My Lords, noble Lords have to hear me again for just a little longer, although I will not speak at quite such length at least in my opening remarks. This important and substantial group of amendments concerns the regulation of consumer credit, which we considered in quite some detail in Committee.
This government amendments in this group share one overarching goal; namely, to ensure that the transfer of consumer credit regulation from the OFT to the FCA can happen smoothly, and in a manner which is proportionate and offers the right protections to consumers. The move of consumer credit regulation to the FCA, under FiSMA, is a significant step towards better quality regulation and even greater consumer protection for borrowers. That is because FiSMA provides the regulator with substantial and flexible powers to tackle issues quickly and effectively. The interim report by the OFT on its compliance in the pay-day lending sector makes very clear why a move to an FCA regime is the right thing to do.
In the vast majority of cases, it is right that the legislation treats credit-related activities just like any other regulated activities under FiSMA. That is, after all, the rationale for the transfer. But in the course of preparing for the transfer of consumer credit regulation from the OFT to the FCA, the Government have identified a small number of areas where simply applying FiSMA to credit-related activities may have unintended consequences. As my noble friend Lady Kramer has
already said, we certainly do not want any unintended consequences, which is what this group of amendments seeks to address.
Amendments 73A and 94C relate to how the appointed representatives regime will operate where firms carry out a credit-related activity. An appointed representative is a firm, or a sole trader, which is not authorised but is allowed under Section 39 of FiSMA to carry on certain regulated activities as agent for an authorised firm or principal under a contract by which the principal accepts responsibility for the regulated activities carried on by its appointed representatives. For example, many insurers act as principals for those brokering insurance for them as appointed representatives.
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Under FiSMA as currently drafted, no person may be both an authorised person and an appointed representative at the same time. At present, a significant number of firms which hold consumer credit licences and will move from the OFT to the FCA are already appointed representatives under FiSMA for non-credit-related activities. This is particularly the case for retailers whose primary activity is not consumer credit related. This population includes, for example, furniture shops or car dealers who introduce their customers to insurance providers as appointed representative. Under FiSMA, as it is currently drafted, there would be two options open to these firms when consumer credit is brought into FCA regulation. They could either seek to become appointed representatives also for their credit-related activity or they could apply for full FiSMA authorisation for all their activities.
Amendment 73A provides a third option: it creates a limited carve-out from the provision that firms cannot be both an appointed representative and authorised at the same time. Amendment 73A provides that if a firm were authorised for a particular category of consumer credit activity, it would also be able to become an appointed representative for non-credit-related and credit-regulated activities.
Amendment 94C makes clear that in being both authorised for any of the activities set out in the order made by the Treasury and acting as an appointed representative, firms would not be committing a criminal offence. The intention here is to deliver a very limited exemption that will permit a proportionate and workable approach to the regulation of, for example, ancillary credit brokers, while still delivering the right levels of oversight and consumer protection.
I turn now to the group of amendments connected to Amendment 94D. Amendment 94D modifies Section 23 of FiSMA to provide that a person who carries on a credit-related regulated activity without the relevant permission to do so commits a criminal offence—even if the person has permission to carry on another regulated activity. Under FiSMA, it is an offence to carry on a regulated activity without authorisation; whereas under the Consumer Credit Act, it is a criminal offence to lend money or collect debts without the right category of licence. This amendment would bridge the gap and potential loophole between the Consumer Credit Act and FiSMA. Amending FiSMA to make it a criminal offence to lend or collect money without the correct permission would avoid the risk of sophisticated
illegal money lenders seeking authorisation for a lower-risk activity—for example, being a credit broker—only to use this as cover to engage in lending or debt collection, to the potential detriment of consumers.
Amendment 94D also amends Section 26 of FiSMA to ensure that any agreements entered into, or being enforced by, a person without the necessary permission cannot be enforced. It means that important protections in the Consumer Credit Act for victims of illegal money lenders or debt collectors are replicated in the new FiSMA-based regime. The other amendments in this group make related consequential amendments to FiSMA.
Finally, I will deal with Amendments 114A to 114C. Under the Consumer Credit Act regime, Trading Standards, and, in Northern Ireland, the Department of Enterprise, Trade and Investment, have the power to investigate and prosecute offences committed under FiSMA. Trading Standards and the Northern Ireland Department of Enterprise, Trade and Investment do important work in this area which the Government are keen to acknowledge. The Bill already allows the Treasury to enable Trading Standards and the Northern Ireland department to continue to prosecute offences under FiSMA—and this will include the new offence that we have just discussed. These amendments complete that picture by enabling the Treasury to confer powers on Trading Standards and the Northern Ireland department to use their existing investigatory powers in the Consumer Credit Act to investigate offences under FiSMA. This power to investigate complements provisions in the Bill which give Trading Standards powers to prosecute offences under FiSMA and ensures that Trading Standards and the Northern Ireland department can continue to play their vital role in the effective enforcement of the consumer credit regime. I beg to move.