SRA proposes consumer credit firms seek authorisation from FCA

Law firms that conduct consumer credit work may have to be authorised by the Financial Conduct Authority (FCA) under new proposals laid out by the SRA.

Regulation for consumer credit work passed from the Office of Fair Trading (OFT) to the FCA in April. Under the OFT regime, solicitors were regulated under a group licence given to the Law Society and managed by the SRA.

However, the FCA has not continued with the group licence facility and firms that carry out consumer credit activities currently do so under transitional arrangements that run until 1 April 2015.

Consumer credit work is wide-ranging and can be an integral part of many areas of a solicitors' practice. For example, the SRA is aware of more than 1,100 firms that carry out debt recovery, one of the specific areas of consumer credit work, but the FCA's list of activities can form part of a number of legal services.

Firms may continue consumer credit work after that date under an exemption which allows them to carry on regulated financial activities, provided they are overseen by a designated professional body (DPB), such as the SRA. However, this would require the SRA adopting either all or substantive parts of the FCA's sourcebook (CONC).

The rules in CONC, while in line with the way the FCA regulates, do not fit with the SRA's current regime. Implementation of CONC would add additional regulatory burdens on firms and the SRA does not have the resources, or the expertise, in place to supervise firms as required by the FCA.

The SRA has therefore launched a consultation on how to proceed from next April, which would involve withdrawing from regulating as a DPB for credit activities. This would require firms currently carrying out consumer credit activities to apply for authorisation from the FCA or stop providing such services altogether.

The SRA's executive director for policy, Crispin Passmore, said: "Consumer credit regulation is a complex matter. It is vital that clients receive the proper protections, and the FCA are much better placed to regulate these activities than we are.

"We will continue to engage with both the FCA and HM Treasury to find a way forward that provides a workable regulatory framework that protects the interests of clients. But as things stand, we have to consider the option of pulling back from regulating consumer credit activities.

He added: "We want firms to read the consultation document, see our reasoning, and respond to the questions we have asked. The more solicitors we have replying to the consultation, the more evidence we will have to better understand impacts of our choices."

The consultation can be accessed here and will run until midday on 15 December 2014.