Detailed proposals for the FCA regime for consumer credit (CP13/10)

Comments from ACCA to the Financial Conduct Authority, December 2013.

ACCA welcomes the opportunity to comment on the proposals issued by the Financial Conduct Authority. Together with the Financial Inclusion Centre, we have already submitted a joint response to the consultation, in the form of in-depth research specifically focused on payday and high-cost short-term lending, with policy recommendations based on the findings.

This current response is in addition to the earlier submission, and is the view of ACCA alone.


ACCA works in the public interest, and we welcome and support the objectives of this consultation process, which focus on the protection of consumers and effective competition.  These, in turn, promote access to a cost-effective consumer credit market, and we agree that the balancing of consumer protection with access to consumer credit services may only come about through proportionate and targeted regulation.  We applaud the risk-based approach so clearly highlighted in Chapter 2 of the consultation paper.

However, we have fundamental concerns regarding the impact of the proposed regulatory framework for consumer credit on practising accountants, their clients and potential clients.  This is likely to have an adverse impact on the accessibility of cost-effective consumer credit services, as will become apparent throughout this consultation response.

In addition, as acknowledged by the FCA, this consultation is open for less than the usual three-month period.  It is a substantial document, which cross-refers to a great deal of supporting material, and the outcomes are likely to have a significant impact on the consumer credit market.  With this in mind, we urge the FCA to proceed with caution, and take an incremental approach to regulatory enhancement where possible.

While we recognise the serious need for greater consumer protection in the area of affordability of borrowing (most notably high-cost short-term credit), in the immediate future, the FCA must focus on achieving a transition from OFT regulation that retains the positive aspects of the previous regulatory framework.  The challenge is to achieve this within a new framework that will allow robust enhancements going forward.


ACCA’s consumer credit group licence was issued in 1974, and authorises all ACCA practising firms to provide a limited range of consumer credit activities.  The ACCA group licence covers sole practitioners (including insolvency practitioners) and firms controlled by Chartered Certified Accountants.  In total, more than 9,000 practitioners are currently covered by the ACCA group licence.  Many of these practise as sole practitioners or within small partnerships, providing a wide range of general practice accountancy services to clients.

Among this population of practitioners, there are approximately 120 members of the Association of Authorised Public Accountants who hold practising certificates.  Also included are approximately 160 insolvency practitioners licensed by ACCA.

ACCA is a Designated Professional Body (DPB), and among the firms covered by the group licence are approximately 1,200 firms that are authorised to conduct exempt regulated activities (ERAs) under Part XX of the Financial Services and Markets Act 2000 (‘the Act’).  In addition, we understand that approximately 20 ACCA firms are directly authorised by the FCA to conduct investment business.

This consultation response considers various different categories of practitioner, most of which are currently covered by the ACCA group licence.  We shall refer to all these practitioners collectively as ‘ACCA firms’.  They are considered here from the perspective of those consumers who have traditionally relied upon their services.  We acknowledge the impact that the proposed framework and the detailed proposals of the FCA will have on practitioners, and ACCA will seek to inform firms of the changes and prepare them for the decisions that they will face.  However, our focus throughout this consultation response is on the welfare of those who rely on the services of high street accountants – the public interest.

Practising members of ACCA (and others) are required to gain a clear understanding of the new framework, make significant decisions concerning the services that they intend to provide, and accomplish the necessary authorisation by 1 April 2014.  It is important that firms of accountants are able to continue to provide a valued service to the public without it being unnecessarily curtailed.


We are unaware of the number of ACCA firms that currently hold direct authorisation from the OFT.  We suspect that the number is small, and take comfort from the assurance given by the Department for Business Innovation and Skills, that the FSA ‘will work closely with the OFT to make contact with existing licence-holders’.  However, any such firms that are currently authorised by a DPB to conduct ERAs will not be permitted to continue to do so once they have been granted an ‘interim permission’ by the FCA in respect of their consumer credit activities.


