Fleximize descended on Olympia for the Finance Professional Show on Wednesday 9 November. Exhibiting alongside a number of other commercial lenders, our bespoke bottles of beer and wine went down a treat with attendees, who stopped by for a chinwag with Fleximize’s motley crew.
As well as exhibiting at the show, Fleximize also sat in on the day’s seminar sessions, where delegates were given an update on FCA regulation of the commercial finance sector and recent changes to the Financial Services and Markets Act. With some brokers still confused about the implications of recent regulatory changes, the National Association of Commercial Finance Brokers (NACFB) was on hand to clear up a few of the most pressing issues, not least a broker’s responsibilities when accepting business from a referred client.
Ralph Black, compliance director for the NACFB, explained how a slight tweak to the Financial Services and Markets Act (FSMA) had brought some additional clarity on the issue of referrals. “The law changed in September,” said Black. “Since FSMA was amended in 2013, all parties involved in introducing a regulated party to a lender (by way of business) must be authorized to do so or any subsequent finance agreement could be deemed unenforceable. The recent changes in September mean the broker, not the lender, is now responsible for ensuring all the parties in the introduction chain have the appropriate regulatory permissions.”
Black urged brokers to ask every new client who they'd been referred by, and check whether the introducer has the appropriate legal permissions to make that referral. As Black explained, if the introduction has been made ‘by way of business’ – meaning that it supports the introducer’s main line of business – that makes it a regulated activity for which the necessary permissions are required. “If your gardener, housekeeper or butler is referring people to you, that’s not covered,” he said. “But if your accountant or bookkeeper refers someone to you, that could be covered.”
The recent changes mean the broker, not the lender, is now responsible for ensuring all the parties in the introduction chain have the appropriate regulatory permissions.
Ralph Black, NACFB
Given the risk of loans being deemed unenforceable, Black said there is also an onus on lenders to ensure that their brokers are doing the necessary due diligence on introducers. “The change to FSMA that went through in September basically says: ‘As long as you know what the [broker] is doing, they’re doing it right, and they have got systems, controls and governance in place, then you can take that bit of business,” explained Black. “However, if the FCA says it can’t see any evidence of that, it will make the loan unenforceable.”
When talk turned towards the future of regulation, the consensus was that it would be extended to cover all areas of commercial finance. “Slowly but surely, everything will probably end up regulated in one way or another, or it will fall under the control of the FCA because of its principles of business,” said Mike Geddes, commercial director of Asset Finance Solutions. “There are no rules in respect of limited companies, but once you are a regulated credit broker and you are regulated by the FCA, then you are bound by the principles of business, which affects everybody you deal with.”
However, it was generally agreed that regulation can only be a positive thing for the sector. Marc Goldberg, director of commercial lender, Together, said he “would welcome the whole industry being regulated”, while Andy Bishop, Lloyds Bank’s national director of business development for SME banking, added: “We need to make sure that we drive that regulatory environment in the right way, and in a joined-up way.”