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FCA – do you have permission?

Clarifying regulatory positions around advice firms’ regulated activities has never been a straightforward task. In his latest article for IFA Magazine, compliance consultant Tony Catt attempts to highlight some of the key implications of the FCA’s messages in particular with regard to the continuation of the credit broking function on firms’ permissions.

For years, advisers have been paranoid about the differences between what constitutes guidance and what is advice. Our interpretation of it is that guidance is simply presenting information and advice is discussing with clients and making recommendations. However, it seems that clients would not recognise the difference between guidance and advice. Even the regulator seems to have some difficulty in this respect. Personally, I believe that the Money Advice Service should, more correctly, have been called the Money Guidance Service.

The credit broking function

Recently firms have received messages from the FCA regarding the continuation of the Credit Broking function on firms’ permissions. Advisers had previously thought that this permission was required to talk to clients about credit, borrowing and generally consumer finance matters. This would normally be an important part of the fact-finding process as advisers sought to give their clients a holistic level of advice.

This discussion would often be part of the process and advisers would often advise clients about the benefits of debt consolidation or moving from high rate borrowing to lower rates, refinancing credit cards and generally tidying up clients’ finances. The upshot of this would normally be for the clients to be directed to lenders to make their arrangements.

The downside of this was that most advisers would not be actually applying on behalf of the clients and would not see any direct income flowing through as a result.

It is this lack of applications that causes the FCA oversight problems as the adviser firms would be reporting NIL income from this type of business on their GABRIEL/ REGDATA returns.

The FCA is working on the basis that there is no activity as there is no income being generated. This shows a lack of awareness of the services that advisers offer clients to maintain their relationships with their clients.

This consideration of debt also overlapped into mortgage related advice as debt consolidation is often achieved by increasing mortgage or lifetime mortgage borrowing. This enables clients to reduce monthly outgoings as mortgage

borrowing is at a much lower rate. Obviously, this advice would be accompanied by warnings of swapping short term unsecured borrowing for long-term borrowing secured on the value of property.

So, advisers have hitherto believed that they needed the credit broking permission. However, any borrowing consolidated into mortgage-related borrowing is covered within the Home Finance permission.

Safety first?

Indeed, coming back to the guidance/advice consideration, advisers have been careful to the point of paranoia to ensure that they comply by operating within their permissions and not leaving themselves open to enforcement by straying into advice in a function that they did not have permission.

The FCA is working on the basis that advisers who are not writing business are not using their permissions. If there is nothing to report, there is nothing to oversee.

On this basis, I remember asking the regulator whether I should be authorised by the FCA to offer compliance services. Advisers will be amazed that compliance consultants have no means of, nor any need of, being authorised as we do not conduct any business that needs supervision. I would actually argue that compliance consultants can do considerable damage if we are not interpreting FCA requirements correctly for our client firms.

Know your client

One instance of this is the use of fact finds. I have worked with networks and firms which insist that advisers complete a specific fact find to undertake their business compliantly. This is unnecessary as the FCA expectation is not that advisers complete fact finds, but that they “Know Their Clients” sufficiently to be able to offer advice to clients to give good outcomes. This recording of information could be in whatever form that would prove that the adviser has sufficient information to give suitable advice.

So it is with some reluctance that advisers are willing to allow permissions to be removed as this goes against their long-held interpretation of the use of permissions.

Moving on from this, I have seen other firms advised by the FCA to remove permissions that they appear to be not using due to the Nil returns.

One example is a telemarketing company that works for several financial institutions, but not actually writing the business. The financial institutions expect them to have FCA permissions to get contracts, but the FCA is saying that the company did not require any permissions. The company could not give any timescales for a contract that may involve it actually writing business, but the FCA wanted to know whether any business would be written in the next 3/6 months.

Another is an IFA firm which has been operating for many years but latterly now operating in the investment and retirement planning arenas. The FCA wanted to remove their mortgage permission due to the lack of reportable business. The adviser still advises on mortgages as they are often an integral part of retirement planning, particularly lifetime mortgages. The adviser tends not to write mortgage business directly.

The FCA needs to consider the advice/guidance conundrum and the advisers’ reputations before being too brutal about removing permissions. Particularly, since it has advised that it may remove the permissions in a public manner that would be really bad for the advisers’ business.

I hope that it will review its combative stance in this project.


For information see below:

Tony Catt Compliance Consultant TC Compliance Services 07899 847338

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