Two years on from the FCA taking over from the OFT and I am still hearing the same phrases.
Some brokers say, I don’t need to be regulated. I am a Commercial Finance Broker and everything that I do is unregulated; all the products are unregulated.
While its true that most of the products are unregulated, it’s the activity that is regulated. In PERG (2.7.7E) and the FCA’s Definitions, the FCA provides a broad outline for Credit Brokering. This outline makes it clear that anyone effecting an introduction to an individual, which includes sole traders or partnerships of 3 or less for finance, needs to be FCA Regulated. They must hold as a minimum some level of credit brokering permissions.
So, what about the lenders and funders? How well have they adapted to Regulation? Some have opted not to be regulated and when I ask them about that decision, they explain to me that everything they do is unregulated and that all their products are unregulated. That is when I ask them who introduces business to them and what due diligence they undertake. Surely they need to make sure brokers are not trading illegally?
The most common response I receive is that the lender will only lend to limited companies, which means that lending is out of scope. Then we address the hypothetical issue: if an unregulated broker is introducing limited companies to one lender but then introducing regulated deals to another funder, or to a broker who is regulated is this not illegal?
You might not know that here at the NACFB we still receive enquiries from individuals wishing to join as Unregulated Members because all they do is introduce business for limited companies, yet when questioned about their activities it becomes clear they are looking to avoid adhering to the rules of the regulator. Unregulated Brokers having a website that says they can provide lending solutions to SMEs can be misleading.
Take a look also at Invoice Discounting and Factoring Brokers; yes, I know this part of the market is not regulated, but when a sole trader deal is introduced to a funder; you cannot then subsequently introduce the clients banking requirements which includes outstanding loans. Equally the funder should not be accepting this if the broker is not regulated.
We humans are fascinated with trying to bend the rules. How often do footballers try to steal a few extra yards for a throw in when the ball is kicked off? We are now in Wimbledon season where the standards are that players must play in whites but there will still be players pushing the boundaries with different shades of colours in the hope they can get away with it! These acts of rule-flexing are relatively visible. Brokers have less obvious ways of pushing at the boundaries of what is acceptable.
Let’s look at accountants that are not part of Designated Professional Bodies (DPBs); they still believe they can introduce clients who are sole traders and partnerships direct to lenders because that is what they have always done. Well the simple fact is that they can’t do that, because it’s a breach of regulation. They must hold Credit Brokering Permissions and what’s worse some funders continue to accept the business. The same can be argued for surveyors and valuers who are not part of DPBs.
While you’re here on the new website, please have a look around and let us know what you think. A few features you are used to seeing have been hidden away for the short term so we can finish building them.
If you need anything that’s not there, we have an office full of staff who can help and send you what you need or guide you to it. We also have Phase 2 plans, so if you ask us for something that isn’t there, we might be able to make it happen.
Warm regards, Norman Chambers, MD