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I do not believe there is a loophole. Firms are required to be regulated for those aspects of their business that provide credit to consumers. They therefore fall squarely under the FCA’s powers.
The Government tabled a number of amendments in the Lords to ensure a smooth transfer of consumer credit regulation from the OFT to the FCA, and to ensure that the FCA regime is proportionate and gives the right protection to consumers. We also introduced amendments in response to concerns raised by the House of Lords Select Committee on Delegated Powers and Regulatory Reform. For example, Lords amendment 136 requires the Treasury to have regard to the importance of securing an appropriate degree of protection for consumers and for the principle of proportionality.
Lords amendment 130 responds to the Committee’s concern about double jeopardy. It provides that when criminal sanctions under the Consumer Credit Act 1974 and regulatory sanctions under the Financial Services and Markets Act 2000 are available to the FCA in relation to the same act or omission, a person may not be convicted if he has already been subject to sanctions under FSMA.
Lords amendment 233 and associated technical amendments address a possible loophole that might otherwise emerge as a result of moving from a CCA-based regime to a FSMA-based regime. Under FSMA, it is an offence to carry on a regulated activity without authorisation, whereas under the CCA, it is an offence to lend money or collect debts without the right category of licence. The Government tabled amendments in the Lords to make it a criminal offence to lend or collect money without the correct permission. That addresses the risk of sophisticated illegal money lenders seeking authorisation for a lower-risk activity, only to use that as cover to engage in lending or debt collection, to the potential detriment of consumers. Lords amendment 233 also ensures that any agreements entered into or being enforced by a person without the necessary permission become unenforceable, meaning that important protections in the CCA for victims of illegal money lenders or debt collectors are replicated in the new regime.
Lords amendments 63 and 232 make changes to how the appointed representatives regime under FSMA will operate when firms carry out a credit-related activity—for example, by acting as ancillary credit brokers. The amendments create a limited carve-out from the provision in FSMA that firms cannot be both an appointed representative and authorised at the same time. They provide that if a firm is authorised for a particular category of consumer credit activity, it would also be able to become an appointed representative.
Consistent with CCA provisions, the Bill allows the Treasury to enable trading standards to prosecute offences under FSMA. Government amendments enable the Treasury to confer similar powers on the Department of Enterprise, Trade and Investment in Northern Ireland. They enable the Treasury to confer powers on trading standards and DETI to investigate offences under FSMA.
The amendments to which I have spoken so far have been concerned with the new regime, but the transfer to the FCA will not take place until April 2014, and it is clear that there are problems in the sector that the OFT needs to address in the meantime. The findings of the recent OFT report into compliance standards in the payday lending market show that compliance levels are low and that a number of practices that clearly cause consumer detriment are rife in the sector. To empower the OFT to operate as effectively as possible in the interim period, Lords amendments 138 and 147 give the OFT a new power to suspend consumer credit licences with immediate effect if it considers that necessary urgently to protect consumers.
Finally, on social investment, the Government tabled Lords amendments 24 and 41 to ensure that the particular needs of different sectors and the consumers that use them are taken into account—they are not specific to social investment but apply to alternative and innovative business models more generally. Lords amendment 24 requires that, when the FCA is considering its consumer protection objective in future, it will be required to have regard to the different expectations of consumers in relation to different types of financial service. In other words, if people with their eyes open go into a social investment model, it will be entirely appropriate for advisers to advise on such products.
Lords amendment 41 adds a new regulatory principle to clause 3B—the principle applies to both the Prudential Regulation Authority and the FCA. The measure requires them to have regard to the different nature and objectives of different financial services businesses. It is intended to make clear that there should not be a one-size-fits-all approach to regulation, because sectors such as social investment have an important part to play.