Monday, January 07, 2013

Consumer Credit Licences and IPs

The OFT is responsible for the operation of the Consumer Credit Licence scheme, which is designed to ensure that all those involved in providing financial advice are licensed and regulated. Work in areas such as: debt adjusting, e.g. negotiating terms with the creditor on behalf of an individual for the discharge of a debt; debt counselling, e.g. advising individuals about how to discharge specific debts; and debt collecting (but not in an IP’s role as office holder), require the business undertaking the work to hold a Consumer Credit Licence that covers that particular type of work. 

IPs are highly regulated individuals, so do they need a separate Consumer Credit Licence in addition to their insolvency licence?  

There are two types of licence, a group licence and an individual/practice licence.  A group licence is where an organisation, often a professional body, obtains a licence on behalf of its members.  The group licence then allows members of that professional body to undertake regulated work, but only where it is ancillary to their primary business according to the OFT.  Group licences cover individual IPs who are members of that professional body, but only as long as they are sole traders, or if they are in a practice that is controlled by partners or shareholders who are all members of a professional body that holds a group licence.  If any of the controllers of a practice are not members of a professional body that holds a group licence then the practice is not covered by a group licence. The reason for this is that the OFT are passing responsibility for monitoring compliance with the work covered by the group licence to an external body and they need to be certain that the body can monitor and control the practice. 

There is also a generic group licence issued by the OFT for “liquidators and receivers” that covers all IPs, but that licence is very limited in its effect.  It only covers an IP when they are trading a business, and then only to the extent that there is an existing licence for the business.  In other words, it extends an existing consumer credit licence for a business so that it covers the IP’s trading of that business following their appointment as administrator, administrative receiver, receiver and manager, liquidator, or as trustee in either a bankruptcy, sequestration or under a trustee deed.

So which authorising bodies hold group licences for their members?  The OFT web-site shows that the following do: ACCA, ICAEW, ICAS, ICAI, Law Society, Law Society of Scotland and Law Society of Northern Ireland.  So what if you are licensed by the IPA or the Secretary of State?  The answer is that unless your practice is covered by the group licence of another authorising body then you would not appear to be able to undertake work for which a Consumer Credit Licence is required unless you or your practice hold your own licence.

Even if your practice is covered by your regulator’s group licence, the work you do may not be.  When we asked the OFT about this in 2009 they said “any credit activity covered by these categories by members under the cover of a group licence is limited to activity which is ancillary to the main business of those members.  In order to undertake any high risk credit activities as primary activities such as providing general debt advice to consumers or promoting and advertising IVAs and/or providing debt advice to consumers prior to the agreement of individual IVAs your clients would require an appropriate standard licence from the OFT.”  If IVAs or the provision of debt advice is a significant part of your business it might not be “an adjunct to” or “ancillary to” your business and you might need a stand-alone licence in any event and you should certainly be making some enquiries to check the position of your particular practice.

We are aware that monitors are starting to ask questions on monitoring visits about the practice’s Consumer Credit Licence and whether one is required, so rather than wait for your next visit, be pro-active.  This article is designed to raise awareness of the issue rather than provide all the answers, particularly as the circumstances of each IP's practice will be slightly different and there is a lack of certainty as to what work can actually only be undertaken by an IP if they hold a Consumer Credit Licence.  If you are in any doubt about your own position then then it would be worth contacting your licensing body in the first instance for guidance or clarification as to whether or not you need a Consumer Credit Licence given the work you do and the structure of your practice. More information about Consumer Credit Licences, how to apply for them, and their cost can also be found by clicking here.  

Finally, whilst the OFT have not so far turned their attention to IPs and their consumer credit licences, presumably because it is a highly regulated profession and there are other higher risk areas from unregulated advisors in the market, there is no guarantee that such an approach will continue, particularly following the change in the regulatory structure for Consumer Credit Licences.  Linked to this, don’t forget that it is a criminal offence to carry out any activity that requires a consumer credit licence if you do not hold a licence, or before a licence has been issued to you.  As a result it is worth checking your position and obtaining any licence you need at this time rather than waiting until it is in the regulatory spotlight.