversight Function is the person who has responsibility within the firm for overall compliance with regulations.)
Do You Need To Take Any Actions?
While there is no requirement to have this permission unless you are involved in arranging finance - for example re-broking commercial buy-to-let mortgages - I would recommend that any firm that arranges finance and holds ‘debt counselling' with this limitation should amend it immediately. As mentioned, this notification is without cost and will not affect your annual regulatory fees.
How To Notify
Firms do not have to submit a variation of permission form (VoP) on CONNECT and are only required to provide notice by email to confirm the removal of the limitation. They will also need to confirm who will be the CF10.
You may wish to use the following, or similar, as a notification template:
Please accept this email as confirmation of our intention to remove the current limitation on our debt counselling permission to reflect the new and correct limitation. We understand that our current limitation does not allow us to re-broker existing loans i.e. commercial buy to let mortgages and unsecured loans.
The new limitation is restricted to debt counselling excluding giving advice about debt management plans. In this limitation, ‘debt management plans' is defined as: ‘a non-statutory agreement between a customer and one or more of the customer's lenders, the aim of which is to discharge or liquidate the customer's debts, by making regular payments to a third party which administers the plan and distributes the money to the lenders'.
*If a firm is already an investment firm with a CF10, the paragraph below will not be required.
Please also appoint NAME to the position of CF10. He/she is an existing approved person (CONTROLLED FUCNTION) / the sole trader."
You should send this to VOPLimitations@fca.org.uk. If you are unsure if your firm holds this limitation, you can check this on the Financial Services Register.
When the FCA was appointed by the Treasury as the regulator for consumer credit, it initially authorised firms on an interim permission basis, providing they held a licence with the Office of Fair Trading (OFT).
During the time when the OFT regulated these activities, it was seen as a lighter-touch regulation. When applying for a licence, it was often easier - if in doubt as to which activities specifically to apply for - to select a wide range as there were no consequences or additional costs associated with doing so.
In fairness, consumer credit activity did require greater levels of regulation and supervision to protect consumers and the FCA was seen as the most appropriate regulatory body to perform those functions. A result of this was the categorisation of membership and the permissions that firms applied for under their ‘interim permissions' in 2014.
It was no longer acceptable to select these on an ‘if in doubt' basis and that required firms to fully understand the legal definitions to a range of different classes of consumer credit for broking and debt advising.
While guidance was provided by the FCA, it was - and still is - difficult to determine and, in fairness to the FCA, it too had to interpret the wide parameters of the original Consumer Credit Act 1974.
Aileen Lynch is head of technical at Compliance First