Janice Laing, business director at Compliance First, looks at how the transfer of powers from the OFT to the FCA will affect adviser firms.
In January 2012, the government announced it would transfer the regulation of consumer credit from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA), and set out two requirements for the new regime:
• Strengthening consumer protection
• Proportionality (requirements should only be placed on firms when there is a clear benefit to consumers)
In March this year, the Financial Services Authority (FSA) published CP13/7, which outlines the proposed regime for the regulation of consumer credit, as well as how it will meet the government’s above requirements:
All you need to know about consumer credit regulation changes
1 Strengthening consumer protection
• Increased flexibility: rule-making powers, including the power to ban products, will enable the FCA to give a prompt and tailored response to product and service innovations that are harmful to consumers.
• More resources than the OFT, enabling the FCA to act on a wider range of issues.
• Dealing with problems earlier: the FCA will have access to more information about firms, scope to take a market-wide approach by requiring action from all firms in a sector and more proactive supervision of higher-risk firms.
• Better standards in the industry: 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 individuals in key positions. The legal status of certain FCA rules (rather than OFT guidance) will encourage firms to comply with wider enforcement powers.
• Improved access to redress: the FCA will have the power to ask firms to reimburse consumers when they have lost out due to a firm’s actions.
2 Looking at proportionality
• There will be reduced requirements for firms carrying out certain lower-risk activities.
• A transitional period to help existing OFT licence holders prepare for aspects of the new regime will be introduced.
• Limited reporting requirements: the FCA will require firms to report key information but the emphasis will be on assessing the market-wide risks (rather than individual firm risks) and using other information sources, including intelligence from consumer groups.
• Limited capital requirements: the FCA does not propose to specify minimum levels of capital that firms must hold. The exception to this is debt management firms.
• There are no proposals for the Financial Services Compensation Scheme (FSCS) to cover consumer credit activities, as there are limited risks to consumers’ money in these markets. The exception is the risks from debt management activities. The FCA proposes to tackle the risks to consumers’ assets posed by debt management companies through stricter client asset rules for the largest firms and a minimum capital requirement.
• There will be tailored requirements for pre-approval of individuals in firms for particular roles, including those who exert a significant influence over a firm’s business. Employees in consumer-facing roles will not need pre-approval.
This article continues…
Three years at Wells Fargo
Effective from 9 December 2019
One firm with permission suspensions left
Continuing the Architas education series for clients.
Needs to apply for authorisation