What Does FCA Authorisation of Commercial Finance Brokers Mean?
There is a distinct (well marginally grey) line between regulated and non-regulated lending. Personal lending has been governed by The Consumer Credit Act and secured borrowing fully regulated by The FCA with Mortgage Brokers and Independent Finance Advisers being regulated themselves. Commercial Finance Brokers need to have FCA Authorisation.
Commercial borrowing however has always been an unregulated market. That does not mean there aren’t rules and standards because there are but it has meant that until recently anyone could advise on commercial lending.
In 2015 The FCA started a process of asking every commercial finance broker to either become part of a larger network who would regulate them, or apply to be directly authorised by The FCA.
Whichever route the commercial finance broker chose involved a lengthy application period, assessment of ability, liquidity and a requirement to demonstrate fairness to the client. All in all, everything you should reasonably expect from a finance professional.
The Impact of Unauthorised Brokers
Despite the process undertaken by The FCA there remain brokers who operate without authorisation. This is not necessarily negligent, it could be a lack of awareness of what is required. Brokers who are not part of a professional body will not be as aware of legislative changes as those that are. Despite this, for any professional referring a client to an unauthorised finance broker you are putting yourself at risk.
It doesn’t matter whether you take payment for a referral or not, the impact to you is;
- The commercial finance broker may or may not have Professional Indemnity Insurance (PI). If they do then operating outside of FCA authorisation will likely render any claim void. This means that the claim follows back the chain to you opening you to a potential claim for someones else’s work
- Your PI is likely to only cover you in full where you have undertaken to ensure the person you are referring to is correctly authorised and regulated. Consider the impact on your PI by referring a client to an unauthorised broker
- Your reputation as a professional is at risk. You should no more refer to an unqualified accountant, IFA or residential mortgage broker than you would to a commercial finance broker
I would also ask you ask yourself why a broker is operating outside of authorisation?
What To Check
There are a few things you should be asking any commercial finance broker you may be referring to or considering working with, ask them;
- For their FCA number. Use this to check on the FCA website
- Visit the FCA website and search for the company and/or individual broker name. All authorised brokers will be listed here
Where you get the response that ‘what we do is unregulated’ then this is incorrect. The lending itself may not be regulated but the broker or adviser has to be. The penalty for operating without authorisation includes heavy fines and/or imprisonment.
Lime Consultancy are fully authorised and regulated by The FCA. The authorisation process is lengthy, carries a cost and a commitment to regular reporting to The FCA. It is there to protect the client which in turn protects the introducer of the client. Not every applicant for authorisation will be approved.
Please ensure you use a correctly authorised broker to protect both yourself and your client.
If you have any questions about this post then please add your comments above, contact us direct or call on 01293 541333
By Dave Farmer
The Video Guide, How to check whether your commercial finance broker is authorised