Hot topic: Consumer credit U-turn
It was revealed this week that the SRA has been successful in persuading HM Treasury to agree to changes in consumer credit regulation.
It was revealed this week that the SRA has been successful in persuading HM Treasury to agree to changes in consumer credit regulation. This is relevant to those solicitors engaging in consumer credit activities, most notably debt collection.
We discussed the development with Joanne Smith, Solicitor and Consultant within Compli as part of our '60 seconds with...' feature for this week's newsletter:
Joanne, what do the changes mean for solicitors?
Until this development, any law firm carrying out consumer credit activities would – subject to finding an exemption - have to be authorised by the FCA as well as the SRA. Following representations made by the SRA and the FCA to HM Treasury, a new statutory instrument was introduced to make things easier for law firms. This is good and bad news. Starting with the good news, many law firms will now not have to be dual-regulated. The bad news is that many firms have already obtained interim permission from the FCA or wasted a lot of time on preparing themselves for what looked to be a huge change!
So what exactly has changed?
Certain consumer credit activities which are carried out by lawyers, most notably debt collection, will not be considered regulated activities for the purposes of the Financial Services and Markets Act 2000 (as amended). Solicitors have long been permitted under the contentious business exemption to conduct litigation in respect of consumer credit debts without holding a consumer credit licence, but the exemption did not cover any pre-issue work. This meant that firms carrying out consumer credit debt collection work would need to be authorised by the FCA under the new regime. However, the definition of litigation has now been extended to include pre-issue work, giving law firms more flexibility.
In addition, there has been a tweak to the consumer credit agreement exclusions. Businesses entering into arrangements with clients to pay their fees in instalments will be delighted to hear that the number of payments required before an agreement with a client becomes a regulated credit agreement has been increased from four to 12. Businesses do, of course, have to fulfil the rest of the criteria set out in Article 60 F of the FSMA (Regulated Activities) Order 2001 but it is good news for those affected.
So… panic over?
Not necessarily. Some firms will no longer need to be FCA authorised but it is essential that you carefully consider the new statutory instrument in the context of the practice areas undertaken at your firm. This is a complex area – particularly for law firms with little experience of FCA regulation – and you must still establish whether you are carrying out any regulated activities. You must then decide whether you require FCA authorisation or whether you can rely on one of the exclusions or the FSMA Part 20 exemption. Not only is this a difficult area, it is changing constantly as the new regime settles down – the transitional arrangements were extended by agreement with the FCA until 31 October 2015 and the SRA is currently consulting on how things are going to work in practice.