ICAS calls for changes to FCA regulation
Responding to the Financial Conduct Authority (FCA) ‘Our Future Mission’ consultation, ICAS has called for changes to the consumer credit authorisation regime. David Menzies looks at why the FCA needs to change its regulatory focus.
The FCA are currently reviewing how they can make the biggest difference in making financial markets work well, now and in the future. Consumers have increasingly complex needs, and the FCA role is to regulate in a way that helps financial services meet them. As part of their review the FCA issued a consultation entitled ‘Our future mission’.
The regulator has stated that it wants to provide guidelines explaining how it interprets its objectives and chooses its business plan priorities. It also wants to set out a framework to help prioritise its work, ensuring it focuses its resources in the right places.
As part of that process the FCA need to consider consumer responsibility and vulnerability, their role in encouraging change and innovation in the industries they regulate, how they identify harm and then decide what action to take to address it, and the interaction between regulation and public policy. They also intend to consider the tools they use to deliver their competition, firm supervision and enforcement work.
ICAS members are often involved in areas of regulated financial activity and as such will either be regulated for such activities by ICAS under the Designated Professional Body (DPB) authorisation or authorised directly by the FCA.
As part of our wider public interest objective we wish to ensure the FCA mission is clear and focusses resources and priorities to achieve its three objectives of:
- protecting consumers
- protecting the integrity of UK markets
- enhancing competition
ICAS has responded to the FCA consultation by highlighting two specific areas where change is required to allow the FCA to fulfil their mission: the insolvency exclusion in consumer credit regulation; and the scope of entity-based regulation.
Consumer credit regulation: the insolvency exclusion
The FCA should take the opportunity to re-consider, in conjunction with the Government, its approach to consumer credit regulation in relation to Insolvency Practitioners (IPs) and specifically, the insolvency exclusion.
The insolvency exclusion allows an IP to conduct the regulated activities of debt adjusting, debt counselling, debt administration and debt collecting when formally appointed as an Insolvency Practitioner under section 388 of Insolvency Act 1986, or conduct debt counselling, debt adjusting or credit information services in reasonable contemplation of being appointed under section 388.This is of importance in Scotland in relation to Debt Arrangement Schemes (DAS) and to bankruptcies in England and Wales (and to a lesser extent in Scotland).
Debt counselling where these options may be considered as being appropriate to the consumer are likely to be regulated activities and are not covered by the insolvency exclusion. We highlight concerns that failure to address this issue will result in IPs being ‘dual or triple-regulated’, and the possibility of unintended consequences including:
- a reduction in the availability of holistic debt advice from qualified and already highly-regulated debt professionals, and will therefore be to the consumer detriment
- a reduction the choice in the market place
- limited FCA resources being used in regulating firms which do not pose a regulatory risk
Scope of entity-based regulation
The FCA should also take the opportunity to re-consider the entity-based approach to financial services and consumer credit regulation.
A professional firm requiring FCA authorisation for one regulated activity is currently unable to use their professional membership body’s DPB regime for incidental activities in another regulated activity.
For example, a firm requiring FCA authorisation for consumer credit activities would also require full FCA authorisation for financial services which are otherwise incidental to services provided to their clients and which would otherwise be eligible for DPB authorisation.
We consider that the FCA should address this additional regulatory burden, so that professional firms should not be brought within FCA scope for incidental activities where they are otherwise appropriately regulated by their professional body. Any other approach is not a good use of the FCA’s resources, and may result in firms giving up such activities, thus limiting consumer choice.
The full ICAS response can be accessed here