Not every business that introduces customers to finance considers itself a credit broker.
A business may simply help a customer find a finance option, introduce them to a lender, or have an arrangement in place with a finance provider. From a commercial perspective, this may feel like a small part of the customer journey. From a regulatory perspective, however, it can be much more significant.
Credit broking is a regulated activity, and businesses need to understand whether the way they interact with customers and finance providers means they are carrying out that activity.
When can an introduction become credit broking?
There are several ways a business can find itself within the scope of credit broking regulation.
For example, a business may introduce customers to a lender or finance provider, help customers identify suitable finance options, or otherwise facilitate the introduction between the customer and a lender.
This can arise across a wide range of sectors. It is not limited to businesses that describe themselves as “credit brokers”.
A retailer offering finance at checkout, a business arranging finance for customers purchasing services, or a company regularly referring customers to a particular lender could all need to consider their regulatory position.
The important question is therefore not necessarily “Do we call ourselves a credit broker?” but “What are we actually doing?”
What about businesses that only do it occasionally?
This is where businesses can sometimes get caught out.
A business does not necessarily become regulated simply because it mentions that finance is available. However, the detail of the customer journey, the nature of the introduction and the arrangements between the business and finance provider all need to be considered.
Businesses should not assume that because credit broking is not their main activity, it can simply be treated as an informal referral arrangement.
Could an Appointed Representative be an option?
For some businesses, becoming an Appointed Representative (AR) of an appropriately authorised principal may provide a route to carrying out regulated credit broking without obtaining direct FCA authorisation.
However, becoming an AR is not a shortcut around regulation. The principal will need to understand the proposed business model, the activities the AR will undertake and the risks involved before entering into the relationship.
For businesses that are already introducing customers to finance, or are considering doing so, establishing the regulatory position should be the starting point before the customer journey is built around it.
Understanding whether your business is carrying out credit broking can help ensure that the right permissions, controls and oversight are in place from the beginning.
If you would like to find out more about how credit broking regulation may apply to your business, get in touch with our team. We can review your current or proposed arrangements, explain the options available and help you determine the right next steps.
