FCA Authorisation for Providing Credit to Individuals

[numbersrule]

I only recently discovered that FCA Authorisation is needed if a business provides a credit facility to an individual and that includes sole traders.

Have any forum members any views on this?

In particular does the regulation apply even for standard invoice terms of 30 days?

Thanks

 

[WaveJumper]

Invoicing and taking payment from customers

Invoicing and taking payment from customers, what invoices must include, VAT invoices, sole trader invoices, limited company invoices, payment options, charging for late payment, chargebacks

www.gov.uk

 

[Gyumri]

An invoice is simply a demand for payment and not a credit agreement. When a supplier provides goods on credit that too is not a credit agreement as defined in the act. I would look up on the internet what is meant by a regulated credit agreement and who must be authorised to provide one. Perhaps post the link here.

 

[Ozzy]

I only recently discovered that FCA Authorisation is needed if a business provides a credit facility to an individual and that includes sole traders.

Have any forum members any views on this?

Yes I do have a view on this, having previously carried out FCA regulated finance activities.

No, you do not need to be FCA regulated for provided 30 day terms on your invoices. You only need to register if the credit terms is part of your business activities, ie. the 30 day 'finance terms' is a key part of your business revenue activities that helps you make a profit.

If it's just settlement terms for a request for payment for your core business activities, then no.

 

[Mark T Jones]

I also have views, being in a zone where the FCA aren't entirely clear whether they want me to be authorised or not (I'm currently not)

The invoicing bit has been covered. From memory, the rule refers to 3 or more payments (I haven't checked)

Though it would be interesting to know what type of opinions you were looking for

 

[eteb3]

Afaicr if you give interest free credit on a debtor-supplier agreement (ie not lending cash) over 12 months or less this is exempt

PERG will tell you for sure. If you get stuck message again and I’ll gladly pore over it for the 1000th time

PS Yes I do have my views on FCA credit regulation but they’d probably give the mods too much to do, so I’ll forbear.

 

[numbersrule]

I also have views, being in a zone where the FCA aren't entirely clear whether they want me to be authorised or not (I'm currently not)

The invoicing bit has been covered. From memory, the rule refers to 3 or more payments (I haven't checked)

Though it would be interesting to know what type of opinions you were looking for

Thanks for all the replies and that has clarified it all sufficiently for me.
I was just trying to understand if others felt there may be a somewhat lack of clarity in the official guidance.
But the opinions on this thread all seem consistent and clear cut.
The reason I asked is that I have a Client who pays the Annual FCA Fee of 900 odd quid but on the basis of this thread I don't see why they need to.

 

[Mark T Jones]

Thanks for all the replies and that has clarified it all sufficiently for me.
I was just trying to understand if others felt there may be a somewhat lack of clarity in the official guidance.
But the opinions on this thread all seem consistent and clear cut.
The reason I asked is that I have a Client who pays the Annual FCA Fee of 900 odd quid but on the basis of this thread I don't see why they need to.

£900 would be a limited authorisation, possibly because that act as an introducer?

Apart from the fee goes up each year, the paperwork s a PITA if you aren't fully in the business of offering regulated credit

 

[eteb3]

a business provides a credit facility to an individual

A very common way of "a business providing a credit facility" is not to do so strictly speaking but to forward the customer's details to a lender. In car sales, for example, the lender buys the vehicle, and appoints the dealer their agent to sell it to the customer on the lender's behalf. The dealer's role is only to forward the details of the buyer/borrower to the credit company.

It's a relationship fraught with conflicts of interest, so the dealer needs authorisation as a "credit broker" as @Mark T Jones notes.

 

[fisicx]

That’s the new BMW business model. All the dealerships are given a bunch of vehicles to sell. The days when you could customise your car (from a range of options) have gone. You now just get to choose from a range of pre-configured cars. The dealership is now just an agent with almost zero leeway to do a deal.

Only found this out a month ago when we were invited to upgrade. We would have ended up with an awful new style mini and paid more each month.

 

[eteb3]

Not quite the same situation I think. Even in the old days, once you'd chosen your fully bespoke BMW, the dealer would sell it to the finance house, then sell it to you on credit on their behalf.

@numbersrule can you say more about the particular business concerned?

 

[DontAsk]

The new BMW business model (at least in some geographies) is to make you pay a subscription to enable things like heated seats that are fitted to all the cars in any place.

 

[Mark T Jones]

Not quite the same situation I think. Even in the old days, once you'd chosen your fully bespoke BMW, the dealer would sell it to the finance house, then sell it to you on credit on their behalf.

@numbersrule can you say more about the particular business concerned?

Just to add clarity, the dealership is a brokerage, who introduces deals/customers to finance companies.

In the case of BMW, the first port of call will always be Alphabet, which they happen to own.

The dealership will be fully authorised by the FCA, as consumer credit broking is a primary revenue stream. Yes, the lender does enter the title chain, after the deal is approved & relevant documents signed.

The big grey area is where a dealer or supplier is less engaged in 'selling finance' and simply makes referrals if (for example) the customer asks for an intro.

 

[eteb3]

Just to add clarity, the dealership is a brokerage, who introduces deals/customers to finance companies...

The big grey area is where a dealer or supplier is less engaged in 'selling finance' and simply makes referrals if (for example) the customer asks for an intro.

For clarity on the clarity:

There's no question that referring the customer to a lender is in principle a regulated activity: RAO 36A(1)(a)

The question is whether the referrals are made "by way of business", in which case to do so without FCA permission is a criminal offence, and the contract is void (unless the Court says it should be enforced). If they're not made "by way of business" then it's not regulated.

For the masochists, FCA guidance on the "by way of business test" is here: PERG2.3

By my lights, if a dealer gets any kind of business benefit from the referral, even indirect, I wouldn't risk doing it more than once in a blue moon. "Doing X by way of business" is much wider than "being in the business of doing X".

 

[Mark T Jones]

For clarity on the clarity:

There's no question that referring the customer to a lender is in principle a regulated activity: RAO 36A(1)(a)

The question is whether the referrals are made "by way of business", in which case to do so without FCA permission is a criminal offence, and the contract is void (unless the Court says it should be enforced). If they're not made "by way of business" then it's not regulated.

For the masochists, FCA guidance on the "by way of business test" is here: PERG2.3

By my lights, if a dealer gets any kind of business benefit from the referral, even indirect, I wouldn't risk doing it more than once in a blue moon. "Doing X by way of business" is much wider than "being in the business of doing X".

That's where limited authorisation comes in.

Is it a grey area? You betcha!

It's what I had, though my case manager didn't actually know what a finance broker was/did

 

[eteb3]

my case manager didn't actually know what a finance broker was/did

Good grief. I always thought FCA was useless, but that really is the limit.

They are hopeless: obsessed with minute rules, written in the most deliberately obscure way, and entirely indifferent to commercial reality.