Do you need a consumer credit licence? Don’t ask FCA or OFT

As the first wave of bills have gone out for interim consumer credit licences from the Financial Conduct Authority ahead of it taking over regulation of this sector from the Office of Fair Trading next April, many advisers have been asking if they will be caught by the rules.

From September, financial advisers that have a licence will need to register with the FCA for ‘interim permission’ to continue any activities covered by the rules after April 2014. The fee for this will be £150 for sole traders and £350 for the “majority of other firms”.

The interim licence will last until October 2014, at which point a full licence will be required that will last until April 2016. Costs for a full licence have not yet been set - and the OFT has not yet confirmed if it will rebate for ‘double charging’ where the interim licence overlaps with existing OFT cover.

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As for the question of whether advisers need a licence at all under the new provisions, there is similarly no simple answer to that, according to both the FCA and OFT.

Asked for definitions on when advisers would qualify, the FCA told FTAdviser that firms would have to ask the OFT as it will simply apply the same rules; the OFT said advisers could be caught, but that there is “no clear cut answer”.

Some advisers will definitely qualify if they advise on mortgages or debt. Some have asked whether general holistic financial planning that would inevitably cover clients’ debts would be covered by this rule. This, too, still remains unclear.

Waters are muddied further in relation to charging structures. It has been said by some that advisers charging clients quarterly retainers need a consumer credit license, as will those that spread intial fees over time and therefore effectively offer their services as credit.

The FCA said that it did not know if the above examples would qualify. The OFT said simply that it could qualify, but that it was not possible to give a “one size fits all” response and that it would be taken on a case-by-case basis.

Advisers should obtain “legal advice” to see if they qualify, it added.

An OFT spokesperson said that debt advice, debt management, credit brokerage and credit information are the usual categories where a credit licence applies.

She said: “It is down to each IFA to determine – getting their own legal advice where appropriate – if they require a CCL.

“How frequently the adviser sees the client is not necessarily relevant, but rather the way in which the consumer becomes liable for the charges and how they are to be repaid.

“It is not possible to give a ‘one size fits all answer’ as the correct analysis will depend on the facts. It is however possible that some charging structures will constitute the provision of regulated consumer credit and therefore that a licence will required.”