FSA Publishes Plans for Consumer Credit Regulation Handover

March 11, 2013

The Financial Services Authority (FSA) published a paper this week discussing its plans on how the Financial Conduct Authority will take over regulation of consumer credit from the Office of Fair Trading, following an announcement from the Government on the shift in responsibility.

The Government announced that it will transfer all responsibility for regulating consumer credit to FSA successor the FCA by April 2014, as well as produce its own list of potential legislative changes.

In its paper, the FSA set out plans to introduce a flexible yet strong regime to regulate consumer credit that would not go too hard on firms but would make sure to address any risks that consumers may face.

The paper states that firms will either be “higher-risk” or “lower-risk.” Those considered “lower-risk”, such as not-for-profit credit information services and consumer hire agencies would fall under a “limited permission regime”, meaning they will be subject only to limited supervision and will only need to report basic information. Those firms will have lower authorization and annual fees.

Firms considered “higher-risk”, such as payday lenders, pawn brokers, financial adviser firms etc. will require more proactive supervision, according to the paper. There will be more scrutiny of those firms before they are allowed to operate in the market.

The FSA detailed the three main outcomes that they would like to achieve, those being that:

  • consumers get financial services and products that meet their needs, from firms they can trust;
  • markets and financial systems are sound, stable and resilient, with transparent pricing information; and
  • firms compete effectively, with the interests of their customers and the integrity of the market at the heart of how they run their businesses.

Martin Wheatley, incoming chief executive of the Financial Conduct Authority (FCA), said of the takeover: “Consumer credit inhabits every corner of our day to day financial lives. It is a broad church spanning everything from overdrafts to hire purchase to credit cards to debt advice, provided by tens of thousands of firms of all shapes and sizes.

“We will focus our efforts on the areas of highest risk, and ensure we use our resources sensibly and proportionately. The work we have done with consumer groups and trade bodies has helped us reach this point and will continue to help us make the transition as smooth as possible,” he said.

“This regime is a sensible approach to everyday finances. It will give consumers the protection they expect without placing an undue burden on the firms that service them.”