ICAEW has arrangements in place which enable firms to provide consumer credit services without the need for authorisation from the Financial Conduct Authority (FCA).
There’s no application to complete and no fee to pay. If firms meet the eligibility criteria, then such activities can be undertaken, provided that they are undertaken as set out in the DPB (Consumer Credit) Handbook.
As these arrangements are made under Part XX of Financial Services and Markets Act 2000, the service may only be provided in a manner incidental to the activity of the firm generally, and which arises out of, or is complementary to, another professional service, which is not itself a regulated activity, provided to a specific consumer client (as with investment business).
The DPB (Consumer Credit) Handbook is effective from 1 April 2016.
A guide to credit-related regulated activity – this helpsheet summarises some of the key aspects of the DPB (Consumer Credit) Handbook.
A guide to consumer credit debt counselling – this helpsheet provides guidance to firms about the credit regulated activity of debt counselling.
A guide to dealing with vulnerable consumers – this helpsheet provides guidance on consumer vulnerability in the context of consumer credit.
A firm authorised by the FCA cannot use these arrangements. It must hold the relevant FCA permissions to undertake credit-related regulated activities
ICAEW’s DPB (Consumer Credit) Handbook applies from 1 April 2016.
A guide to credit-related regulated activity – this helpsheet summarises some of the key aspects of the DPB (Consumer Credit) Handbook.
No application is needed to use the DPB (Consumer Credit) Handbook and no fee is payable. Your firm simply has to:
Under the Handbook, a firm is eligible if it is:
The consumer credit activities may only be provided in a manner incidental to the activity of the firm generally, and which arises out of, or is complementary to, another professional service, which is not itself a regulated activity, provided to a specific consumer client. There is more information about incidentality in Schedule 2 of the DPB (Consumer Credit) Handbook.
A firm authorised by the FCA cannot use these arrangements. It must hold the relevant FCA permissions to undertake credit-related regulated activities from 1 April 2014.
Consumer credit activities are now known as credit-related regulated activities. They are set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO):
Only some of these will be allowed to a firm under ICAEW’s Part XX (of the Financial Services and Markets Act 2000) arrangements:
A firm is also prohibited from providing debt management plans (see regulation 4.15).
It is worth remembering that in considering credit-related regulated activities, a client is a ‘consumer’ who is defined as:
If the client is not a consumer as defined in the DPB (Consumer Credit) Handbook, the activity is not a credit-related regulated activity. Generally, the credit-related regulated activities have to be in respect of a credit agreement or a consumer hire agreement. If this is not the case, the activity is not a credit-related regulated activity.
In the context of credit-related regulated activities, a client is a ‘consumer’ who is defined as:
If the client is not a consumer as defined in the DPB (Consumer Credit) Handbook, the activity is not a credit-related regulated activity.
There are six categories of consumer credit included in ICAEW’s DPB (Consumer Credit) Handbook:
Detailed information is provided below on each of these categories. The number in brackets is the article number in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 of the definitions applicable after 1 April 2014.
If you introduce any individual to a third party so they can obtain credit then you will be using this category. This includes where clients need to borrow money to buy goods and services for which they would not otherwise have funds and are introduced to a source of that money. This may be the case, for example, in a hire purchase transaction, such as a car purchase. An introduction does not depend upon the broker forwarding the application to the lender. A recommendation to deal with a particular lender may amount to credit brokerage.
It is also credit brokerage to introduce people to other credit brokers.
You will use this category if you carry out one or more of:
If you offer to negotiate with creditors on someone's behalf, you will be using this category.
Debt counselling is giving advice to a borrower about the liquidation of a debt due under a credit agreement or giving advice to a hirer about the liquidation of a debt due under a consumer hire agreement. ‘Liquidation’ is:
Although providing a debt management plan is a combination of debt counselling and debt adjusting, firms cannot provide debt management plans using ICAEW’s arrangements (see regulation 4.15 of the DPB (Consumer Credit) Handbook).
Debt administration is needed if you take steps to:
This category may include, for example, some peer-to-peer lending platforms (but see below) and includes activities such as ensuring relevant documentary information and credit agreements comply with, and are completed in accordance with, relevant legal requirements.
You will not need this category if you are acting in your own interest; for example, administering loans where you are a creditor or owner.
