Firms carrying out consumer credit work such as debt recovery or advising family clients on divorce settlements may have to be authorised by the Financial Conduct Authority (FCA) under new proposals.
The Solicitors Regulation Authority said today that current arrangements for the regulation of consumer credit expire on 1 April 2015 and it has opened a consultation on a way forward.
Interim arrangements covering the regulation of consumer credit work were put in place when responsibility for consumer credit passed from the Office of Fair Trading (OFT) to the FCA on 1 April this year. Under the OFT regime, solicitors were regulated under a group licence given to the Law Society and managed by the SRA.
However the FCA has not continued with the group licence facility.
According to the SRA, after 1 April 2015, firms would be able to continue consumer credit work under an exemption allowing them to carry on regulated financial activities, provided they are overseen by a designated professional body (DPB). However, this would require the SRA adopting either all or substantive parts of the FCA’s sourcebook, which the SRA says would not fit with its own regime.
‘It would add extra regulatory burdens to firms, while the SRA does not have the resources or the expertise in place to supervise firms in the way the FCA requires.’
The SRA has therefore opened a consultation on withdrawing from regulating as a DPB for credit activities. That would require firms currently carrying out consumer credit activities to either apply for authorisation from the FCA, or stop providing such services.
Crispin Passmore (pictured), SRA executive director for policy, said: ‘Consumer credit regulation is a complex matter. It is vital that clients receive the proper protections, and the FCA are much better placed to regulate these activities than we are.
‘We will continue to engage with both the FCA and HM Treasury to find a way forward that provides a workable regulatory framework that protects the interests of clients. But as things stand, we have to consider the option of pulling back from regulating consumer credit activities.
‘We want firms to read the consultation document, see our reasoning, and respond to the questions we have asked. The more solicitors we have replying to the consultation, the more evidence we will have to better understand impacts of our choices.’
The SRA said that consumer credit is an integral part of many areas of solicitors’ work. More than 1,100 firms carry out debt recovery, for example.
Consumer credit activities might also capture discussions with a divorce client about finances and advice on the acquisition of a property or land.
Law Society president Andrew Caplen said: ‘It is disappointing that against a rhetoric of cutting red tape, solicitors are to be faced with the difficult and unwelcome prospect of double regulation. We urge members to consider the impact of the proposals in the SRA’s consultation, which includes the difficult choice between regulation by the FCA or expensive and complex changes to the SRA’s own system.
‘In their responses, solicitors should also stress where they need more clarification of exactly what circumstances would require them to register with the FCA.
‘In the meantime, we will continue to make representations to government and the FCA on our members’ behalf and will be responding to the SRA’s consultation.’
The consultation closes on 15 December.