Changing Lanes: a beginner's guide to FCA regulation

It’s been over six months since the Financial Conduct Authority (FCA) took over the regulation of consumer credit from the Office of Fair Trading (OFT). Whilst the change in regulation came into effect in April, the FCA granted a “transitional” period of grace to affected firms in which to implement the new rules into their processes; this period comes to an end on the 30th of September this year.  I understand that there’s a fair amount of confusion about who is affected by the new rules, as I’ve seen a lot speculative reports on which activities will fall under the FCA’s regulatory regime.  Just for clarification, if you conduct any of the followings types of business, categorised by risk, you have been regulated by the FCA since April:

Lower Risk Activities:

  • Consumer credit lending (where the main business is selling goods and non-financial services, and there is no interest on the charges – this excludes hire purchase and conditional sale)
  • Consumer hire
  • Secondary credit broking  (where the main business is selling goods or nonfinancial
    services and broking is a secondary activity)
  • Not-for-profit debt counselling and debt adjusting
  • Not-for-profit credit information services

Higher Risk Activities:

  • Consumer credit lending  (this includes personal loans, credit card lending, overdrafts, pawn broking, hire-purchase, conditional sale etc.)
  • Credit broking
  • Debt adjusting
  • Debt counselling
  • Debt collection
  • Debt  administration
  • Credit information services
  • Credit reference agency
  • Peer-to-peer lending

As you might expect, the headline spotlight has mainly focussed upon high-cost, short-term lending companies, however, this regulation covers even those firms who do something as seemingly straightforward as an interest-free payment plan for clients.

As a compliance and business consultancy firm, SimplyBiz has experienced its fair share of changes in both regulator and regulation.  In fact, the Financial Conduct Authority is also reasonably new to us in the financial services sector, having taken over from its predecessor the Financial Services Authority (FSA) in April 2013.  Although the transition between the FSA and the FCA was, on the surface, a less dramatic change than the move from the OFT to the FCA, it was not without its challenges; and was by no means the first change of its kind in recent years.  Up until the late 1980s we had a plethora of regulatory bodies, with a huge range of acronymised titles, each covering a separate area of financial services.  The creation of one regulatory body greatly simplified many processes, and improved clarity for consumers, but there’s no doubt that the specifics of regulation are constantly changing and keeping up with them can be a Sisyphean task. After all, UK financial services is generally considered to be one of the most heavily regulated sectors in the world!

So, why the change from OFT to FCA?  As you would expect, the Government’s main objective is to “strengthen consumer protection”. However, it does offer some reassurance with the caveat that it only placed requirements on firms where there is a clear benefit for consumers – in other words, not introducing regulation purely for the sake of it.  As you can see from the risk categories assigned in the above list of activities, the FCA approached this transition period with a clearly defined sense of proportionality.

Having moved from OFT to FCA regulation, the major changes you will have experienced will be in the level of supervision you receive and the reports you are required to complete. 

The levels of supervision to which firms are subject were decided based upon the potential impact it was judged that their activities could have on the Government’s objective to strengthen consumer protection.  All consumer credit firms are categorised as either ‘fixed’ or ‘flexible’ portfolio.  We expect the vast majority of consumer credit firms fall into the ‘flexible portfolio’ category, who are supervised by a team of sector specialists. 
Although the tasks ahead might seem daunting and onerous, there will also be benefits to this increased level of regulation.  I’m sure we would all agree that any potential advancement in consumer protection is a good thing and this move will also undoubtedly see a positive change to the general perceptions of the consumer credit market as a whole. 

October is a milestone month for consumer credit regulation as many businesses will need to begin applying for full permissions from the FCA.  I understand that this will raise a lot of questions;   if you need further details on anything mentioned in this piece, we suggest you visit the Consumer

Credit Centre ( for up to date and relevant information.