Permission not required – commercial lending to limited companies
Some commercial lenders seem to be getting themselves into an unnecessary regulatory stew and they are not the only ones.
One of the joys of banking in my time, though I never realised it, was that we undertook our business without the requirement to satisfy an expensive team labouring under the heading of compliance.
Come the banking crisis, it has to be said the regulatory crisis too, of 2007/8 and the reaction was a massive overdose of regulation to try to ensure that it did not happen again. Add the crusade against tax avoidance and evasion, throw in anti-money laundering measures and those working in financial services discovered that life would never, ever, be what it once was.
If the Red Army was packed with commissars ensuring that the party line was rigidly adhered to, the banks of today have their hoard of compliance officers. They are a nervy crew, some even prone to sudden and involuntary attacks of incontinence should the eye of the Financial Conduct Authority swivel in their direction. This, though, is to malign a government body that has demonstrated an admirable pragmatism towards the commercial finance sector. That message though, has yet to be received everywhere.
The issue is over permission. If anybody, or entity, is to have any dealings with the consumer, they must have permission from the Financial Conduct Authority: you can only apply for permission if you deal with individuals or small partnerships.
The old Consumer Credit Licence punched way above its weight in some eyes. It was a token recognition that someone, somewhere, in the Civil Service was aware that the holder was dealing in credit facilities or offered debt advice for individuals. That is about all that it was. It was easy to obtain, lasted for a long time and some lenders insisted that those introducing proposals, personal or corporate, held one. In the latter category it was a hugely irrelevant piece of paper, akin to insisting a brain surgeon hold the St John’s Ambulance first aid certificate; an SAS special operations veteran wear the Boy Scouts’ Sewing Badge.
Unfortunately, the Consumer Credit Licence mentality lingered in the minds of many when the Financial Conduct Authority took over from the Financial Services Authority. Some lenders have stated that they will accept commercial finance propositions only if the intermediary had permission.
The Catch 22 is that a significant proportion of intermediaries only arrange finance for corporate entities and not only do they not hold permission from the Financial Conduct Authority, they cannot obtain it if they do not, or do not intend to, conduct consumer regulated business.
Fortunately, the Financial Conduct Authority has made it clear that those intermediaries dealing only with limited companies have no need of permission to operate. Taxed on the question of related personal guarantees the Financial Conduct Authority advised that should a prospective lender require them from the shareholder and/or directors of the limited company that sought to borrow, then that issue moved into the relationship between the company and the lender. It was no concern of the introducing intermediary.
So corporate and commercial finance brokers that deal solely with limited liability entities, do not need permission nor can they get it.
Motor, smaller hard asset and buy-to-let finance involves a high proportion of consumer or individual borrowers and clearly permission is essential. Some within the cliques that write this business now seek to impose holding permission as a condition of full membership of the commercial finance intermediaries’ trade body. They are but a faction in a broad church and their demeanour seems short-sighted, maybe selfish, arguably, a restraint of trade and is probably actionable.
Similarly, should any business lender adopt unnecessary or excessive, compliance constraints on accepting introductions to company borrowers, swift retribution may follow when this officiousness is notified to Vince Cable. The shareholders would soon object too as new business dried up.
The nonsense that surrounded the feeble and now redundant, Consumer Credit Licence has been laid to rest. The whole commercial finance sector must temper the enthusiasm of its permission-closed-shop zealots where it is misplaced and go forward in an inclusive and harmonious spirit. Something so typified by the NACFB’s splendid Gala Dinner 2014.
The ultimate authority has ruled. Who presumes the right to meddle?
Editor