Q Hotel Midland Manchester 20 th and 21 st May 2013

Q Hotel Midland Manchester 20 th and 21 st May 2013

The transfer of consumer credit regulation to the new FCA Robert Rosenberg Barrister.

Journey to the FCA Oct 2012 Three outcomes to be achieved for all financial services Consumers get financial services and products, and products that meet their needs from firms they can trust Markets and financial systems are sound, stable and resilient with transparent pricing information Firms compete effectively with the interest of customers and integrity at the heart of business Twin peaks model FSA replaced by The Prudential Regulatory Authority (PRA) focus on market stability The Financial Conduct Authority (FCA) Focus on conduct, fair treatment of customers and enforcement

Increased flexibility Rule making powers, easy to adapt to change Greater resources than OFT Better standards More scrutiny of high risk firms Earlier intervention Greater force of FCA rules than OFT guidance Competency of senior management Greater enforcement powers

42,000 active consumer credit businesses to transfer Expected 10% market exit FCA expect access to credit for low income groups to be affected Possibly around 80,000 individuals to approve for controlled functions

March 2013 FCA High Level Consultation for consumer credit (CP17/7) Autumn/Winter 2013 Second consultation - on detailed conduct rules Firms apply for interim permissions 31 March 2014 All OFT licences will lapse April 2014 transfer of consumer credit from the OFT to FCA Power to authorise and regulate CCA firms to fall under FSMA All firms must have obtained interim permissions Autumn 2014 to spring 2016 full authorisation takes place 2019 - Consumer Credit Act 1974 fully repealed Second charge conduct rules dependant on Mortgage Credit Directive

Financial Services Act 2012 Creates new FCA power Regulatory framework (e.g. licensing) moves to FSMA rather than CCA Most other CCA rules will be retained (e.g. form of agreements, time orders, unenforceability, unfair relationships) Those not retained will be made into FCA rules Substance of OFT Guidance will be FCA rules and guidance Draft Statutory instruments Financial Services and markets Act 2000 (Regulated Activities) (Amendments) order 2013 Financial Services Act 2012 Consumer Credit) Order 2013

Contains all rules, principles and guidance

Balance of not to stifle market versus consumer protection High and low risk approach Two tier authorisation Different fee structure No capital requirements (apart from debt management) No FSCS for CCA firms

Not for profit debt advice Secondary brokerage (e.g. retailers) Consumer hire Interest free credit (e.g. Gym memberships) Everything else higher risk

Peer to Peer platforms regulated (e.g. Zopa) Tracing agents Credit broking and credit intermediaries to be merged into brokerage Consideration of regulating debt management lead generators Appointed representatives

Principles for Business will continue to apply 1. Integrity 2. Skill care and diligence 3. Management and control 4. Financial prudence 5. Market conduct 6. Customers interest 7. Communication with clients 8. Conflicts of interest 9. Customers: relationship of trust 10. Client s assets 11. Relations with regulators Principle 6) a firm must pay due regard to the interests of its customers and treat them fairly Six TCF outcomes

Conduct standards Conduct rules in place from 1 April 2014 Will build on existing standards in CCA and OFT Guidance Some limitations due to Consumer Credit Directive Where additional standards, FCA will allow firm s 6 months grace period provided they meet previous CCA rules/oft guidance Must comply with threshold conditions from April 2014, includes Appropriate resources, financial Suitability of management Business model and strategy must be suitable SYSC section of FCA Handbook senior management arrangements, systems and controls.

Irresponsible Lending Guidance Mental capacity Credit Brokers and Intermediaries Debt Collection Guidance Debt Management Guidance Misleading or otherwise desirable names guidance PPI Guidance Second charge lending Guidance FCA will consult autumn 2013 Some OFT publications are interpretation guidance: Post Contractual Information Guidance Section 77 Guidance

Carrying out Controlled functions varies for type of firm Is a list of significant influence functions that approval is require for Compliance and oversight function only required for debt management and credit repair FCA will vet individuals for: Honesty, integrity and reputation Competence and capability Financial soundness

Focus on consumer outcomes Not a tick box compliance with rules Pro-active, inquisitorial and intrusive Assesses business model and strategy Dealing with problems earlier Focus on culture Greater powers (e.g. redress) More resources than OFT Will monitor risk through Individual firm risk assessment Firms reporting of data Thematic reviews Vetting of senior management

Debt advice will be an FCA regulated activity Deemed lower risk activity If in Group Licence at 31 March 14 will be grandfathered to FCA regime and not need interim permission If not in Group Licence will need interim permission but no fees payable Will only need limited permission Less intrusive authorisation requirements Lower application fees No need to have approved persons But must provide FCA with named individuals to deal with concerns Will not be subject to FOS All debt advisers to be subject to conduct rules

Considered high risk if inappropriate financial solutions or firm failure Prudential standards Need to hold capital suggested 2.5% of turnover Controlled function - Protecting clients money and assets

Previous FSA powers will apply Fines Remove permissions Restrict activities Fine and ban individuals Order customer redress Use of skilled persons

Additional focus Product intervention New power to cap the cost of credit Financial incentive schemes Commitment to look at payday sector Continued use of local authority trading standards Can take actions on misconduct prior to 1 April 2013 but limited to powers OFT had