Gemma Harle, managing director, TenetLime
With the deadline fast approaching, much confusion remains amongst brokers regarding the transfer of responsibility for consumer credit regulation from the OFT to the FCA.
There has been a distinct lack of clarity about timescales and costs, at a time when life is tough enough for the adviser community. It is an unwanted distraction that most could have done without.
Credit should therefore be given to AMI for their much-needed interpretation of this very complicated issue.
AMI confirmed that mortgage brokers will not require FCA authorisation for debt counselling, if their only consumer credit activity is advising clients to repay existing loans and debts out of the proceeds of a regulated mortgage contract.
Their guidance highlights the fact that advice to pay off debts is likely to be ‘debt counselling’ but the need for authorisation by the FCA is avoided thanks to an obscure exemption buried in the 2013 (Regulated Activities) Order.
However, the exemption is unlikely to extend to a debt counselling service that goes beyond mortgage transactions. For example, mortgage advisers are likely to require authorisation if they advise clients in financial difficulties on the alternative courses of action open to them, including the option to enter into a debt solution of some kind.
AMI also pointed out that the exemption does not apply when arranging loans, including secured loans which are not regulated mortgage contracts.
So while it may be possible for a financial adviser to be able to avoid debit counselling, the fact is that most who deal with a broad range of clients will from time to time need authorisation for it.
Given the potential adverse consequences of not being correctly authorised, many firms will decide that payment of an additional fee (c£200) is worth contemplating for peace-of-mind. If so, they must apply to the FCA for interim permission before 31 March, or stop any credit mediation activity.
One survey conducted by a leading packager at the time of writing suggested that almost a quarter of brokers have yet to receive the appropriate permissions – with just days to go. Equally worryingly, eight per cent of those surveyed said they were unaware of the changes.
Many of those could belong to a network however, and can therefore opt to extend their agreements to cover credit mediation.
In summary, whilst it may be possible to be able to avoid debit counselling, ensure you understand the subtleties of what constitutes it and the limited amount of time left to take the relevant action.