The Financial Conduct Authority (FCA) has written to the CEO or equivalent of all authorised debt packaging firms, saying it has conducted a review of the advice being provided by a sample of firms in this sector. The letter opens by saying the regulator is “very concerned about the poor standards we have seen”, and that some firms may be subject to investigation by the Enforcement Division as a result.
The letter lists as many as four areas that the FCA is concerned about:
- The quality of advice being given by debt packaging firms
- The way in which these firms identify vulnerable customers, and then how they treat them once they have identified them
- The quality of their financial promotions
- Their systems and controls in general
For the avoidance of doubt, the letter clarifies that the definition it is using of a debt packaging firm is one that:
- Gathers information from customers
- Provides advice on the debt solutions available to these customers
- Recommends a specific debt solution
- Refers the customer to a third-party provider, and receives a referral fee from the third-party provider which differs according to the solution recommended
One specific concern the FCA has of debt packagers is that they often receive higher fees for recommending a specific debt solution, such as an Individual Voluntary Arrangement (IVA), in comparison to other debt solutions. This could of course create a conflict of interest for advisory staff, who may have an incentive to recommend something other than the best course of action for their customer.
The letter notes that CEOs have specific responsibility for managing potential conduct risks within their firms.
The letter warns firms to ensure that:
- They fully assess customers’ circumstances and ensure that the advice provided is based on these individual circumstances, and is appropriate
- Staff have the necessary skills, knowledge and expertise to provide advice
- Vulnerable customers are identified and receive appropriate support throughout their customer journey
- Financial promotions and other customer communications meet the principle 7 requirement to be ‘clear, fair and not misleading’, and that these communications prominently signpost customers to the Money Advice Service (MAS) where required
- They maintain appropriate systems and controls in relation to all of the issues highlighted in the letter
Unlike some of its Dear CEO letters, the FCA is not asking all recipients to reply with details of how they are complying with the relevant rules. However, the letter concludes by warning that:
“Failure to comply with our regulatory requirements could lead to our taking enforcement action and, potentially, to a suspension or removal of a firm’s permissions.”
This means that no firm in the debt packaging sector can afford to ignore the FCA’s concerns, and that they now need to review their arrangements relating to advice, vulnerable customers, financial promotions and systems and controls. Where necessary, firms need to make urgent amendments to ensure they meet their regulatory requirements, and any firm unsure as to what they need to do to satisfy the regulator is advised to get in touch with their compliance consultant as a matter of urgency.
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