Solicitors will be able to carry out certain consumer credit activities under the wing of the Solicitors Regulation Authority – a year after the regulator proposed dropping the responsibility altogether.
The solicitors’ regulator has agreed to oversee consumer credit activities, such as allowing clients to pay in instalments, after agreeing that these would not come under the scope of the Financial Conduct Authority (FCA).
Solicitors faced uncertainty and a greater potential regulatory burden after the FCA assumed responsibility for regulating consumer credit work from the Office of Fair Trading in April 2014.
A year ago the SRA said it had inadequate resources for the task and proposed dropping regulating consumer credit altogether.
The suggestion caused consternation among firms facing the prospect of dealing with a second regulator. The Law Society argued that the proposal would introduce dual regulation, and create significant additional costs and burdens for the profession.
In response the SRA resolved to look again at whether it could take responsibility and it re-entered talks with the FCA.
The agreement in effect means firms will be subject to eight pages of SRA rules rather than the hundreds of pages they might have faced. They can continue offering consumer credit as long as activities are central to the legal services they provide.
The new rules will prohibit activities such as pawnbroking, while firms will also be prevented from entering, as a lender, into regulated credit agreements which are secured on land by a legal or equitable mortgage.
The proposed rules do not prevent firms from making a referral to a credit provider or intermediary, neither do they stop firms from advising and assisting clients with the repayment of a loan.
Crispin Passmore (pictured), SRA executive director for policy, said: ‘This is a positive step forward. Everyone at the SRA and FCA has worked exceptionally hard to ensure that the proposals offer a balanced and proportionate approach to regulation for firms.’
The new rules, agreed by the SRA board today, are likely to come into effect from 1 April, subject to the formality of approval by the FCA and backing from the Legal Services Board.
A consultation this year on consumer credit attracted 31 responses from representative groups, law firms of various sizes, the Legal Ombudsman and the Legal Services Consumer Panel.
The vast majority of respondents supported the SRA proposals and were pleased the organisation had avoided solicitors being subject to dual regulation.
The Law Society said it was delighted that the SRA has chosen to continue to be a designated professional body for the regulation of consumer credit activity – a decision it believes will benefit solicitors and clients.
Law Society president Jonathan Smithers said: ‘The SRA has listened to the profession and accepted that solicitors undertake consumer credit work as part of their everyday business activities and therefore it should not be regulated separately.
‘This decision ends a period of uncertainly and ensures that solicitors can continue serving their clients without having to incur significant costs registering and being regulated by the FCA as well as by the SRA.’