FG18/6: Helping tenants find alternatives to high-cost credit and what this means for social housing landlords

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Finalised guidance
1 Introduction
1.1 This document aims to help social housing landlords, including local authorities and
housing associations, understand the scope and application of consumer credit regulation when they help tenants to find alternatives to high-cost credit. These alternatives could be loans from credit unions or Community Development Finance Institutions (CDFIs), for example. They might also be non-credit alternatives such as furniture re-use schemes or community organisations that help people to get household appliances.
1.2 We recognise that the social housing model may contribute to some tenants turning to
high-cost credit as they are required to move promptly into new accommodation. In some situations, they will also need to make quick decisions on how to get essential furniture and other household goods. Moving with such short notice may have cost implications for tenants and so put consumers who are in vulnerable circumstances at risk of turning to high-cost credit. In such circumstances, understanding that there may be alternatives to high-cost credit will be likely to help tenants. FG18/6: Helping tenants find alternatives to high-cost credit and what this means for social housing landlords December 2018 (Updated in October 2019 to reflect the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2019)

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1.3 We want to support and encourage referrals to providers of alternatives when consumers
need credit. We consider that in this area social landlords can play a key role in assisting tenants find alternatives to high-cost credit when looking to get essential household goods. This can create better options for consumers and could provide them with a cheaper, lower-risk source of finance. Social landlords may also be able to help tenants source goods in other ways, for example on hire or goods which have recently been repaired or refurbished. Who does this guidance apply to?
1.4 This guidance applies to providers of social housing that are registered with the relevant
housing regulator in England, Scotland, Wales or Northern Ireland. As slightly different terminology is in use across the UK, we refer to these collectively in this guidance as ‘Registered Social Landlords’ (RSLs) or simply as social landlords. Providers of social housing may include housing associations and housing charities, which may or may not already be authorised by the FCA.
1.5 Local authorities are excluded from the legal requirement to be authorised for most
credit-related regulated activities, including credit broking, debt counselling and debt adjusting. See our Perimeter Guidance (‘PERG’) PERG 2.9.23G for guidance on the exclusion for local authorities in Article 72G of The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Nevertheless, this guidance may be of interest to local authorities that provide social housing.

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2 Making referrals
2.1 We want to encourage social landlords to help tenants find alternatives to high-cost
credit. There are many things a landlord can do to help. Depending on who the landlord is and the circumstances, some activities will not be credit broking and so will not fall within the scope of financial regulation. Other activities may be credit broking, which is a regulated activity likely to require our authorisation. Credit broking
2.2 Credit broking is defined in legislation. We explain in our perimeter guidance (PERG) the
six types of activity that fall within the definition of credit broking.
2.3 Three types of activity can be credit broking, regardless of whether the broker receives a
fee or other form of financial consideration. These are:
(1) effecting an introduction of an individual who wishes to enter into a credit agreement to another person, with a view to that person entering as lender into a credit agreement by way of business (2) effecting an introduction of an individual who wishes to enter into a consumer hire agreement to another person, with a view to that person entering as owner into a consumer hire agreement by way of business (3) effecting an introduction of an individual who wishes to enter into a credit agreement or a consumer hire agreement to a person who carries on an activity in (1) or (2) by way of business (in other words, to another credit broker)
2.4 Three further types of activities only come within the definition of credit broking if the
broker receives a fee or any other form of financial consideration. These are:
(4) presenting or offering an agreement which would (if entered into) be a credit agreement (5) assisting an individual by undertaking preparatory work with a view to that person entering into a credit agreement (6) entering into a credit agreement on behalf of a lender

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Example
Some of your tenants moving into unfurnished properties do not have essential household goods and furniture such as a bed or fridge. You want to help them. Whether the help you provide involves credit broking will depend on the case’s individual facts and circumstances. Here are some examples of ways you might help your tenants which, as a general indication, are not likely to be credit broking:

