Consumer credit – how it affects ACCA practitioners

On 1 April 2014 the Financial Conduct Authority (FCA) took responsibility for regulating consumer credit activities. Prior to that, ACCA had a Consumer Credit Group Licence in place for its members in practice but at this date all group licences were withdrawn by the regulator. 

If the firm does not provide consumer credit services then no action is required.

If a firm provides consumer credit services it needs to decide on the appropriate level of authorisation. Some related activities that members undertake are covered by ACCA’s exempt regulated activities regime as ACCA is a designated professional body with the FCA.  So members need to review this to decide:

• if they are covered for the activity they undertake under exempt regulated activities via ACCA’s Designated Professional Body (DPB) regulations or
• whether they undertake any activity that would require them to register directly with the FCA.

To come within ACCA’s DPB regulations, which derive from the Financial Services and Markets Act 2000 (FSMA) Part 20 regime,  any regulated activities must be incidental to the professional services offered to each client, rather than the overall professional services offered by the firm. The regulated activities must therefore occur in connection with a professional service provided to the client; they cannot occur (nor be offered) in isolation. For the purpose of FSMA Part 20, professional services mean services that do not constitute the carrying on of a regulated activity and the provision of which is supervised and regulated by the designated professional body (FSMA 327(8)).

However, a firm cannot be both authorised by the FCA and come within ACCA’s DPB regulations for any activities including consumer credit activities. For example, if the firm was authorised by the FCA for regulated mortgage services then it would not be able to come within ACCA’s DPB regulations for exempt consumer credit activities or any other activities for that matter.

A professional firm that is a member of a DPB can carry on certain regulated activities under the regulation and supervision of its DPB rather than the FCA if it fulfils certain criteria set out in FSMA. These firms are known as exempt professional firms (EPFs).

‘Incidental’

For the consumer credit services to be eligible to be regulated by ACCA under the DPB regime (FSMA 2000 Part 20), they must be incidental to (in other words arise out of, or be complementary to) the professional services offered to each client rather than the overall professional services offered by the firm. It is likely that most ACCA practices will provide professional accountancy services as their main business activity and carry on some regulated credit activity incidental to the provision of that professional service (for example, providing some limited debt advice to a client, complementary to the provision of accountancy services to the client) to meet the criteria to be able to benefit from the Part 20 exemption.

However, if the firm is carrying on regulated credit activities as their main business activity (for example, providing regulated debt counselling and/or debt-adjusting services) or carrying on such activities in a manner that is not incidental to the provision of another professional service that is not a mainstream financial activity, then that firm is unlikely to meet the criteria to benefit from the exemption under Part 20.

Debt advice

The question of whether or not FCA authorisation is required will depend on whether the debt advice on a ‘walk-in‘ basis is provided on a standalone basis. If this debt advice is not provided complementary to the provision of any other professional services (such as accountancy services) and/or the debt advice is a major part of the services provided to a particular client, then that firm is unlikely to meet the criteria to benefit from the exemption under Part 20. Under such circumstances, the provider of such services would require FCA authorisation.

Insolvency practitioners

Insolvency practitioners (IPs) whose activities are limited solely to certain specified matters (Article 52 of the Financial Services and Markets Act 2000 (exemption) order 2001 as amended) will, in any case, be exempt. This includes an IP carrying on debt adjusting, debt counselling, debt collection, debt administration or credit information services in reasonable contemplation of appointment as an IP.

‘Consumer’

An accountancy firm is likely to need a consumer credit licence if it sells on credit to individuals or partnerships. However, a firm does not generally need a consumer credit licence to offer credit to limited companies

The following examples highlight common activities that accountancy firms might undertake:

Consumer credit

An accountancy firm might provide credit to individuals or partnerships to pay off their outstanding accountancy fees.  The level, timing and nature of the credit may vary with each situation.

Credit brokerage

An accountancy firm may introduce or recommend an individual, sole trader or partnership to a third party so that they can obtain credit.

Debt adjusting

An accountancy firm might negotiate with creditors on someone’s behalf.

Debt counselling

An accountancy firm might counsel or advise the individual relating to adjusting its debt. If debt-adjusting services are provided then debt counselling is also likely to be provided.

Debt administration

An accountancy firm might perform duties under a consumer credit agreement or a consumer hire agreement on behalf of a creditor or owner, or enforce rights under such an agreement on behalf of a creditor or owner so far as the taking of such steps is not debt collecting. Note that a firm acting in its own interest, for example administering loans where the firm is the creditor or owner, is not affected.

