If you are a regular reader of these technical pages you may recall my piece published in November 2012, which highlighted some of the concerns advisers had regarding consumer credit.
Since then APFA has discussed the issues with the FCA and has also taken advice from consumer credit lawyers.
We are now in the process of drafting a guidance note for members based on these discussions.
The guidance note will look at what activities require a consumer credit permission and what activities do not.
In particular, in relation to adviser charging where payments are
spread and the provision of debt counselling.
When the FCA takes over responsibility for consumer credit on 1 April, advisers ignoring the rules will not just be subject to regulatory enforcement action.
In FSMA, regulated firms acting outside of their permissions are generally only committing a rule breach, for instance an nvestment firm giving mortgage advice without permissions is in breach of the FCA’s rules.
However, consumer credit is treated more seriously. Anyone undertaking consumer credit activity without the relevant permissions will be deemed to be committing a criminal offence.
Notwithstanding this, we do not believe it is right that firms should hold consumer credit permissions because of uncertainty about whether the service that they provide falls into scope.
We believe that firms holding consumer credit permission on a precautionary basis should consider whether they need to.
There are two common reasons firms have said they have a licence. The first is because of uncertainty over adviser charging, which I covered in my earlier column. The second is debt counselling.
A firm that provides a broad financial planning service may encounter clients with debt and so may run the risk of getting into the territory of debt counselling.
While most clients who are seeking to invest will be debt-free, it is possible that advisers will see some from time to time, for example where someone has suddenly come into money such as an inheritance.
It is all right to provide generic advice, such as: ‘It is sensible to pay down your debts as a priority’, but specific advice about particular debts is debt counselling. Similarly, considering debts and recommending solutions, such as consolidation, is a consumer credit activity.
Interestingly, the FCA has recently confirmed to us that financial planning that took account of mortgage debt would not constitute debt counselling but may well require the relevant mortgage permission.
You may still wish to hold the relevant consumer credit permission to be sure but we don’t believe it is a must for these activities. While the boundaries are not as clear as they should be, we believe the pitfalls of not holding a consumer credit permission can be avoided if firms put the right business processes in place.
It is beyond the scope of this article to cover all eventualities. This is why we are preparing a guidance note based on discussions with the FCA, which will be available to members shortly.
Linda Smith is senior technical adviser at the Association of Professional Financial Advisers