This category covers a wide range of activities including the following (non-exhaustive list):
For firms the relevance of this category is it includes allowing clients to pay their bills by instalments even if no interest is charged. If the instalment arrangement is for four or fewer payments over a 12 month period with no interest or charges except for default charges (agreement entered into before 18 March 2015) or there are 12 payments or less in a 12 month period, with no interest or charges except for default charges (agreement entered into on or since 18 March 2015) this is not consumer credit. For more information about instalment arrangements please refer to the DPB (Consumer Credit) Handbook.
You will use this category if you:
You do not need this category to request changes to your own information or if you are simply seeking information about an individual's creditworthiness, on your own behalf, for example a credit check on a new client.
The categories of consumer credit not included in the DPB (Consumer Credit) Handbook are:
Detailed information is provided below on each of these categories. The number in brackets is the article number in the Regulated Activities Order of the definitions after 1 April 2014.
You will need this category to hire, rent out, or lease goods under any regulated agreements, and where the arrangement is capable of lasting for more than three months.
In such cases the ownership of the goods or services being hired does not transfer to the consumer. An example would be a rental package for TV, phone and broadband, but not a hire purchase agreement.
You will need this category if you take steps connected with the collecting of debts owed to others under any regulated consumer credit or hire agreements and you will simply be collecting those debts on the third party's behalf.
This category is not needed if you will only collect debts owed to you.
This category will only be relevant to businesses that collect, and then provide others with, information relevant to someone's financial standing, and the information collected has been collected for that purpose. Only those who carry out similar functions to the three largest consumer credit reference agencies in the UK will need this category.
If you simply give a reference at the request of a credit provider (with the client’s permission) this category is not needed.
FCA plans to introduce a new category of credit activity to cover peer-to-peer lending. The actual regulated activity is operating an electronic system in relation to lending. This is the system that matches up potential borrowers with others who have funds available for lending.
There will be occasions when the arrangements a firm makes with clients to pay their professional fees will be a consumer credit activity. Some activities in relation to fees are exempt, some are covered by the DPB (Consumer Credit) regime and some require FCA authorisation. With some careful planning, firms should be able to structure their fee arrangements to minimise regulation.
Allowing your clients to make fee payments by instalment is potentially exempt if treated correctly. Instalment credit agreements entered into on or since 18 March 2015 where there are 12 payments or less in a 12 month period, with no interest or charges (except for default charges), are exempt and are not regulated credit agreements. To avail of this exemption there must be a written agreement (for example via your engagement letter) entered into with your clients since 18 March 2015. Example wording is
‘We offer you the facility to pay your professional fees by [monthly][quarterly] instalments. We do not charge any interest or charges [except for default charges]. As these terms have been agreed after 18 March 2015 this instalment agreement is not a regulated credit agreement.’
You will need to obtain your client’s agreement to this in writing.
Any instalment agreements entered into before 18 March 2015 are only exempt credit agreements where there are 4 payments or less in a 12 month period, with no interest or charges (except for default charges). In other words, this exemption is more limited.
All other instalment arrangements are regulated and will require a firm to comply with the FCA’s Consumer Credit Sourcebook. Regulation 4.12 of the DPB (Consumer Credit) Handbook limits the transactions that a consumer credit firm can enter into as a lender.
First of all, would these potential clients fall within the definition of a consumer client (see FAQ above)? If the client is not a consumer as defined in the DPB (Consumer Credit) Handbook, the activity is not an exempt credit-related regulated activity and the firm doesn’t need to consider consumer credit. Bear in mind that the potential client may change during the consultation. For example, an incorporated business is not a consumer, but if the director also needs some personal advice, he or she is a consumer.
When the potential client is a consumer, the next aspect to consider is incidentality and how that might work in an initial consultation with them. Any exempt credit related regulated activity provided under the DPB (Consumer Credit) Handbook may only be provided in a manner incidental to the activity of the firm generally (see regulation 3.04), and which arises out of, or is complementary to, another professional service, which is not itself a regulated activity, provided to a specific consumer client, as with investment business (see regulation 3.05).
In most cases the initial consultation with a potential client will be a fact find – working out the client’s needs and seeking to determine whether the firm’s offered services meet those needs. Discussions will be at a high level and few if any specifics will be discussed.
If it turns out during that initial consultation that you have provided an exempt credit related regulated activity, that isn’t necessarily a problem, as the exempt credit related regulated activity may be provided as a first service (see regulation 3.05), but that is based on an expectation that the firm will go on to provide subsequent professional services to the client. If it’s clear from the outset that the potential client will not become a client of the firm, then the firm should avoid providing any exempt credit related regulated activities during the initial consultation.
