Do commercial finance brokers need FCA authorisation?

Arranging and negotiating is more than introducing

A commercial finance broker usually does far more than pass a name to a lender. It gathers financial information, packages the application, chooses which lenders to approach, negotiates rates and terms, presents offers back to the client and often helps the deal through to completion. Where the client is within the consumer credit regime, almost all of that work sits inside credit broking under article 36A of the Regulated Activities Order, which covers presenting or offering credit agreements and assisting with preparatory work as well as effecting introductions.

Because a broker is closer to the transaction than a simple introducer, the exclusions that help introducers are less likely to help a broker. A broker’s activities can also reach beyond credit broking. Negotiating with an existing lender on a client’s behalf about the terms on which a debt under a credit agreement is discharged, for example as part of a refinance, can raise questions about debt adjusting, which is a regulated activity in its own right.

When the client pulls the work inside

Commercial finance is not a legal category. The consumer credit regime turns on whether the client is an individual, including a sole trader, or a relevant recipient of credit under article 60L, which covers partnerships of two or three partners where not all the partners are bodies corporate and some unincorporated bodies. A limited company or LLP is neither. A broker whose book is mostly limited companies but includes a handful of sole traders, farmers, small partnerships or individual landlords will usually have some regulated work in it.

The business purpose exemption in article 60C can take some agreements of more than £25,000 outside the regulated credit regime for the lender, where the credit is wholly or predominantly for business. A broker should not treat that as settling its own position. The exemption has conditions about purpose and declarations, and article 36A expressly extends credit broking to introductions with a view to agreements that would be regulated but for the business purpose exemption, so introducing a sole trader or small partnership to such a loan can still be credit broking.

Consumer hire

Asset finance brokers deal with two different legal products. Hire purchase is credit. Leasing, contract hire and rental are hire, and a hire agreement with an individual or a relevant recipient of credit can be a regulated consumer hire agreement. Credit broking covers introductions for hire as well as for credit, so a broker arranging vehicle or equipment leases for sole traders can be credit broking even though no loan is involved. Some exemptions apply to hire, but they have their own conditions and should not be assumed to mirror those for credit.

Security over a home changes the regime

A loan to an individual or trustee that is secured on land in the UK, where at least 40 per cent of the land is used or intended to be used as a dwelling by the borrower or a related person, can be a regulated mortgage contract. That can be the case even where the money is for business. Arranging a regulated mortgage contract is a regulated activity under article 25A, and advising on one is separately regulated.

This is where commercial brokers are most often caught out. A shop with a flat above that the owner lives in, a farm that includes the family home, or a bridging loan on a property the borrower plans to move into after refurbishment can all raise the question. Buy-to-let lending to individuals who are not acting in the course of a business can fall within a separate consumer buy-to-let regime.

The appointed representative route

A broker with some regulated work does not have to apply for its own permissions. It can become an appointed representative of a principal firm that holds the relevant permissions and accepts responsibility for the broker’s regulated activities. The principal has to supervise the appointed representative and set the scope of the appointment, and SUP 12 in the FCA Handbook sets out what that involves. Brokers with a larger regulated book, or who want control over their own compliance, often look at direct authorisation instead. Authorisation compared with an appointed representative arrangement

Our sister sites cover both routes in more detail: appointed representative arrangements and direct authorisation. If you need either, we can introduce you to a specialist, and the firm we introduce you to pays us an introduction fee.

Your marketing is a separate test

A broker’s website, adverts and social media posts can be financial promotions of credit or of regulated mortgage contracts. Promotions that are aimed at limited companies may fall within exemptions for communications about credit for business purposes, but those exemptions have conditions about who the communication is directed at and what it says. If your marketing invites sole traders or homeowners to apply, it may need to be made or approved by an authorised firm. An appointed representative’s promotions are approved by its principal. How the financial promotion rules work

Common misunderstandings

When a written opinion helps

A written legal opinion is worth considering when a lender panel or network asks for confirmation that your book is outside the perimeter, when you are deciding whether to take on sole trader or homeowner clients, when you are structuring a bridging or mixed use proposition, or when you want certainty before deciding between direct authorisation and an appointed representative arrangement. The opinion looks at your client base, your process and your documents, which a general page cannot. How written opinions work