Regulated Activities Order amendments for the new Bounce Back Loan Scheme
On 1 May 2020, the Financial Services and Markets Act 2000 (Regulated Activities) (Coronavirus) (Amendment) Order 2020 was published and came into force on 4 May 2020.
This Order amends Article 60C of the Regulated Activities Order and creates a new type of exempt agreement. The amendment provides that a credit agreement is exempt where the lender provides a borrower with credit of £25,000 or less which is for the purposes of a business carried on, or intended to be carried on, by the borrower and where the agreement is entered into under the Bounce Back Loan ("BBL") scheme.
The Order also amends Article 39H to state that the exclusion for lenders in relation to debt collecting does not apply to lenders of BBL scheme loans. This means that the instrument allows for the existing regulatory regime to continue to apply to lenders who carry on debt collecting activity in relation to loans under the BBL scheme. This amendment is a transitional provision and only applies to loans entered under BBL scheme.
The instrument has been made to remove certain legislative obstacles which could inhibit the granting of loans by lenders to small businesses under the BBL scheme. Before this instrument was put before Parliament, the BBL scheme might otherwise have fallen within scope of the UK's regulated consumer credit regime and needed to comply with the prescriptive requirements of the Consumer Credit Act 1974.
This is another development relating to the UK's Coronavirus Business Interruption Loan ("CBIL") Scheme and the new BBL scheme. The FCA published a statement setting out its approach to these two schemes on 4 May 2020.
The FCA clarified that it doesn't expect firms who comply with the relevant requirements of CBIL and BBL schemes, to comply with the rules in the Consumer Credit sourcebook that relate to creditworthiness assessments (CONC 5.2A – 5.2A.34) where the lending is regulated. However, in respect of all other regulated lending, firms must still undertake a reasonable assessment of a customer's creditworthiness in line with CONC 5.2A.
The statement also provided clarity on the Senior Managers and Certification Regime for relevant individuals in authorised firms involved in the CBIL scheme. The FCA explained that it intended to give similar clarity on the BBL scheme upon launched.
Finally, the FCA made comments on financial crime risks stating that for existing customers where a firm has already carried out appropriate due diligence, it would not need to make further checks (unless the customer poses a higher risk). However, for new customers the risk may be slightly higher and so firms should carry out the normal CCD processes, but firms has discretion to decide on a simplified due diligence is the risks are low and it is appropriate.
For more information, on the CBIL and BBL schemes, please see earlier Big Deal blog posts written by Sukh Ahark and Lauren Murphy.