The Financial Conduct Authority (“FCA”) have recently reviewed their interpretation of the consumer credit legislation for secondary credit brokers. The review has led to a change in the way in which the regulator interprets legislation which applies to credit broking firms whose main business activity is the supply of non-financial products and services.
This means that firms which previous may have been required to be authorised to carry out Full Permission credit brokering which supply non-financial products and services may be eligible to vary their authorisation to become a Limited Permission firm instead.
What is secondary credit broking?
Secondary credit broking is provided when a firm effects the introduction between their customers and credit provider (or another credit broker) to complete the sale of goods or non-financial services.
For example, a technology retailer may sometimes introduce their customers, or someone connected to the sale or purchase of technology, to a lender so the sale can be completed.
A firm which is introducing individuals connected to the sale of goods or supply of services (who need not be the borrower under the agreement) to a third-party finance provider so that the sale/supply can be completed may be required to hold Limited Permission credit broking permissions if they:
- Introduce service users to third-party finance providers AND:
- wouldn’t make these introductions if it weren’t for the business it is carrying out; AND
- the majority of their revenue comes from their main business activity and not the credit which they introduce customers to.
What is Limited Permission credit broking?
Limited permission means that the firm’s business model presents less risk to consumers because it is ancillary to the main purpose of its business and regulated activity is conducted simply for the purpose of introducing customers to a finance provider for the purpose of obtaining non-financial goods or services.
However, a firm that introduces credit providers to customers as a secondary activity on its good and services in a customer’s home are not eligible for limited permission activity. These firms are known as ‘domestic premises suppliers’ and as such require full permissions.
Which permission set you require can seem complex, but a starting point is to assess whether effecting introductions between your customers and finance providers is secondary to your main business activity.
You can use the FCA’s decision tool to see how the FCA’s approach to secondary credit broking may affect you.
Routes to authorisations
There are different routes which firms may take to be able to provide their customers with access to financial products and services. Most common of which is direct authorisation from the FCA or becoming an Appointed Representative (“AR”).
Choosing which route to take to authorisation is unique to each firm. To become directly authorised means an application process which can be arduous and places onerous burden in terms of cost of resource and compliance which can be difficult when launching a new venture or revenue stream.
An alternative is to become an AR of another directly authorised firm or ‘Principal’. An AR can provide regulated financial products and services under a contractual agreement in which the Principal firm takes responsibility for ensuring that the AR complies with relevant FCA regulations.
As a Principal, we support our ARs to achieve and maintain the highest regulatory conduct by providing a robust compliance framework and undertake regular monitoring to provide confidence in their products and services.
To discuss whether becoming an AR is right for your business get in touch to speak to one of our team and learn more about what we do.