In the case of ACCA firms, the number of firms currently providing consumer credit services through the ACCA group licence and directly authorised by the FCA in respect of investment business is small.  However, we understand that the number is significant in the case of other DPBs.  Such firms would be unable to take advantage of DPB authorisation in respect of consumer credit activities, and will be faced with either:

  • incurring the costs of obtaining authorisation from the OFT before transferring to the FCA via the ‘interim permission’ route, or
  • ceasing to provide even incidental consumer credit services.

The latter would be a great loss to the clients and potential clients of those practices.  (The former will be a time-consuming process, and firms need greater clarity now if they are to avoid inadvertently breaching the requirements.)


The problem outlined in the last section is greater in the case of some DPBs than others.  We highlight it as a matter of public interest.  Of broader concern, across all DPBs, are those member firms that would fail the FCA’s test of ‘incidentality’.

As a result, many of the 9,000 firms currently eligible to be supervised by ACCA for consumer credit purposes may suffer a restriction in the range of consumer credit activities they are able to provide (unless they achieve direct authorisation from the FCA).  This is explained under Q19 below.  The public would be deprived of a valuable source of consumer credit advice, because such advice would not be incidental to other services provided to a particular client.  These firms would also run the risk of inadvertently providing services for which they are not authorised.

There is very little mention of professional firms currently permitted to provide consumer credit services under an OFT group licence in the consultation paper (said to contain the FCA’s ‘final package of proposals for April 2014’), and no acknowledgement at all of the issues to be faced by such firms and the DPBs to which they belong.

The consultation paper does acknowledge that some of these firms will need to apply for an individual consumer credit licence from the OFT, and then register for an ‘interim permission’ from the FCA.  However, the document does not attempt to quantify the volume of firms that are in this category.

Although ACCA can inform its member firms of the steps necessary to gain direct authorisation from the FCA, it appears likely that many firms will be disinclined to embark upon this process – particularly those 1,200 firms that would no longer be permitted to conduct any ERAs under Part XX of the Act.  (See below.)  This leaves consumer credit authorisation under Part XX as the most attractive option for most ACCA firms, but only if the problem of incidentality can be resolved with clarity.


Some firms may choose to gain authorisation under Part IV of the Act in respect of consumer credit activities, in order to be able to provide the range of services previously available under the ACCA group licence.  However, those that are currently authorised by a DPB in respect of investment business activities (referred to above) would be likely to perceive the transition from DPB regulation as a regulatory burden that they are unwilling to undertake.  At best, this would result in a curtailment of the consumer credit services available to members of the public from such firms.

Even if these firms were to obtain DPB authorisation for consumer credit services, this would appear to give rise to a restriction in the services that would meet the definition of ‘incidental’ under the FCA’s interpretation of the Act.  ACCA seeks absolute clarity in respect of the meaning of ‘incidental’ in order to be able to advise its members accordingly.

It should also be acknowledged that some firms that do not seek FCA authorisation may unwittingly provide consumer credit services to their clients, or do so in a manner that is not ‘incidental’.  Although it would be necessary to deal with such breaches of the law, the cost of enforcement action would almost certainly be disproportionate to the risk attaching to the services provided – which would have been permissible under the OFT group licence.


Many ACCA firms currently do not perform regulated investment activities, and so are neither authorised by the FCA nor ACCA for such activities.  Although significant in number, we do not believe that the actions to be taken by such firms as a result of the current proposals represent a significant threat to the public interest.  This is because their situation is uncomplicated.  Once they have clarity concerning incidentality, they have the freedom to choose whether to:

  • provide no consumer credit services,
  • provide only those consumer credit services that meet the incidentality test, or
  • seek authorisation for consumer credit activities from the FCA.

In most cases, we would anticipate firms taking the second of these options.  With the support of the FCA, we shall also be prepared to guide other firms through the process of achieving direct authorisation, and so that process should not be a significant deterrent for firms.  However, this is likely to leave a large number of firms in the first category – unauthorised to provide any consumer credit services.  Although such firms are used to providing only a limited range of consumer credit services, and so would not present a significant risk to the public, they would present a regulatory compliance problem to be addressed by the FCA and the DPBs.


