LSB fears ignorance over dramatic impact on law firms of consumer credit revolution

Print This Post

31 March 2014

SRA: updates to the profession

There is a “real risk” that law firms do not understand how tomorrow’s changes to the consumer credit regime could have a serious effect on them – such as needing to be additionally regulated by the Financial Conduct Authority (FCA) – the Legal Services Board (LSB) has warned.

From 1 April the FCA takes over the regulation of consumer credit activity from the Office of Fair Trading (OFT), which is being abolished. The group licence under which law firms firms are currently allowed to carry out certain consumer credit activities will cease from that date.

The FCA is not continuing the group licence regime, so law firms wishing to continue these activities, like debt collecting, may need to be individually licensed by the FCA. As explained by Allison Wooddisse of LexisNexis PSL on this site last week, the definition of consumer credit could extend to law firms’ fee arrangements with clients.

Firms that do not have a licence by tomorrow, or do not have interim permission from the FCA, will have to cease such work. Those that only undertake consumer credit activities that arise out of or are incidental to the provision of their professional service do not need an individual licence, but the meaning of ‘incidental’ is not entirely clear – and even then such firms have to follow the FCA’s consumer credit rules.

In approving changes to the SRA Handbook on 19 March, the LSB said it sought clarification from the Solicitors Regulation Authority (SRA) “on matters to do with the potential impact of the rules change”.

The approval notice continued: “While the SRA explained how it would be communicating these changes to those it regulates, the LSB remains concerned about the extent to which the potential impact has been understood.

“There is a risk that some firms may not be aware of the need to seek FCA authorisation and that others may be confused about whether they need to do so… the LSB considers that the SRA should ensure that it has a robust communication strategy over the coming months to ensure that the transitional period is used to best effect.”

The SRA has to date issued press releases, updates to the profession and social media messages to make solicitors aware of the changes, as well as frequently asked questions which form part of the resources section of the Handbook.

A spokesman said: “We are satisfied with the levels of engagement we have had with our stakeholders and continue to liaise with the FCA.”

Alec Pillmoor, a restructuring and recovery partner at accountants Baker Tilly, said firms that have to abruptly stop work in progress and turn new work away could face financial distress.

He added: “This transfer in administration from the OFT to the FCA, whilst being discussed within the professional circles for some time, may have resulted in many solicitors being caught off-guard, especially as that they cannot rely upon the Law Society block licence any longer.

“Any firm applying this late in the day is not likely to receive interim licences from the FCA, even if they previously held their own OFT-issued consumer credit licence. Any firms intending to apply for full authorisation after 1 April 2014 will face a significant lead-in time to enable scrutiny by the FCA.”

Tags: , ,

Leave a comment

* Denotes required field

All comments will be moderated before posting. Please see our Terms and Conditions

Legal Futures Blog

The skills shortage in law firms is the biggest threat to handling cybercrime

CLC Roundtable discussion at Malmaison Hotel, Charterhouse Square

The skills shortage in our businesses is the biggest threat to our industry when looking at cybercrime. Cybercriminals are not just after money but are looking for sensitive information too, so the legal services sector is an obvious target. In the last year we have had reports of around £7m of client money being lost to such crime. This is not an IT issue and it should not be left to the IT teams to sort out. It is a high-level responsibility and a board-level issue that must be taken seriously. We suspect that we will look back on 2016 and ask why we didn’t respond quicker.

March 21st, 2017