• providing general information on your website about the services available from
  credit providers such as credit unions or CDFIs but without (expressly or by implication) identifying or recommending a specific provider or giving any contact details
• referring a tenant to a local charity or community organisation that gives free
  household goods to people (and does not also act as a credit provider, credit broker or provider of goods on hire)
• referring a tenant to a seller of goods (who does not also act as a credit provider,
  credit broker or provider of goods on hire), eg a second-hand furniture shop The next list has examples of ways you might help your tenants which, as a general indication, are likely to be credit broking:
• referring a tenant to or recommending a specific credit provider such as a local
  credit union or community development finance institution (CDFI) for a fee
• referring a tenant to or recommending a specific credit broker
• providing details to the tenant for contacting a credit provider or broker
• taking the lead in calling a credit provider or setting up a meeting on the tenant’s
  behalf
• referring a tenant to or recommending a provider of goods on hire
  2.5 In July 2019, the law introduced an important exclusion for RSLs from the scope of credit
  broking. The exclusion applies only where:
• the activity concerned is effecting an introduction of an individual who wishes to enter
  into a credit agreement
• the introduction is to a credit union, community benefit society, registered charity (or
  subsidiary of a registered charity), community interest company limited by guarantee or subsidiary of an RSL, and
• the introduction is provided fee free, ie the RSL receives no fee (which includes
  money or any other financial consideration)
  2.6 Those carrying out credit broking activities which do not fall within the terms of the
  exclusion still require authorisation as credit brokers.

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2.7 In summary, unless all your ‘credit broking’ activity falls within an exclusion, you are
likely to be engaged in ‘credit broking’ if you refer tenants to providers of credit, goods on hire, or other credit brokers. If as a social landlord you are currently doing this, or planning to do so, you are likely to need our authorisation. What this means for you
2.8 As noted above, whether or not an activity involves credit broking will depend upon the
individual facts and circumstances of the case. This means that the lists above can only provide a general indication of whether an activity is likely to be credit broking, not a definite answer.
2.9 One aspect to consider is whether you are conducting the activity ‘by way of business’. In
PERG 2.3.3, we set out the main relevant factors when assessing whether an activity is being carried out ‘by way of business’. None of these factors is likely to be decisive on its own.
2.10 For the 3 ‘introducer activities’ covered in paragraph 2.3, the fact you may not get a fee,
commission or other form of financial remuneration for providing details or referring your tenants to other sources does not necessarily mean that you will not be credit broking.
2.11 We know that it can be difficult for social landlords to make an assessment on whether
you are engaged in credit broking. We want to help make this easier and so we have set up a specialist team that can provide individual guidance to social landlords. You can contact them at: RSL@fca.org.uk.
2.12 Individual guidance is guidance that the FCA gives to a person or organisation which
relates to its own particular circumstances or plans. You can request individual guidance from us. We are also happy to discuss a potential request in advance.
2.13 We can give you the most help if you are clear in your request about the issue you are
seeking individual guidance about, and include full details of the activities you plan to undertake when helping tenants find alternatives to high-cost credit. Please state how (and how often) you are likely to be doing this and whether it may involve specific providers.
2.14 If there are relevant circumstances of which we are not aware, the extent to which you
can rely on our individual guidance may be limited. If the circumstances you describe to us later change, the guidance may no longer apply and you might need to ask for further guidance.
2.15 You can find further information about individual guidance in Chapter 9 of our
Supervision manual.
2.16 It is important that you are correctly authorised for the types of activities you conduct or
want to conduct. If you are not, the credit or hire agreements your tenants enter into

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Finalised guidance may be unenforceable. You may also be committing a criminal offence. If you are not sure whether you are engaged in credit broking, please contact us.

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3 Authorisation process
3.1 If you are engaged in regulated activity, you will need authorisation from the FCA. You
will not need authorisation if your activity is covered by a relevant exclusion (for example, the exclusion relating to local authorities and the new exclusion explained in paragraph 2.5) or if you are an exempt person such as an appointed representative of an authorised person. See section 4 below for more information on appointed representatives.
3.2 We will do all we can to help you in the application process and have a specialist
authorisation team to help. The team will assess your application by considering the size and nature of the regulated activity that you do and the potential risks to consumers.
3.3 The additional information in this section will help you understand the authorisation
process. To assist you further, there is a summary of the process for applying for authorisation on our website.
3.4 If you are already authorised by us for another activity, for example debt adjusting or
debt counselling, you will need to apply to us for a ‘variation of permission’. This means applying to have an extra activity, in this case credit broking, added to the permissions that you hold. This is often a straightforward process. You can find information about applying for a variation of permission on our website. Getting ready for authorisation
3.5 There is an online checklist for the main things you need to do before applying to us for
authorisation for a credit-related regulated activity.
3.6 You would have to submit an application, but this would only have to focus on how you
meet our standards for the activity you are carrying out.
3.7 We take a risk-based approach to authorisations. This means that the level of
information we require from applicants is proportionate to the level of risk to consumers from the applicant’s activity. For example, not all the points in the checklist mentioned in paragraph 3.5 will necessarily be relevant for you as an RSL seeking authorisation for credit broking, so do contact us to discuss what we expect from you.

