Is your firm exempt from FCA authorisation under the Financial Services and Markets Act 2000 (Miscel
While most firms need either limited or full permission in order to be able to carry out regulated consumer credit activities, there are some exceptions. When the Financial Conduct Authority replaced the previous regulatory regime on 1 April 2014, all firms carrying on regulated consumer credit activities had to be either authorised, granted interim permission, or be exempt under Part 20 of the Financial Services and Markets Act 2000. Firms relying on Part 20 exemption – referred to as ‘exempt professional firms’ - are usually those under the jurisdiction of designated professional bodies, such as the Solicitors Regulation Authority.
Until 2014, such firms could carry on consumer credit activities under an OFT group consumer credit licence which was held by the Law Society, but from April 2014 the group authorisation licensing regime ceased as the FCA took over as regulator. In late 2014 the SRA considered withdrawing from the FCA’s regime for consumer credit activities, which would have resulted in potentially thousands of individual law and other professional firms applying for authorisation. Following the initial consultation, the SRA Board decided not to withdraw and worked with the FCA to develop proportionate arrangements, resulting in a 2015 consultation paper setting out their approach and draft rules.
The SRA’s engagement with the FCA and HM Treasury led to a broadening of the ‘contentious business’ exclusions in the Financial Services and Markets Act 2000 (Regulated Activities) Order; the SRA were concerned that the exclusions did not appear to cover pre-issue work, meaning in practice that firms would not be able to rely on Part 20 exemption for any work undertaking certain consumer credit activities that took place prior to the commencement of legal proceedings. The resulting Financial Services and Markets Act 2000 (Miscellaneous Provisions) Order 2015, which came into force in March 2015, means that some consumer credit activities, such as debt collecting, are excluded from regulation under FSMA where those activities are undertaken by solicitors in the course of providing advocacy or litigation services.
Under the recent legislation, the definition of advocacy or litigation services is wider than the previous definition of ‘contentious business’, meaning that firms who were unable to rely on the Part 20 exemption for pre-issue work will not need to be authorised by the FCA or have to rely on the Part 20 exemption as long as the activities in question are not regulated activities under the RAO.
Under Part 20, SRA authorised firms may carry out regulated activities where the regulated activity arises 'out of, or is complementary to, the provision of a particular professional service to a particular client' (s332(4) of FSMA) and the regulated activity 'must be incidental to the provision by him of professional services'. If firms rely on Part 20 exemption, then they must be able to demonstrate compliance with SRA Financial Services (Scope) Rules 2001 and SRA Financial Services (Conduct of Business) Rules 2001. Scope Rules include a provision that firms comply with the relevant provisions and guidance set out in CONC as they were in force immediately before 1 April 2014.
The SRA’s Scope Rules clearly set out activities which those regulated by the SRA are prohibited from performing under Part 20, such as:
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
Entering into a regulated credit agreement as lender except where the regulated credit agreement relates exclusively to the payment of disbursements or professional fees due to the firm
Effecting and carrying out contracts of insurance as principal
Entering into a broker funds arrangement.
The SRA’s robust definitions and prohibitions offer clarity to firms and consumers alike, ensuring the continued fair treatment of consumers and fostering transparency within the sector. Any firm relying on a Part 20 exemption will need to have carefully considered whether they meet the criteria in relation to consumer credit activities, in particular, whether the work they carry out is incidental to the services of the firm as defined under the legislation, or is undertaking advocacy or litigation services, in order to ensure they are exempt from authorisation.