This is our final article in our series on the road to FCA regulation and in particular, the proposals in the FSA’s consultation paper CP13/7. In this bulletin, we examine the FCA’s powers of enforcement in respect of its proposed regulation of the consumer credit sector. The transfer of consumer credit regulation to the FCA will result in a wider and more potent array of enforcement powers being brought to bear against misconduct in the consumer credit industry.
It is also notable that, against the backdrop of recent debacles in the financial services industry, the FCA has already stated its intention to build upon the FSA’s enforcement work, with a commitment to ‘strong and decisive enforcement’ by bringing more enforcement cases, holding members of senior management of firms accountable for their actions and pursuing criminal prosecutions as appropriate. We will therefore be looking at the FCA’s enforcement ‘toolkit’ and how this compares with the current OFT regime.
Comparison of OFT & FCA powers of enforcement
The following table is extracted from the Treasury’s recent consultation document on the transfer of consumer credit regulation and provides a comparative overview of the OFT & FCA’s enforcement powers. The FCA will get its enforcement powers for consumer credit business on 01 April 2014, however it has proposed a six month period to allow firms to get up to speed with FCA rules. During this time, firms will face no formal action in respect of an FCA rule that replicates an existing requirement if they can demonstrate that they have acted in compliance with the relevant CCA requirement or OFT guidance.
- revoke licences:
- impose conduct requirements on firms, if breached can fine up to £50k per breach;
- bring criminal and civil proceedings; and
- Complementary enforcement role of local authority trading standards services (LATSS) and Department of Enterprise, Trade and Investment (DETI) in Northern Ireland.
- Powers to bring criminal, civil and disciplinary proceedings, to withdraw authorisation, ban from financial services, suspend firm or individuals for 12 months, issue unlimited fines;
- Continued LATSS role in relation to CCA provisions carried forward to FCA regime; and
- Enhanced policing of regulatory perimeter (i.e. enforcement against firms without appropriate authorisation/permissions) alongside LATSS/DETI.
How Consumers will be better protected
- Broad enforcement toolkit and stronger sanctions should act as strong deterrent;
- More frequent and stronger enforcement action should incentivise greater compliance; and
- Continued complementary role for LATSS/DETI.
In addition to what is noted above, the FCA’s investigatory powers include forcing disclosure of information, whether by interviewing people or demanding documents and the FCA will be empowered to apply for warrants and search premises. It may also seek injunctions and apply to the Court to freeze a firm’s or individual’s assets. Firms who carry out regulated activities without authorisation will be liable to prosecution.
Criminal Offences under the Consumer Credit Act 1974 (CCA)
Given the range of enforcement powers which will be at the disposal of the FCA, the government has proposed to repeal many of the criminal offences currently in the CCA. A few offences in the CCA will remain however, subject to further review in due course, for example distributing credit circulars to minors or obstructing an officer of an enforcement authority. The statutory instrument which provides for how those CCA provisions which are being kept will operate and be enforced, has been drafted to ensure that a person will not be subject to ‘double jeopardy’: a person cannot be guilty of an offence under the CCA in respect of activities which have already been the subject of regulatory enforcement action further to the FCA’s powers under the Financial Services and Markets Act 2000.
The Financial Ombudsman Service (FOS)
The FOS currently has a consumer credit jurisdiction. After the transfer of regulation to the FCA, this will be absorbed into the FOS’s compulsory jurisdiction which applies to most firms currently authorised by the FCA. Consequently, consumers’ access to the FOS will be unchanged for all practical purposes.
The FCA has been granted new powers not previously seen in UK financial services regulation. It has a new product intervention power, allowing it to mandate, restrict or ban certain features of a product, restrict a product’s sale to certain groups of consumers, or ban a product outright if necessary to prevent harm to consumers. A financial promotion may be banned where the FCA considers there has been or is likely to be a contravention of financial promotion rules. Most controversially, the FCA can publicly announce that it has begun enforcement action against a firm or individual. Criticisms of this power have been raised on the grounds that should the enforcement action prove to be unfounded, the reputation of an innocent firm may have been irrevocably damaged.
Consumer credit firms will be realising that the regulatory climate is getting hotter and that the days of ‘light touch’ regulation are over. Firms will need to make certain that they deploy the necessary resources to ensure compliance as the new regime unfolds.
- The FCA will have an enforcement toolkit which contains broader and stronger sanctions than those currently available to the OFT and intends to hold firms’ senior management accountable for their actions.
- Some of the criminal offences in the CCA will be repealed and a person will not be subject to ‘double jeopardy’ in respect of those that remain.
- Consumers will continue to have access to the FOS for redress, although this will be via the FOS’s compulsory jurisdiction and the credit jurisdiction will be removed.
- The FCA will have new powers allowing it to publicly announce that enforcement action has begun against a firm or individual and ban financial promotions and products that are harmful to consumers.