My firm doesn't need a consumer credit licence, does it?

Responsibility for the regulation of consumer credit activities transfers from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) on 1 April 2014. Until now, solicitors have not needed to concern themselves about being licensed because the Law Society/SRA looked after the issue. Now things are changing and every firm of solicitors needs to look at what it does and decide whether or not it needs to register with the FCA before 1 April for an individual licence. Most firms appear to be blissfully unaware that they may have a problem.

Since 1974, when the Consumer Credit Act came into force, licensing has been the responsibility of the OFT. However, the government perception of the OFT has been that of a toothless tiger. Those with experience of the financial services industry may recoil at the notion of the FCA as a model regulator but it is seen as such in comparison to the OFT, so the decision to transfer power was made.

In the 40 years since the Act appeared, consumer credit activities performed by solicitors have been covered by the terms of the group licence issued to the Law Society. The effect has been that solicitors have never needed to look too closely at what they actually did because they were covered by the licence. The FCA has decided that it won't continue with group licences after the current version expires on 31 March and that law firms, just like everyone else, will need their own licences. Encouraged by government, the FCA has been keen to tell anyone who will listen that it intends to adopt a more vigorous approach than its predecessor and be a more active gamekeeper.

There is rather more to what are defined as consumer credit activities under the Act than providing credit or introducing clients to lenders. They also include debt adjusting, debt counselling, debt collecting, debt administration and providing credit information services.

There are two relevant exemptions which may be available to solicitors. The first is in Part XX of the Financial Services and Marketing Act 2000. This applies where the activity arises out of, or is complementary to, the provision of a professional service to a client, and that service is 'incidental' to another service. The SRA Board agreed on 22 January to extend its Financial Services (Scope) Rules to cover consumer credit work.

Secondly, firms are exempt if they are acting in the course of contentious business which arises from a consumer credit or hire agreement. The SRA thinks that this is limited in its usefulness because it is only available where proceedings have been issued and will not exclude pre-issue work. The FCA appears to believe that this exemption deals with most of the problems that legal professionals will have.

The SRA has not yet issued any significant guidance as to how solicitors should work out whether they need a licence or not. It is waiting for the FCA to come up with its own guidance before it does so, and that guidance is not expected to surface until late February or early March.

Even if the SRA issues guidance immediately at that point, it will give solicitors only a few weeks until the 1 April registration deadline for interim permission. If firms of solicitors undertake consumer credit work after 1 April without a licence, they are potentially committing a criminal offence. That would be a dangerous course to take with a new regulator looking for an opportunity to demonstrate that it is much tough than its predecessor.

Some firms of solicitors will have to make difficult decisions here. No one, including the regulators, is clear on whether 800 or 8,000 of the 11,000 firms of solicitors need licences. The FCA has also decided that the cost of licensing should rise, with the cost of a licence for a moderately complex partnership going up from £1,466 (giving a five years licence) to £5,000 for the application plus an annual charge. Nevertheless, for many firms that might be preferable to taking a risk by not having a licence at all.