As an example, a firm should take care when it is obvious from the outset that the potential client is hoping to use the initial consultation to obtain debt advice. In such circumstances the firm should consider carefully whether the client will need any additional professional services from the firm and even if they did, whether the client would have the funds to pay for these services. If it looks unlikely that other professional services can be supplied, the firm should only provide information not debt advice as the advice provision would not meet the incidentality test. Giving the potential client some general advice on how to draw up a budget or a cash flow, or helping them draw up a budget or cash flow is not an exempt credit related regulated activity, but if the firm goes on to provide advice and/or recommendations to them about how to deal with their debt, that would be the exempt credit related regulated activity of debt counselling.
No, firms which are FCA authorised cannot use the DPB (Consumer Credit) Handbook. There are therefore three options open to you:
To be able to use ICAEW’s arrangements, an insolvency practitioner must take their insolvency licence from ICAEW. This is the case even if the insolvency practitioner is an ICAEW member who takes their insolvency licence from another recognised professional body. For firms to use the DPB (Consumer Credit) Handbook this means that all their insolvency practitioners must be licensed by ICAEW (or CAI or ICAS).
But, the services provided by the insolvency practitioner must also meet the incidentality test (see regulations 3.04 and 3.05). We will be issuing further guidance on incidentality as it applies to insolvency engagements soon.
Also, those using the DPB (Consumer Credit) Handbook are prohibited from providing debt management plans (see regulation 4.15).
There is also a statutory exclusion which can be used by insolvency practitioners. While acting as an insolvency practitioner, the insolvency practitioner is excluded from the need to be FCA authorised in respect of the activities of:
A similar exclusion applies when an insolvency practitioner is acting in ‘reasonable contemplation of appointment’. In this case, the relevant activities are:
The exclusions also apply to those working for the practitioner. The legislation does this by including within the definition of 'acting as an insolvency practitioner' (or acting in ‘reasonable contemplation’ of appointment) the insolvency practitioner’s:
The use of ‘exclusion’ rather than ‘exemption’ is important. If the insolvency practitioner also undertakes other credit-related regulated activities of a kind that need FCA authorisation, that authorisation would have overridden an exemption because a person cannot be exempt and authorised at the same time. Full FCA regulation would apply.
Even if no authorisation is needed as set out above, the insolvency practitioner’s firm may be carrying out other credit-related regulated activities. In this case, the practitioner should consider if their firm can operate under ICAEW’s arrangements or if it needs to apply for FCA authorisation.
Much of the Consumer Credit Act 1974 was repealed on 1 April 2014. Amendments made to the Financial Services and Markets Act 2000 (and statutory instruments made under that Act) came into force on that date and are the basis for consumer regulation going forward.
Also on 1 April 2014, the group licence arrangements ceased, as did those for standard Office of Fair Trading (OFT) consumer credit licences.
Responsibility for consumer credit transferred from the OFT to the Financial Conduct Authority (FCA).
ICAEW, ICAS and CAI are Designated Professional Bodies under Part XX of the Financial Services and Markets Act 2000 (the Act). Previously those arrangements only dealt with investment business activities. Following a change of the law on 1 April 2014, credit-related regulated activities are now within the scope of the Act.
Part XX allows the ICAEW, ICAS and CAI to provide arrangements by which firms may take advantage of an exemption from the general prohibition on carrying on activities that are regulated under the Act.
ICAEW initially put in place transitional arrangements while new rules for consumer credit were agreed with the FCA. Our DPB (Consumer Credit) Handbook, which is issued jointly with ICAS and CAI, is effective from 1 April 2016.
The Consumer Credit Act 1974 required those that carried on a consumer credit business (a business providing credit or otherwise being a creditor), a consumer hire business or an ancillary credit business to hold a consumer credit licence from the Office of Fair Trading (OFT). This may not have been necessary if the person carrying on the licensable activity was covered by an appropriate group licence.
ICAEW’s group consumer credit licence was effective until 1 April 2014.
Group licences were granted by the OFT to allow the members of the group who were defined in the group licence to carry out those credit – and/or ancillary credit – activities specified on the licence, without the need for an individual OFT licence. The key point is that credit activities were not the main business of the members of the group.
The OFT published general and sector-specific guidance which we expected members to ensure they were familiar with, and adhere to. Access the UK Government web archive:
In our role as a group licence holder, ICAEW was required to ensure members of our group who were covered by our group licence were fit to engage in the activities covered by the licence.
We were also required to have: