The Financial Conduct Authority (FCA) has called for debt management firms to raise their standards. The call from the regulator came in late September 2014, just days before the application period for debt managers to apply to the FCA for full permission commenced.
Major issues of concern the regulator has with certain firms in this sector include:
- The suitability of advice given
- The levels of staff training and expertise
- Whether staff are motivated by financial incentives, or by securing the best outcome for their customers
- Whether fees are fair and transparent
- Arrangements for protecting client money
- Whether firms are meeting their obligations to refer customers to sources of free debt advice, and to make them aware of the Money Advice Service.
In its review of financial promotions in August 2014, the FCA found that some debt managers were implying their services were free when they were not.
Since taking over as consumer credit regulator in April 2014, the FCA has identified a number of concerns with debt management firms. Two firms have had their applications refused, seven have had their bank accounts frozen in order to protect client money, 14 have agreed to stop accepting new business, seven have been forced by the FCA to conduct a skilled persons review and one has agreed to cancel its interim permission and cease conducting debt management business.
Victoria Raffe, director of authorisations at the FCA, said:
“[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][Debt management] firms are advising consumers who have often reached rock bottom, so it’s important that firms get it right. Many firms are falling well short of our expectations and they will need to raise their game if they want to continue operating.”
Commercial debt adjusters who currently hold interim permission from the FCA need to apply to upgrade to full permission within their designated application period. This period runs from October 1 to December 31 2014 for firms in the North of England; from November 1 2014 to January 31 2015 for firms in London; from December 1 2014 to February 28 2015 for firms in Scotland, Northern Ireland, southern and eastern England; and from January 1 to March 31 2015 for firms in Wales and Central England. Any firm which does not apply during their allocated period will lose their authorisation.
The FCA imposed new rules on debt managers relating to handling of client money and the level of financial resources which need to be held, requirements which did not exist under the Office of Fair Trading regime. The FCA regards debt management as a high risk activity, and firms active in this area are warned to expect close regulatory scrutiny.
Now may therefore be a good time for debt managers to engage the services of an independent compliance consultant, who can advise on whether the firm’s practices and procedures meet FCA requirements, and who can assist in preparing applications for full permission.
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[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]