Debt packagers are firms that provide advice to consumers about how to deal with their debts and often refer them to Insolvency Practitioners or Debt Management firms. This article is therefore relevant to debt packagers and those who accept referrals from them.
The Financial Conduct Authority (FCA) has stopped six firms (“debt packagers”) from providing regulated debt advice, five of which can no longer provide debt advice until they can demonstrate compliance with the FCA’s rules.
In one case, the FCA exercised its formal powers to remove the permissions of a firm that was using a script weighted to recommending a particular debt solution which would have generated a referral fee for the firm, whether or not the solution was suitable, clearly giving rise to a conflict of interest.
The FCA raised concerns regarding the manipulation of consumer’s income and expenditure to satisfy the criteria for an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD). Firms were also found to have promoted debt solutions without fully explaining the risks, and in some cases, provided advice that did not accurately reflect their conversations with customers.
FCA Executive Director, Sheldon Mills, stated that “We [the FCA] will not allow firms to profit from debt advice which puts their customers at risk of harm”.
It is, therefore, crucial that customers receive appropriate advice. Where customers are inappropriately advised to enter into an IVA or PTD, they may have difficulty maintaining repayments which could result in the arrangement failing and risk bankruptcy.
For firms that are paid for debt solution referrals, including for IVAs and PTDs, it is imperative that processes reflect the FCA’s rules and that any such introduction results from an appropriate assessment into the customer’s circumstances and financial position, having been adequately informed and advised about the suitability of relevant debt solutions.
Scott Robert understands that recommending certain debt solutions can be more financially rewarding than others, as may be the case when comparing a DMP to an IVA or a referral to the free sector. This can lead firms to recommend debt solutions that benefit the firm over clients who are in debt and often vulnerable by virtue of their financial circumstances. It is, however, paramount that firms treat customers fairly and act in their best interests. Where firms fail to do this, it may ultimately lead to enforcement action that could result in firms being prohibited from providing debt advice and as consequence, incur a financial loss.
The FCA’s rules can often be difficult to navigate. Scott Robert has years of expertise with experienced advisers who are able to support firms with bespoke compliance services, providing you with the assurance and confidence that you need. Examples of how we can assist are as follows:
- Reviewing scripts
- Reviewing monitoring assessments
- Completing call monitoring
- Reviewing advice
- Reviewing income & expenditure assessments
- Reviewing policies and procedures
- Reviewing compliance with CONC 8
- Proactive guidance such as rule changes and proposals
- Reviewing complaints
- Reviewing financial promotions and marketing
- Reviewing incentivisation practices
For firm’s that are accepting referrals from debt packagers, such as Insolvency Practitioners or Debt Management firms, Scott Robert can assist with:
- Reviewing or creating introducer due diligence assessments
- Reviewing introducer financial promotions and marketing
- Reviewing requested documentation from introducers
Engaging Scott Robert’s services means that you will receive independent and impartial advice that enables your firm to comply with all relevant requirements on an ongoing basis and to, therefore, promote positive customer outcomes.
Should you wish to find out more about how we can help you achieve a robust compliance framework, please contact us on 0161 914 5727