Do loan introducers need FCA authorisation?

What counts as credit broking?

Credit broking is a regulated activity under article 36A of the Regulated Activities Order. Its core is effecting an introduction of an individual or a relevant recipient of credit who wants credit or hire to a lender, an owner under a hire agreement or another credit broker. The article also covers presenting or offering credit agreements to customers, helping them with preparatory work towards entering into one, and entering into an agreement on a lender’s behalf.

That makes credit broking a question about what you do, not about what your business is called. Accountants, business advisers, estate and letting agents, trade suppliers and software providers can all carry it on if they regularly pass clients to lenders. Commission is not a condition of credit broking by introduction, although some of the other limbs of article 36A do not apply where no fee is received. A commission arrangement with a lender is usually a sign that introductions are part of your business rather than an occasional favour to a client.

Who you introduce decides most of it

Credit broking is defined by reference to the customer. It covers introducing individuals, including sole traders, and relevant recipients of credit. A relevant recipient of credit, defined in article 60L, is a partnership of two or three partners where not all the partners are bodies corporate, or an unincorporated body such as some clubs and associations that is not a partnership and does not consist entirely of bodies corporate. A limited company or LLP is neither, so introducing a company to a business lender is generally outside the consumer credit regime.

Many introducers have a mixed client base. An accountant whose clients include limited companies, sole traders and small partnerships may find that some introductions are regulated and others are not, even though the process and the lender are the same. Introducers should also not assume that because a loan would be exempt for the lender, for example under the business purpose exemption in article 60C, the introduction to it is outside the perimeter too. Article 36A expressly extends to introductions with a view to agreements that would be regulated credit agreements but for certain exemptions, including article 60C, so introducing a sole trader or small partnership to an exempt business loan can still be credit broking.

Mortgage introductions are a different regime

If the loan is secured on land where the borrower or a family member lives or intends to live, it may be a regulated mortgage contract rather than a regulated credit agreement. Introducing someone with a view to a regulated mortgage contract can be arranging regulated mortgage contracts under article 25A of the Regulated Activities Order. Mortgage activities have their own permissions, rules and perimeter guidance in PERG 4.

Article 33A of the Order contains a narrow exclusion for introductions to firms that have the right mortgage permissions, or to their appointed representatives. It only covers the wider kind of arranging, making arrangements with a view to someone entering into a regulated mortgage contract, and it has conditions. The introducer must not receive money from the customer for any transaction that follows the introduction, other than money payable to it on its own account, and before the introduction it must tell the customer about any group connection with the firm and any fee, commission or other reward it receives for introductions. An introducer who starts discussing products, collecting application information or helping with forms can be doing more than the exclusion covers, and advising on regulated mortgage contracts is separately regulated. 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 with its own registration.

Commission and what customers are told

Commission paid by lenders to brokers has had close attention from the courts and the FCA in recent years, particularly in motor finance. For regulated credit, the FCA’s consumer credit sourcebook (CONC) includes rules on telling customers about commission or fees that could affect a broker’s impartiality or the customer’s decision. In some circumstances the nature and amount of the commission are relevant, not only its existence.

Introducer agreements with lenders and brokers usually deal with commission too. Some pay only where the introducer is the effective introducer, meaning the introduction was the effective cause of the business being written. That is a contractual question about getting paid. It does not answer the regulatory question, which looks at what the introducer actually did with the customer.

Ways introducers come within the rules

An introducer that is carrying on credit broking has several options. It can apply for its own permission. It can become an appointed representative of a principal firm that has the right permissions, including as an introducer appointed representative, whose appointment is limited to effecting introductions to the principal or its group and distributing non-real time financial promotions. Some businesses whose main activity is selling non-financial goods or services, and who broker credit for their own customers’ purchases, may be eligible for a lighter form of permission known as limited permission. Which route fits depends on the introducer’s business and the lenders it works with. Your options inside the perimeter

Your marketing is a separate test

A web page or advert saying that you can help people find a loan can be a financial promotion of credit, whether or not the introductions themselves are regulated. If you are an appointed representative, your principal is responsible for approving your promotions. If you are not, a promotion that reaches individuals or small partnerships may need to be made or approved by an authorised firm with the right permission, or fall within an exemption. How the financial promotion rules work

Common misunderstandings

When a written opinion helps

A written legal opinion is worth considering when a lender or broker asks you to confirm your regulatory status before adding you to its panel, when your clients include individuals or small partnerships, when you are setting up an introducer arrangement that touches mortgages, or when you want to be sure that your role stays within an exclusion. The opinion applies the rules to your actual process, scripts and agreements, which this page cannot do. If you need permission, we can introduce you to specialists in authorisation and appointed representative arrangements, and they pay us an introduction fee. How written opinions work