Provision of credit information services (including credit repair)

An accountancy firm might be asked to obtain information on behalf of an individual about their financial standing (eg credit-rating information), including asking a credit reference agency if it holds the information. This might also entail providing advice to individuals on how to seek to alter, or secure the omission of, the information, or how to seek to restrict the availability of the information.

The FCA stipulates that credit-related regulated activity means any of the following activities specified in Part 2 or 3A of the Regulated Activities Order (Specified Activities):

(a)     entering into a regulated credit agreement as lender

(b)     exercising, or having the right to exercise, the lender’s rights and duties
         under a regulated credit agreement

(c)     credit broking

(d)     debt adjusting

(e)     debt counselling

(f)      debt collecting

(g)     debt administration

(h)     entering into a regulated consumer hire agreement as owner

(i)      exercising, or having the right to exercise, the owner’s rights and duties
         under a regulated consumer hire agreement

(j)      providing credit information services

(k)     providing credit references

(l)      operating an electronic system in relation to lending

(m)    agreeing to carry on a regulated activity so far as relevant to any of the
         activities in (a) to (l).

The Chartered Certified Accountants’ Designated Professional Body Regulations 2001 were approved by the FCA under section 332(5) of the act. ACCA is a designated professional body under Part XX of the Financial Services and Markets Act 2000 (‘the act’) and is required, under section 332(3) of that act, to make rules relating to carrying on regulated activities that may be carried on by members and firms without breaching the general prohibition. The ‘general prohibition’ means the prohibition imposed by section 19 of the act which states that no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless they are:

(a)     an authorised person or

(b)     an exempt person.

ACCA’s Designated Professional Body Regulations 2001 allow firms (in relation to credit-related regulated activities) to carry on the following activities:

(a)     entering into a regulated credit agreement as lender

(b)     exercising, or having the right to exercise, the lender’s rights and duties
          under a regulated credit agreement

(c)     credit broking

(d)     debt adjusting

(e)     debt counselling

(f)      debt administration

(g)     providing credit information services

(h)     agreeing to carry on a regulated activity so far as relevant to any of the
         activities above.

Note that this list is virtually the same as the FCA’s list of specified activities above.

Credit-related regulated activities

(1) Consumer Credit Act 1974

Members and firms shall make themselves aware of the provisions of the Consumer Credit Act 1974 and the provisions of secondary legislation made under that act remaining in force, and shall ensure that the firm, its officers and its employees comply with all such legislation.

(2) Consumer Credit sourcebook

When carrying on a credit-related regulated activity or an activity connected to that regulated activity, members and firms are required to comply with the conduct provisions of the Consumer Credit sourcebook relevant to that activity and the FCA’s Principles for Businesses referred to in 1.1.4G of that sourcebook as if they were authorised under the act with a permission under Part 4A of the act to carry on the relevant regulated activity.

How do I apply for registration?

To apply, download an application for exempt related activities (UK) from the ACCA’s ‘Practitioner forms’ webpage.

If the firm has previously registered then ACCA will ask annually for confirmation of the firm’s need to continue with the registration. This is normally sent out with the member’s practising certificate renewal. However, you should note that confirmation of a firm’s registration for exempt regulated activities cannot be issued until all the firm’s ACCA partners/directors have submitted their individual practising certificate renewals. Renewals for individual partners’ and directors’ practising certificates can be submitted online via myACCA.

How can I check if I am registered under the DPB regime?

The FCA maintains a register of firms registered under the DPB regime; this can be found on the FCA’s website.

Is ACCA charging for registering members with the FSA under the DPB regime?

No.

What continuing professional development (CPD) will be required to be within the DPB regime?

There are no additional CPD requirements.

Will I need to notify my professional indemnity insurers that I come within the DPB regime?

 You are recommended to do so.

What if I am already authorised by the FCA for non-credit-related activities?

If a firm is already authorised by the FCA for a non-credit-related activity, it will not be able to benefit from an exemption under Part 20 of the Financial Services and Markets Act 2000 since a firm cannot be both authorised and exempt.

What if I do nothing?

If firms carry on non-excluded consumer credit activities without the benefit of an exemption under Part 20 FSMA or an appropriate permission from the FCA, this may constitute a criminal offence.

Many firms will permit clients to pay fees arising out of professional services by instalments. Would this satisfy the ‘incidental’ test (arising out of, or complementary to, a professional service)?

This will depend on the facts of each case but, in principle, this is likely to be the case if the deferral of the payment does not attract any interest or charges. Professional charges are defined in s327(8) FSMA as services:

(a) which do not constitute carrying on a regulated activity, and

(b) the provision of which is supervised and regulated by a
     designated professional body.

Can you explain more regarding what credit practitioners can extend to clients and how this is treated?