We have addressed below only some of the questions posed by the consultation paper.  These are not confined to areas in which ACCA and its members have an interest.  Rather, our responses are those that address matters of public interest, and are largely focused on achieving a smooth transition from the OFT to the FCA.

Q1. Do you have any comments on the way our threshold conditions are being applied to consumer credit firms and/or the updates to our Handbook rules? 

We have reviewed the threshold conditions set out in Table 3.1, and support the risk-based approach.  The threshold conditions cover characteristics of the firm, its management, resources and strategy.  But they do not consider a firm’s documented consumer credit procedures.  These should be reviewed (to an extent considered appropriate) before compliance with those procedures may be assessed.

Q2. Do you agree with the updates to our draft Handbook rules for approved persons for consumer credit firms?

We would anticipate problems for firms arising out of the categorisation of firms according to the amount of client money they are holding.  The level of client money will fluctuate, and it seems likely that some firms will, at times, be deemed to be ‘smaller’ firms, but at other times will not.

Q4. Do you have any comments on the criteria that we are proposing a person would have to fulfil to be a self-employed agent of a principal firm (as set out in Appendix 2)?

We have no significant comments concerning the criteria.  However, we consider the requirement that a self-employed agent should work only for one principal to be unnecessarily restrictive.

We note that the options delineated in this section of the consultation paper (specifically in paragraph 3.10) appear very restricted from the point of view of professional firms currently operating within a group licence of the OFT.  We believe that the options available to such firms have been oversimplified within the consultation paper.

It appears that the only option available to such firms is that described as ‘an equivalent transitional arrangement to the one that we propose to apply to authorised firms from 1 April 2014’.  This description is inaccurate.  The transitional provision refers to the ‘interim permissions’ available to firms to enable them to transfer from authorisation by the OFT to authorisation by the FCA.  In contrast, many member firms of DPBs will be unable to apply to be authorised by the DPB for consumer credit activities, leading to disproportionate costs for those firms that choose to seek full authorisation, and a reduction in consumer choice in respect of those firms that choose not to embark on the process of full authorisation.  Neither of these outcomes is in the public interest.

In addition, we believe that the interim measure for those firms that may qualify for DPB authorisation for consumer credit activities is unworkable.  The concession applies to new DPB rules that are ‘substantially the same’ as requirements and guidance that existed immediately prior to 1 April 2014.  Currently, we do not know what those DPB rules will be.  However, it is difficult to imagine the sort of breach of those rules that would not also be a breach of the previous requirements if they are ‘substantially the same’.  We are greatly concerned by the lack of clarity concerning our member firms (and those who traditionally benefit from their services), particularly as there are less than four months between the end of this consultation period and 1 April 2014.

Q19. Do you have any comments on our draft guidance on the debt counselling activity and our draft rules covering the provision of debt advice?

Our comments in this area concern the test of ‘incidentality’, and the different interpretations possible arising from the ACCA group licence and Part XX of the Act.  This was an issue raised in response to the consultation CP13/7, and is referred to within the detailed feedback in Annex 1 to the current consultation.  Paragraph 47 acknowledges that ‘some respondents sought more clarity on how the Part 20 regime would operate in practice, including, in particular, how we would apply the ‘incidentality test’ and the DPB rules approval process’.  However, the FCA’s response does not address the issue of incidentality, despite the urgent need for clarity.

The issue is best illustrated by the scenario in which a potential client seeks debt advice from a high street accountant at an initial meeting.  In such a case, the client would be approaching an accountant because the debt advice was part of a package of accountancy services required.  However, if the debt advice was a significant element of the initial package of services, it could be argued that it was not incidental to those services provided to that client.

