Comments from ACCA to the Department for Business Innovation & Skills, April 2013.
ACCA welcomes the focus on proportionality, emphasised throughout the consultation document, and the aim for balance between the protection of consumers, access to credit, and the burden on firms. We believe that this aim has, to a great extent, been met. Proportionality is supported by a risk-based approach to supervision.
We acknowledge that consumer protection is streamlined and enhanced by transferring responsibility to a regulator with greater power and resources. Our primary concern relates to professionals currently covered by a group licence that may, in future, be required to obtain full authorisation in respect of activities that are not incidental. (See 5 below.) In the absence of clarity, we are concerned that the effect on the regulation of other FSMA activities may amount to adverse unforeseen consequences.
We welcome the move towards a regulatory structure for consumer credit that facilitates a more efficient response to urgent issues in order to safeguard the public interest. We also welcome the acknowledgement that transparency is essential to accompany the implementation of a more rigorous regulatory framework.
We agree with the advantages of empowering the FCA to make binding rules. While this enables a swift response to issues identified, governance of the FCA should ensure that appropriate consultation is carried out – ie when it would not impede the timeliness of an urgent response.
Another note of caution concerning the introduction of rules to address significant issues concerns possible claims that individual liberty is under threat. The same is true of the FCA’s new product intervention power. Furthermore, the availability of credit and choice, which enhance spending power, not only stands to enhance the wellbeing of the consumer of the credit, but also businesses and the wider public who benefit from that increased spending power. Intervention by the FCA must be supported by a clear public interest claim.
The high level conduct requirements and Principles for Business will have a different status, and any changes must be subject to extensive consultation.
The replication of OFT guidance in the rules of the FCA seems appropriate given that the FCA will have the flexibility to amend its rules. However, there is still a place for guidance, as it encourages the user to focus on underlying principles and take responsibility for the course of action chosen. Therefore, changes in the status of OFT guidance should be undertaken with caution.
It is intended that the regulatory framework, outside of legislation will comprise Principles for Business, high level conduct standards, rules and guidance. The purpose and status of each of these must be made clear. We do not agree that the Principles for Business should be regarded as a ‘belt and braces’ approach, as they should perform a different function to the other standards and guidance. Instead, they should be regarded as fundamental. It appears to us that the high level conduct standards might be viewed as minimum standards expected in order to be able to meet the Principles for Business, with other rules being necessary to specific situations, and guidance being constructive but advisory.
We support the intended approach to cost-benefit analysis concerning FCA rules, and agree that using the Consumer Credit Act provisions as a baseline is a proportionate and expeditious approach.
We believe that voluntary codes can complement the rules and Principles for Business of the FCA, and it will surely be of benefit to consumers for the FCA to work with trade associations to ensure a coherent approach, providing clarity to both consumers and firms. As part of this, trade associations’ codes should be required to highlight that in the case of inconsistency or doubt, the rules and principles of the FCA will prevail.
Looking beyond such alignment of regulations, important consumer protections within industry codes should be introduced into the FCA’s rules and guidance, while not overlooking the benefits of principles-based standards.
In our opinion, the Government’s proposals are reasonable.
We believe that the proposed changes to the appointed representatives regime appear reasonable.
It is noted in the consultation document that, under the Part 20 regime, regulated activities carried on by firms must be incidental to the firms’ business. The document asserts that ‘there is no directly equivalent qualification’ in the professional bodies’ group licensing regime, and that there will be firms currently within a group licensing regime that provide services such as debt management as a primary activity. However, it has been the understanding of ACCA that consumer credit activities under the group scheme should be ‘limited to activities arising in the course of the practice of accountancy’, and so these activities were considered to be incidental to a firm’s business.
Nevertheless, we acknowledge that any firm previously covered by a group scheme that is found to be ineligible for exemption under the Part 20 regime will be required to seek authorisation from the FCA. Although the requirement for such firms to become fully authorised by the FCA would represent an additional burden upon them, we trust that such an outcome would nevertheless be a proportionate response in order to protect the public in respect of consumer credit activities.
It is not possible for a firm to be both authorised and exempt, and so any firm that is, in future, required to be fully authorised for consumer credit activities would be required to seek full authorisation in respect of all its FSMA-regulated activities. We acknowledge that there is a benefit in streamlining regulation in this way – so that the FCA is responsible for regulating ‘whole firms’ that are required to be authorised by it. However, the perception of any firms that currently fall within the Part 20 regime in respect of Exempt Regulated Activities would be that the requirement of full authorisation is disproportionate and simply an unintended consequence of ‘streamlined’ consumer credit regulation. The additional costs to such firms – in terms of administrative burdens and fees – must be kept to a minimum in order not to outweigh the benefits to consumers.
A situation that has not been referred to in the consultation document is that of a professional firm that is authorised for investment business by the FCA that currently falls within the group licensing regime. Such a firm would, in future, be required to seek full authorisation from the FCA in respect of incidental consumer credit activities.
The consultation document notes that there are currently sixteen group licences. However, there is no mapping of those covered by current licences to those who may be covered by available exemptions from 1 April 2014. For example, we believe that members of the Association of Authorise Public Accountants (currently covered by ACCA’s group licence) will not be eligible for exemption under the Part 20 regime. A mapping exercise should be carried out in order to determine the potential detriment to the public interest, and a proportionate response.
The rationale for differentiation between pre and post-appointment advice on the part of insolvency practitioners is not apparent in the consultation paper. Paragraph 3.40 states “The treatment of insolvency practitioners under FSMA will depend on the kind of activity they are carrying on, and on whether they are members of a professional body recognised by the FSMA Part 20 regime”. Paragraph 3.44 goes on to state that “those insolvency practitioners which are members of a ‘designated professional body’ … may be able to be exempted from authorisation under Part 20 of FSMA provided that all their debt-related activity (other than that provided when they have been formally appointed as an insolvency practitioner) is ‘incidental’ to their business as an insolvency practitioner and the conditions prescribed in Part 20 are met”. We are concerned about the interpretation of ‘incidental’, and there is an urgent need for clarity in this respect.
We have no comments on these areas.
We believe that the proposals are proportionate, and we have nothing to add to the consultation document.
The proposals appear reasonable and proportionate in order to fill a potential regulatory gap.
We have no data in this area.
In our opinion, the proposals appears reasonable and a proportionate measure.
We welcome the proposed transitional arrangement, which takes the form of interim permissions for firms that are not currently familiar with the FSMA regime. However, the timescale for implementing the system of granting interim permissions is short, and so we welcome the statement in paragraph 6.12 that the FSA ‘will work closely with the OFT to make contact with existing licence-holders‘.
We note that the workload of the FCA will be intense during the interim permissions period, and the costs relating to interim permissions will be recovered through one-off interim permission fees. Similarly, the intention appears to be to recover the FCA’s costs from those organisations that it will regulate. The implication is that the fee structure will be complex, and we would expect a focus on transparency when the FCA consults on fees in October/November 2013, and subsequently publishes its business plan.
We have no comment on this.
 See ‘Group licensing regime – Guidance for consumer credit group licence holders and applicants’, issued by the OFT in April 2008, and updated in August 2011.