The Financial Conduct Authority (FCA) has refused an application for full authorisation from a Bolton-based debt management firm, after concerns were identified with its record keeping, advice standards, systems & controls, customer disclosure, debt management plan reviews, financial promotions and human resources provision.
The firm has actually been trading in the debt management arena since 2010, initially under the supervision of former consumer credit regulator the Office of Fair Trading (OFT), and then under the FCA’s interim permission regime. Now that the FCA has had time to consider the firm’s application for full authorisation, it has decided that its practices and procedures do not meet its high standards.
Firms across the consumer credit sphere were repeatedly warned that the FCA’s regulatory regime would be much tougher than that of the OFT. The fact that the FCA has refused the application of a firm who had traded under the OFT regime for four years seems to illustrate this point very well.
The FCA notice refusing the firm’s application first highlights issues with its record keeping, specifically relating to records to evidence that suitable advice has been provided. The FCA says that, in the files it reviewed, the firm’s “assessment of the customer’s circumstances and the advice given during the meeting is limited to one or two sentences at most.” As such limited records were kept, it was impossible for the regulator to ascertain whether suitable advice had been given in each case.
Despite the lack of record keeping, the FCA was still able to find issues with the firm’s debt advice in a number of ways. The only debt solution offered by the firm was a Debt Management Plan (DMP), and the FCA notice comments that of the 137 DMP customers the firm had as of June 2017, 23 had just a single creditor included within the Plan, and 24 more plans included only two creditors. The FCA suggests that customers with a low number of creditors may have been better off self-managing their debts, a strategy which could have resulted in them becoming debt-free more quickly, and at a lower overall cost, as a result of not needing to pay fees to the firm.
The FCA was also concerned to find that a significant proportion of the firm’s customers would take more than 10 years to become debt-free, and that other solutions may have been more suitable, such as an individual voluntary arrangement (which typically lasts a maximum of six years) or a debt relief order (which typically lasts 12 months).
Next, the regulator turned its attention to the firm’s quality assurance process, and noted that:
- The firm never supplied a documented QA procedure to the FCA
- No QA reviews were conducted for a period of eight months
- The QA document did not contain any detail to guide the user as to how to evaluate the advice given
Wide-ranging issues were identified with the firm’s website and other financial promotions, including:
- Falsely implying that the firm was a law firm regulated by the Solicitors Regulation Authority
- Failing to provide a link to the Money Advice Service website
- Failing to provide a link to the Financial Ombudsman Service website, and not stating that complaints could be referred to this organisation
- Not making it clear that the firm’s services are profit-making
- Not stating the advantages, disadvantages and risk of each debt solution option, including that entering into the debt solution in question would have a negative impact on the customer’s credit rating
The FCA also commented that:
- The firm failed to provide evidence to demonstrate that it was conducting client money reconciliations in accordance with the rules in the CASS section of the Handbook
- The firm was not providing customers with annual statements that included the necessary information
- The fee disclosure document was unclear as to what fees could be charged
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.