Currently the ACCA group licence states that the activities covered by it are ‘limited to activities arising in the course of the practice of accountancy or acting as an insolvency practitioner’.  However, under Part XX of the Act, there is a further limitation.  Section 327(4) states:

‘The manner of the provision by P of any service in the course of carrying on the activities must be incidental to the provision by him of professional services.’

Section 332(3) states that rules must be made by the person’s DPB, allowing the person to carry on the regulated activities concerned, and section 332(4) states:

‘Rules made in compliance with subsection (3) must be designed to secure that, in providing a particular professional service to a particular client, the member carries on only regulated activities which arise out of, or are complementary to, the provision by him of that service to that client.’

We believe that the intention of the FCA, in bringing professional firms under Part XX of the Act, is not to prohibit the provision of debt advice envisaged in the scenario above.  Therefore, we urgently seek a pronouncement from the FCA concerning its interpretation of section 332(4).

Q22. Do you agree with our proposed implementation timetable?  If not, please give reasons.

We agree with the approach proposed in paragraphs 9.30 and 9.31 of the consultation paper (to which this question relates).  However, this covers only the application of CASS.

Of paramount importance to ACCA and other professional bodies are the regulations and procedures that need to be put in place, and the information that those professional bodies need to convey clearly to their members.  For these purposes, the implementation process has the feeling of being rushed.

We are concerned that respondents to this consultation will not have sufficiently considered the implications of the proposals.  Furthermore, as illustrated by the first paragraph under Q19 above, there also appears to be insufficient time for the FCA to fully consider all consultation responses.

Q27. Do you agree with the costs and benefits identified?

Paragraph 48 of the Cost Benefit Analysis (CBA) states that members of a DPB who carry on consumer credit activities and meet the conditions set out in Chapter 3 of the consultation paper will be able to carry on the activities previously regulated under the professional body’s group licence (under the arrangements of the DPB).  However, the CBA does not address the costs for firms or the detriment to the public interest associated with those firms that cannot, in fact, carry on consumer credit activities under the DPB arrangements.


There is very little time before the OFT will cease to regulate firms for consumer credit activities.  In acknowledgement of this, ACCA is keen to establish a better understanding of how the new regulatory framework will operate in practice, and so help to advance the transition in respect of its members.  Clarity is essential before ACCA may establish appropriate regulations for its member firms, and advise those firms.  This is an urgent matter, as firms require that advice now.

The current professional group licence regime has proved satisfactory over a long period of time, and it is evident that the consumer credit services provided by professional firms in the past presented a low risk to consumers.  Therefore, the FCA should be alert to opportunities to cut regulatory ‘red tape’ wherever possible.

In our opinion, the use of Part XX of the Act as a simple substitute for those professional firms currently under a group licence is flawed.  In summary, our concerns are as follows:

  • Professional firms may be motivated to curtail the range of services they may provide.
  • A large number of professional firms that already have authorisation from the FCA in respect of investment business will not be eligible to conduct exempt consumer credit activities under Part XX of the Act.
  • There is no clarity with regard to the interpretation of ‘incidental’ by the FCA in respect of firms authorised by DPBs.
  • Firms may, unwittingly, provide services that are not exempt.
  • It will be difficult to monitor compliance of firms that choose not to seek any form of consumer credit authorisation.
  • We believe that the interim measure, which we refer to on page 8 of this response, is unworkable.

Furthermore, the consultation paper suggests that a professional firm that currently holds an individual consumer credit licence from the OFT may also wish to consider whether it qualifies for authorisation under Part XX of the Act as an alternative to applying for an ‘interim permission’ en route to full authorisation by the FCA.  In the absence of final rules of the DPBs in respect of consumer credit services, and clarity concerning the meaning of ‘incidental’, this decision cannot reasonably be made.

We are concerned that the objectives of the consultation process, which we support, will not be achieved without due consideration of the possible consequences of the proposals.  We believe that care should be taken to retain the positive aspects of the current regulatory framework to the greatest extent possible.