Speaking at the Association of Short Term Lenders’ (ASTL) annual conference in London, Blackwell said the unregulated activity of regulated short-term lenders would be under the FCA’s scrutiny after the new regime was introduced on 9 December.
Blackwell said: “The FCA has made it clear that the conduct rules under the new regime are not limited to regulated activities. They also apply to unregulated activities.
“The SMCR gives the regulator a hook to draw in conduct around unregulated activity. So if you are regulated firm you are going to be on the hook not only for your regulated activity but your also unregulated bridging.”
Writing for Specialist Lending Solutions in September, outgoing chief executive of the ASTL Benson Hersch said “the writing was on the wall” for the unregulated short-term lending market. He said the sector should expect regulation to come to the short-term commercial lending sector.
In August, the Treasury Select Committee (TSC) called for the government to extend the remit and powers of the Financial Conduct Authority to prevent, among other risks, potential future harm caused by unregulated SME lending.
In Hersch’s column he said he feared the FCA would not adopt a “light touch” approach. He warned that if the FCA were given extended powers, it would “create regulation for the bad apples, not those lenders that follow best practice” which could end up increasing costs and stifling innovation.
Not going to happen overnight
But the regulation of short-term commercial lending, carried out by unregulated firms remains a long way off, said Blackwell.
“Regulating the unregulated bridging market is just not going to happen overnight,” she said.
“The TSC has made it clear that it wants the FCA to have some sort of power where it can intervene and the FCA said ‘yes we would like that’, but government has said no we are not prepared to go that far,” added Blackwell.
Blackwell warned that while the regulator could not directly act to intervene in an unregulated firm’s activity it still monitored what went on and if necessary it would draw the government’s attention to problems and try to persuade government to act.
But she added: “That is actually a long and painful process; trying to get the Treasury to except your evidence that there are problems going on in the market place which need intervention.”
Code and conduct alignment
In the meantime Blackwell said lenders should take the opportunity to self-regulate if they wanted to keep the formal regulation of their sector at bay.
She said: “In its mission statement – the FCA said it sees an ongoing role for self-regulatory initiatives such as promoting good practice through voluntary industry standards spanning activities that are not regulated,” she said.
The ASTL’s professional standards and values charter was highlighted by Blackwell as good example of such an initiative.
She continued: “In response to the TSC’s desire to regulate, the FCA raised the possibility of a combination between an industry code and the SM&CR as going some way to address unregulated grey areas.
“I would encourage the ASTL to speak to the FCA about ensuring the industry code that you have in existence is somehow aligned with the conduct rules. That is going to be a lot less costly and lot less painful than having regulation extend across the unregulated market.”