Passmore: balanced regulation
The Solicitors Regulation Authority (SRA) is set to continue regulating most consumer credit activities carried out by law firms after new proposals were issued last week.
A consultation issued by the regulator said solicitors would be able to carry out mainstream consumer credit activities as long as they are central to the legal services they provide.
The proposals represent a sharp about-turn by the SRA, which last year suggested it may have to stop regulating consumer credit activities until a largely hostile reaction from a worried profession led it to think again.
After the Financial Conduct Authority (FCA) assumed overall responsibility for regulating consumer credit work in April 2014, it seemed as though the only way the SRA could continue to regulate consumer credit work would be if it adopted much or all of the rules used by the FCA.
But following talks with HM Treasury and the FCA – during which the existing position has been maintained – the SRA has narrowed the scope of the activities which require regulation by the FCA.
SRA authorised firms that mainly carry out consumer credit activities already require FCA regulation, but legislative changes in March already mean that certain consumer credit activities, such as debt collecting, are excluded from FCA regulation where they are undertaken by persons authorised under the Legal Services Act 2007 in the course of providing advocacy or litigation services.
Further, firms that allow clients to pay by instalments can now accept up to 12 instalments without needing separate authorisation from the FCA.
Under the new framework put forward in the consultation, solicitors would not be able to conduct, without separate FCA authorisation, five specific activities not seen as central to legal practice:
- Entering into a regulated credit agreement as lender except where the regulated credit agreement relates to the payment of disbursements or professional fees;
- Exercising, or having the right to exercise, the lender’s rights and duties under a regulated credit agreement except where the regulated credit agreement relates to the payment of disbursements or professional fees;
- Entering into a regulated consumer hire agreement as owner;
- Exercising, or having the right to exercise, the owner’s rights and duties under a regulated consumer hire agreement; or
- Operating an electronic system in relation to peer to peer lending or entering into (or exercising or having the right to exercise rights and duties under) a peer to peer lending agreement.
The proposed new rules would also prohibit firms from:
- providing the client with credit card cheques, a credit or store card, credit tokens, running account credit, a current account or high-cost short-term credit;
- holding a continuous payment authority over the client’s personal account;
- taking any article from the client in pledge or pawn as security for the transaction;
- entering into a regulated credit agreement as lender which is secured on land by a legal or equitable mortgage;
- entering into a regulated credit agreement, as lender, which includes variable rates of interest;
- providing a debt management plan to a client; and
- charging a separate fee for, or attributing any element of the firm’s fees to, the provision of credit broking services.
“Our initial discussions with stakeholders have indicated that it is uncommon for firms to undertake [these] activities,” the SRA said.
Crispin Passmore, SRA executive director for policy, said: “Our discussions with the FCA have produced a set of proposals that will ensure regulation is balanced. The proposals would focus regulation on the substantive activities undertaken by solicitors, in a way that would not be overly burdensome.”
The FCA has agreed to extend the existing exemptions until April 2016, on the understanding that tje SRA publishes it final regulatory arrangements in November 2015.
The consultation can be found here.
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