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3.8 Where there are no charges to consumers and no remuneration paid by the provider to
the broker, credit broking is likely to be a relatively low risk activity. This is because there is very little risk of people being driven to unaffordable or inappropriate sources of finance in order to make the broker more money.
3.9 One document we will ask to see as part of your application is your business plan. We
may not need to see all this information again if you are already authorised with us and are requesting a variation of permissions. Business plan As a social landlord you may wish to consider including in your business plan:

• the legal status of your organisation
• your primary business purpose, eg social housing
• why you want to carry out regulated activities, eg credit broking
• the customer base of these regulated activities, eg what types of tenants, on
  what scale and how you will identify them
• the services you provide and any areas you specialise in
• how your organisation is set up and governed
• the background and experience of everyone performing significant influence
  controlled functions (more information is provided in our Guide for Consumer Credit Firms)
• Your long-term strategy and your financial plans
• Your experience of regulated activities including any existing permissions you
  already hold
  3.10 Your application would be dealt with by a team of specialists. They can provide you with
  all the help you need and make the process as smooth as possible. If you would like us to review your documents or to discuss them ahead of making an application, we would be happy to help. You can email our specialist team at RSL@fca.org.uk.

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3.11 We will also ask you to demonstrate how your organisation meets our requirements for
authorisation. This includes our minimum conditions, known as Threshold Conditions, which all firms must meet. Our Handbook gives guidance on the Threshold Conditions, which are summarised in our Guide for Consumer Credit Firms. Our specialist team would be happy to discuss the Threshold Conditions and how they may apply to you using the following email address: RSL@fca.org.uk Once you are ready to apply, what do you need to do?
3.12 You will need to complete your application on Connect, our online system. We will assess
your application to see if you meet the standards we require.
3.13 If your application is incomplete or needs further explanation, we will ask you to clarify it
or provide further information or documentation. For example, there may be inconsistent or missing answers.
3.14 We recognise that this may be an unfamiliar process, particularly where FCA-regulated
activity is not a primary function for you. However, we can help you to make this a more straightforward process.
3.15 We have set up a team of specialists within our Authorisations Department, who are
familiar with applications from social landlords. They will give you the help you need.
3.16 While our specialist team will usually be able to process your application much more
quickly, we have a statutory duty to make a decision within:

• 6 months of receiving your completed application
• 12 months of receiving an incomplete application (or 6 months from when an
  incomplete application becomes complete)
  3.17 You should not start the activity you are applying for permission for until you receive our
  authorisation.
  Full or limited permission
  3.18 We have two categories of authorisation for consumer credit firms:
• ‘limited permission’
• ‘full permission’
  3.19 If you need to apply for full permission, we will need more details about your business
  than if you apply for limited permission. We will also make more checks and make sure you meet more conditions during authorisation and when you carry out credit-related regulated activities.

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3.20 You can only get limited permission for certain types of activities. Your role as a social
landlord may include recommending providers who can offer regulated consumer hire or hire-purchase agreements to your tenants.
3.21 Limited permission is not available if your organisation is already authorised for another
activity needing full permission, such as mortgage administration.
3.22 If you want to refer tenants to loan providers, including credit unions and CDFIs, it is
likely you will need to apply for full permission. But you will not need to do this if all of your ‘credit broking’ activity is covered by an exclusion such as that explained in paragraph 2.5. Our Guide for Consumer Credit Firms gives a list of all the activities that need full permission.
3.23 If you wish to discuss these activities further you can use the dedicated email address
and we will be happy to help: RSL@fca.org.uk.
3.24 When we consider whether limited permission applies, we will also ask if you have acted
as a lender for credit agreements or mortgages. In particular, whether you have a back￾book of second-charge loans entered into before April 2014. If you do, it is likely that you will need permission for exercising, or having the right to exercise, a lender’s rights and duties under a regulated credit agreement. This requires full permission and will require an additional application fee. If you have any questions about this, please use the dedicated email address RSL@fca.org.uk. Approved persons and controlled functions
3.25 When you are authorised, you will also have to meet requirements on ‘approved
persons’. We would usually expect you to submit your approved persons application at the same time as your authorisation application.
3.26 An approved person is someone we approve to perform ‘controlled functions’. The
controlled functions are important considerations in well-run businesses and emphasise the role of senior staff and others for overseeing compliance with rules and legislation.

