FCA are banning debt packagers receiving remuneration from debt solution providers.
The ban covers any commission, fee or any other financial consideration, received by a debt packager firm, directly or indirectly, from a debt solution provider in connection with the firm referring customers to a debt solution provider, or other related services.
Rules will remove the inherent conflict of interest in the debt packager business model.
The harm concerns consumers ending up on debt solutions that require them to make payments which they cannot afford or they miss out on alternative, cheaper solutions.
Conflicts of Interest
FCA recognize that conflicts of interest can be successfully managed by firms, however they feel the ban is now appropriate in these circumstances because of the following.
The consumers affected by consequences of mismanagement of the conflict of interest often show signs of vulnerability, which may affect their ability to assess options.
FCA have seen widespread non-compliance with existing rules even after they set their expectations on how the conflict of interest should be managed.
FCA have taken action against individual firms, but scale of the non-compliance has meant this is not an effective way to stop it occurring throughout the wider market.
Exclusion for DMPs
Ban will not apply to not-for-profit (NFP) debt advice firms or to regulated providers of debt solutions (including debt management plans) who have different business model.
The conflict of interest from referral fees is less acute for such firms, who provide debt solutions themselves; referral fees typically make up only small part of their revenues.
FCA do not have evidence of same serious concerns as for debt packagers and note that last Thematic Review into DMP providers (TR 19/01) found improvement.
Appointed Representatives
Appointed representatives, (including those of DMP providers) who act as debt packagers will be subject to the ban; mixed revenue debt packagers will also be subject to the ban since the FCA consider that, unlike NFP or debt management firms, referral fees paid to debt packagers are likely to always be a driver of harm.
Further, FCA want to prevent debt packagers from being able to avoid their proposed rules by adapting their business models in minor ways so as to be out of scope.
Perimeter Guidance
The FCA are also introducing new perimeter guidance; will make it clear that referring customers to providers who only offer one solution could constitute debt counselling.
Persons who operate as lead generators for IVA/PTD providers must consider carefully if they are carrying out activities which require authorization.
IPs who act as lead generators should also consider if they need authorization, since their exclusion from carrying out regulated activity may not apply in this situation.
Effectiveness
Firms subject to the new rules in FCA 2023/22 must take steps to ensure they comply.
In summary, where CONC 8.3.11R applies, existing debt packager firms must ensure they do not receive any commission, fee or any other financial consideration from a debt solution provider for any referral or related service conducted after Oct. 2, 2023.
Any firms who act as principal to appointed representatives who would fall under the scope of the ban if they were an authorized person must take all reasonable steps to ensure that these appointed representatives also comply with the ban, as required under CONC 8.3.16R, by Oct. 2, 2023 (subject to CONC 8.3.11R(2)).
Firms who start, or restart, carrying out debt packager business from Jun. 2, 2023, will be subject to the ban and will not benefit from the implementation period.
The rules also apply with immediate effect to principals with respect to any appointed representatives carrying out debt packager activity who are appointed on/after Jun. 2.
Lead generators and insolvency practitioners should consider the new guidance in PERG and apply for authorization where appropriate.
FCA 2023/22 makes changes to introduce rules to ban debt packagers from receiving remuneration from debt solution providers; see policy statement above for details.
Instrument came into force on Jun. 2, 2023.
Oct. 2, 2023 End of Ban Implementation Period
On Oct. 2, 2023, UK FCA issued statement on end of implementation period for ban.
Policy statement issued Jun. 2, 2023, FCA said existing debt packagers, their existing appointed representatives (ARs) could have an implementation period of 4 months.
Final day of period is Oct. 2, 2023, all debt packager firms must now comply with ban.
Where CONC 8.3.11R applies, debt packager firms who benefited from implementation period must ensure they do not receive any commission, fee, financial consideration (referral fees) from a debt solution provider for services conducted after Oct. 2, 2023.
Ban does not apply to work carried out before Oct. 3 where the firm has an accrued contractual right to payment for referral, or related services, regarding a customer.
Any firms who act as principal to ARs who would fall under scope of ban if they were authorized person must take all reasonable steps to ensure the ARs comply with ban.
Where ban applies does not only apply in relation to IVAs and PTDs, but to all debt solutions except payments made in certain circumstances, excluded by CONC 8.3.14.
FCA reminds lead generators and insolvency practitioners to consider guidance in PERG 17.7 issued in Jun. 2023 with final rules and apply for authorization where appropriate.
In Jan. 2024, UK FCA issued statement on judicial review of debt packager, #199485.
