The Financial Services Authority (FSA) has published its consultation on how it plans to introduce a “strong” and “flexible” regime to regulate consumer credit.
The regime is tailored to address the risks that face consumers without putting undue burdens on firms.
The government announced earlier today (6 March) that it will transfer responsibility for regulating consumer credit from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) by 1 April 2014. The government has also published a consultation on the legislative changes needed to transfer responsibility to the FCA.
The FSA’s consultation sets out the overall approach and framework for the regime that will be administered by its successor body the FCA. The framework will enable the FCA to deliver better outcomes for consumers than the existing regime.
Under the FCA, resources will be focused on high risk businesses, identified as payday lenders, pawnbrokers, credit reference agencies and debt collection.
The new regulatory body will also tackle problems earlier by having more information about firms and proactively supervising higher risk companies.
The FCA has promised increased scrutiny of high risk firms before they are allowed to operate in the market and “significantly” more scrutiny of the competence of individuals in key positions in all companies.
Lower risk firms will not be required to reach such “onerous” standards and will pay lower fees as a consequence.
The FCA will also have the power to require firms to reimburse consumers if they have lost out due to its actions and it will be able to apply enforcement powers, including banning firms and individuals, and imposing fines.
Martin Wheatley, chief executive designate of the FCA, said: “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 added: “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.”
The FSA has confirmed that there will be a phased approach to the transfer, with an interim period starting in April 2014 and moving to full implementation by April 2016.
This means that from Autumn 2013, existing OFT licence holders will be able to apply for interim permission so that they can continue to operate but they will have to provide limited information and pay a one-off fee.
Existing OFT licences will lapse on 31 March 2014 and FCA interim permissions will begin from 1 April 2014. Firms will need to be fully authorised by 2016.
By Ellie Duncan