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3.27 The number and type of approved persons you require depend on what you do and the
legal status of your business. Entities engaged in credit broking usually only need 1 approved person. This person would be responsible for ensuring the firm’s consumer credit activities meet our rules. They also act as our point of contact within the business. We provide more information on approved persons in our Guide for Consumer Credit Firms.
3.28 Our rules on approved persons will be replaced by the Senior Managers and Certification
Regime (SM&CR). Consumer credit firms, including RSLs, will move to the new regime from 9 December 2019. You can find out more about how the SM&CR will work in our Guide for FCA Solo-Regulated Firms.
3.29 If you have any questions about approved persons, controlled functions or the SM&CR we
would be happy to help. You can email our dedicated team at RSL@fca.org.uk. What happens when I am authorised?
3.30 Once you are authorised you will be regulated by the FCA. This means you will have to
meet our standards at all times. We have a range of tools which we can use to supervise firms and, if necessary, to enforce compliance with our rules. If you tell us (or we find out) that you are not meeting our standards, we will seek to work with you to resolve the matter on a voluntary basis. You can find out more about our supervisory and enforcement tools in our Guide for Consumer Credit Firms.
3.31 If the people registered as approved persons (from December 2019 as senior managers)
have done something wrong we can take action against them. We provide more information on this in our Guide for Consumer Credit firms.
3.32 You will also have to report certain information to us every year. For credit broking, this
information is limited to your annual revenue, how it is obtained, and the total number of customers and transactions in the year. Fees
3.33 We are funded by the firms we regulate through fees. We aim to cover our costs in a
way that is as fair and efficient as possible.
3.34 Firms have to pay a fee when they apply for authorisation and then annual fees for every
year they are authorised. Firms that can benefit from limited permission will have lower fees than higher risk firms that need full permission.
3.35 The application fee for limited permission credit broking where your activity is not for
profit is currently £100. We would be happy to discuss whether this applies to you.

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3.36 The application fee for full permission credit broking is calculated depending on how
much income you make from the activity. We would expect most RSLs’ applications to cost between £200 and £600.
3.37 The annual fee that a firm has to pay will be proportionate to the size of the firm’s
business and the type of authorisation. Your annual fee invoice will include fees and levies on behalf of other regulatory bodies, such as the Financial Services Compensation Scheme, Financial Ombudsman Service, and Money and Pensions Service, and the Illegal Money Lending Team on behalf of the Treasury. Credit brokers that generate no income from their broking activity currently pay £312 per year. If you make money by broking credit this fee will change.
3.38 We are also the registering authority under the Cooperative and Community Benefit
Societies Act 2014 and Cooperative and Community Benefit Societies Act (Northern Ireland). To become a registered society, applicants must register with us. Many social landlords will already be registered with us and this is separate to the issue of whether your society wishes to carry out a regulated activity. There is a one-off fee to register your society and we also charge a yearly fee, which is based on your society’s total assets.
3.39 Up to date information about application and annual fees is available on our website.

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4 Appointed representatives
4.1 One method by which social landlords may adopt a more streamlined approach to
authorisation is to become an appointed representative for a credit union or CDFI you wish to refer tenants to. We summarise what this means in the text box below. Appointed representatives An appointed representative is a firm that carries on regulated activities under the supervision of another firm that we authorise. If you want to make referrals to a certain credit union or CDFI, you may want to discuss with them whether they would be willing to help you by taking on the role of principal, with you acting as their appointed representative. This would require an agreement between you and the credit union or CDFI. Under this agreement, they would be responsible as the principal for ensuring that you meet our requirements. We would not have a direct relationship with you as the appointed representative. However, it requires certain formalities:

• there must be a written contract between the credit union or CDFI as the
  principal and you as an appointed representative that sets out the arrangements between you in writing
• the credit union or CDFI would have to take full responsibility for ensuring that
  you comply with our rules
• before entering into an agreement with you, they will need to carry out
  sufficient checks to ensure you are financially stable and to satisfy themselves that you have achieved, and are maintaining, a satisfactory level of competence As an appointed representative, you will also need to understand and comply with regulatory requirements relating to the credit broking. More information about the responsibilities of consumer credit principals and their appointed representatives is available on our website. If you are unsure, we suggest you apply for authorisation but we welcome enquiries from social landlords for individual guidance. You can send enquiries to our dedicated team using this email: RSL@fca.org.uk.