Apfa demands FCA answers on consumer credit exposure

The Financial Conduct Authority must provide clarity on which financial advice activities and charging models will require advisers to hold a consumer credit licence when it takes over regulation of the sector next year, the Association of Professional Financial Advisers has said.

In its response to a three-month consultation on FCA proposals for consumer credit regulation when it assumes oversight of the sector in April 2014, Apfa says it remains unclear whether many advisers needed to hold a licence at all, or whether certain retainer charging models would constitute provision of credit.

In particular Apfa states that many advisers currently hold a CCL on a ‘just in case’ basis, as in the course of discussing clients’ financial positions they will often touch upon outstanding credit and there remains considerable uncertainty as to whether this falls under the definition of ‘debt counselling’.

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The trade body argues that due to the costs of holding a CCL under the new regime - most firms must pay £350 for an interim licence lasting from April to November 2014 - it is no longer an “economical option” to hold a licence simply to “manage the risk of inadvertently moving into the consumer credit space”.

The response goes on to say it is also “hot topic of discussion” in the advice sector as to whether retainer payments - where a regular payment is made to the adviser for any advice services received over a given period - would be considered as offering services on credit.

Apfa argues that it should not be considered such as “[f]or credit to be provided it must be a prior set amount that remains owing if the payment is terminated before the debt is discharged”, but that this interpretation has yet to be confirmed.

The trade association reveals it has asked the FCA a number of questions around the definitions of consumer credit activity in recent months “but are yet to get a response”.

FTAdviser first raised questions in February over whether charging models that involve customers paying periodically for services, which have become more popular among some in the wake of the Retail Distribution Review, would be deemed to constitute a credit activity.

A spokesperson for the current consumer credit regulator the Office of Fair Trading said at the time that this is a “complex area”, explaining that if a “significant period” passes between any work undertaken and a fee being paid advisers could fall foul of the rules. This would include advisers operating a quarterly retainer structure, the spokesperson added.

Later in July further adviser ire was raised when the FCA began sending out its first invoices for interim licences, as both watchdogs refused to offer any clarity on which adviser activities would fall under the regime. The OFT and FCA instead recommended that advisers seek “independent legal advice”.