The purpose of this article is to help commercial finance brokers understand and identify their consumer credit reporting obligations to the Financial Conduct Authority (FCA). It will also help brokers to determine what information to collate and submit depending on whether they hold full (CCR002) or limited (CCR007) FCA permissions.
Reporting brokers’ consumer credit activity assists the FCA in its supervisory role. It enables them to build an overall picture of the consumer credit market. It also helps them to monitor a firm’s activities including the relationship between customer numbers, transaction numbers, and income.
Why accurate reporting of income is important
In our experience, income is often mis-reported by brokers because they do not fully understand how consumer credit income is defined. But getting it right is important for two main reasons. It determines a firm’s annual regulatory fees and levies. Also, in the near future, it may affect whether a firm retains or loses its consumer credit permissions.
Most commercial finance brokers know that, when they undertake regulated consumer credit broking activities and receive a fee for the service, they must report these activities to the FCA.
However, many commercial finance brokers are unaware that, when they refer customers to another broker to undertake regulated credit broking activities, these activities must be reported to the FCA regardless of whether or not the referring broker receives a fee or commission on the transaction. In these instances, not only is reporting obligatory, it also demonstrates that the referring broker is actively utilising its regulatory permissions. This is particularly relevant to brokers who hold FCA authorisation because where the FCA perceives that broker firms are not actively using their consumer credit permissions; they may be withdrawn on the basis that they are not required. This outcome could be a problem for brokers who have lenders on their panel which require brokers to have these permissions.
Brokers must report regulated credit broking activities to the FCA annually and it is important that they have the relevant monitoring and reporting systems and controls in place to carry this out effectively.
When reporting, those with full permissions should complete the CCR002 return. Brokers with limited permissions should complete the CCR007 return.
What income should be included in a CCR002 or CCR007 return?
Question 12 of CCR002 and question 6 of CCR007 asks brokers to enter their ‘total annual income’. This must include all commissions, fees and other revenue (such as administration charges) that relate specifically to income related to regulated consumer credit broking activity.
A firm of brokers arranges a personal loan (i.e., a regulated credit agreement) of £10,000 for a customer and receives a commission of 1% from the lender. The broker’s income (the commission) from this transaction is £100 – this is the figure which should be reported for this transaction.
Income not earned from regulated credit broking activity should not be included in the figure submitted. For instance, the following should NOT be reported:
- Entire turnover or income from sales of ordinary goods or services.
- Income from unregulated activities such as commercial finance broking services to a limited company or partnership of three or more individuals.
- Income from broking regulated first or second charge mortgage contracts because this income has to be reported in the FCA A018 return.
- Income from broking residential buy-to-let mortgage contracts.
- Commissions from general insurance transactions because this income must be reported using the FCA A19 return. However, you should include any commission element which relates to setting up a regulated credit agreement.
- Exempt instalment agreements, i.e., where the finance agreement is not subject to regulation because of the nature of the agreement.
- VAT or pence.
Brokers should now be able to understand and identify their consumer credit reporting obligations to the FCA and know what information to collate and submit depending on their permissions status.
To assist NACFB Members with the regulatory reporting of consumer credit broking activity, the NACFB has is creating a document to guide brokers through each section of the CCR002 or CCR007 returns helping them to identify specific transactions which require reporting and know when reporting is being carried out accurately. This guide will be available shortly and be accessed by logging into nacfb.org.
Further clarification is available free of charge to NACFB Members. Simply contact the compliance team at firstname.lastname@example.org or call 020 7101 0359 from 9.00am to 5.00pm Monday to Friday.