News release

SRA proposes consumer credit firms seek FCA authorisation

Firms that carry out consumer credit work might have to be authorised by the Financial Conduct Authority (FCA) under proposals by the Solicitors Regulation Authority (SRA).

Regulation for consumer credit work passed from the Office of Fair Trading (OFT) to the FCA on 1 April. Under the OFT regime, solicitors were regulated under a group licence given to the Law Society and managed by the SRA.

The FCA has not continued with the group licence facility; firms that carry out consumer credit activities currently do so under transitional arrangements that run until 1 April, 2015. After that, firms could continue consumer credit work under an exemption which allows them to carry on regulated financial activities, provided they are overseen by a Designated Professional Body (DPB) (in this case, the SRA as the regulatory arm of TLS).

However, this would require the SRA adopting either all or substantive parts of the FCA's sourcebook, called CONC. The rules in CONC, while in line with the way the FCA regulates, do not fit with the SRA's regime.

It would add extra regulatory burdens to firms, while the SRA does not have the resources or the expertise in place to supervise firms in the way the FCA requires. The SRA has therefore launched a consultation today (Monday 13 October) on the best way forward from 1 April - which involves withdrawing from regulating as a DPB for credit activities.

That would require firms currently carrying out consumer credit activities to either apply for authorisation from the FCA, or stop providing such services. The consultation will run until mid-day on15 December 2014 and all those that undertake consumer credit work are urged to read the paper and respond accordingly.

Crispin Passmore, SRA Executive Director for Policy, said: "Consumer credit regulation is a complex matter. It is vital that clients receive the proper protections, and the FCA are much better placed to regulate these activities than we are.

"We will continue to engage with both the FCA and HM Treasury to find a way forward that provides a workable regulatory framework that protects the interests of clients. But as things stand, we have to consider the option of pulling back from regulating consumer credit activities.

"We want firms to read the consultation document, see our reasoning, and respond to the questions we have asked. The more solicitors we have replying to the consultation, the more evidence we will have to better understand impacts of our choices."

Consumer credit work is wide-ranging and can be an integral part of many areas of solicitors' work. The SRA is aware of more than 1,100 firms that carry out debt recovery, one of the specific areas of consumer credit work, but the FCA's list of activities can form part of a number of legal services.

For example, if a solicitor involved in family matters discusses with a client in a divorce case their finances, they could be classed as carrying out consumer credit work if they negotiate terms with creditors on behalf of that client for settlement of a joint debt. Consumer credit activities would also capture a solicitor advising on the acquisition of a property or land and who seeks to amend information held by a credit information agency about their client's financial standing.

The consultation can be accessed here:

Go to the consultation

 
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