Ray Cohen’s essential tips for new lenders

By

Ray Cohen Jackson Cohen Associates

The market for new entrants into the bridging and development space is as busy now as it has ever been and we are often asked what is the minimum I have to do as a new lender?

Aside from the obvious aspects of having funds to lend, understanding how to underwrite, having loan documents etc. there are some things which lenders are legally obliged to do (ignoring general company requirements such as HR, health and safety, accounting etc). These include:

  • Registering with the ICO for data protection and have appropriate policy and procedures in place including privacy notice.
  • Registering with the FCA for money laundering supervision under Annex 1 (unless you are already an authorised firm or are applying to be one) and:
    • Appoint a Nominated Officer and a Senior Manager responsible for compliance with the Regulations (generally the same person and often referred to as the MLRO)
    • Create a business wide ML risk assessment
    • Put in place a policy/procedure
    • Have a basis to risk assess customers for ML
    • Check customers against the PEP and Sanctions register both at the onboarding stage and on an ongoing basis whilst they remain a customer

It is the requirement to register with the FCA that causes the most surprise and many enquirers did not realise they needed to carry out checks against the PEP and Sanctions list and that this is an ongoing requirement for exiting customers.

Annex 1 covers, amongst other things, anyone who is not already authorised for regulated activities and provides credit agreements (loans) secured on immovable property (land and property) in the UK.

When considering registration, it is important to note that it is the originating entity that has to register. If you originate in several vehicles each one has to register. If you only hold/buy loans after origination by another entity you do not need to register.

If you are an existing lender and haven’t dealt with this you are unlikely to be the only one!

We often get approached by firms who have been trading for a while and just found out that they need to register with the FCA, or that they didn’t have everything they should in place.

It isn’t entirely surprising. The FCA are not good at publicising the requirement to register and the relevant page on their website is not easy to find. Many solicitors who advise lenders on documents etc. when setting up are not familiar with this requirement either so it often fails to get mentioned.

So that’s the bare minimum just to get set up.

There are other things that should be put in place, such as regular ML and data protection training for staff, board reporting on ML etc. but this should all be identified as part of putting in place the risk assessment, policies and procedures.

Those who raise funds from others in order to lend need to ensure they avoid falling foul of regulation – e.g. AIFMD/UCIS and unlicensed deposit taking and should seek advice on this.

Lenders should also consider joining the Bridging and Development Lenders Association (BDLA) as the industry trade body where they will be able to network with peer, attend meetings and access the benefits of membership.

Ray Cohen of Jackson Cohen Associates specialises in compliance support for mortgage lenders and works with lenders of all sizes from one and two man bands through to bank and building societies.

He is a board member and retained advisor for the Bridging and Development Lenders Association (BDLA) and drives all of their meetings with the FCA and Treasury and is a member of the APCC financial crime working group.

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