On 20 July 2021 the FCA announced that five firms had stopped providing debt advice until further notice following a review by them into the practices of debt packager firms. Furthermore, the FCA also published correspondence between the FCA and Dean Beale, CEO of the Insolvency Service setting out how the two organisations are approaching certain practices of debt packager firms in order protect consumers who need debt advice.
The announcement can be read here.
A summary of the key points raised in the announcement and in the correspondence can be read below –
- The Insolvency Service and FCA have concerns about conduct of some debt packagers.
- The Insolvency Service is working with the RPBs to explore options to challenge payments made for the introduction of work to volume IVA providers, particularly in comparison to payments of a similar nature (e.g. debt management plans).
- Changes to SIP 3.1 are expected to make clear that IPs should only be accepting referrals from FCA regulated ‘debt packagers’. Any proposed changes to SIP 3.1 will be subject to consultation.
- The Insolvency Service and FCA have been working together on the advertising and marketing of debt advice, issuing guidance to IPs that sets out the remit of both insolvency and FCA regulation in this area, examples of poor practice, and Insolvency Practitioner responsibilities under the Insolvency Code of Ethics. The guidance can be read here.
- A holistic review of the personal insolvency framework is expected with a call for evidence being issued later in the year.
- The FCA expects Debt Packager firms to manage conflicts of interest with regard to referral fees to ensure that their advice is right for consumers, not just firms’ financial interests.
- The FCA identified concerns that some debt packager firms appear to have manipulated consumers’ income and expenditure to meet the criteria for an IVA or PTD; used persuasive language to promote these products to consumers without fully explaining the risks involved; and provided advice that did not accurately reflect their conversations with consumers or information that consumers had given.
- In some cases, the FCA’s view is that firms failed to sufficiently take into account consumers’ circumstances and vulnerabilities, including mental health issues and economic abuse.
- A firm was using a script for contact with consumers that appeared weighted towards recommending a debt solution that would have generated a referral fee for the firm, whether or not that was suitable for individual consumers.
Reminder for members
Under the Insolvency Code of Ethics it is important to remember that “when considering whether to accept an insolvency appointment an insolvency practitioner shall be satisfied that any advertising, marketing or other form of promotional activity pursuant to which the insolvency appointment might have been obtained:
a) has been fair and not misleading
b) has avoided unsubstantiated or disparaging statements
c) has complied with relevant codes of practice and guidance in relation to advertising
d) has been clearly distinguishable as advertising or marketing material, and has been legal, decent, honest and truthful.”
The Insolvency Code of Ethics can be found here. Members may wish to familiarise themselves with sections 2330 ‘Agencies and referrals’, 2340 ‘Referral fees and commission’, 2350 ‘Inducements, including gifts and hospitality’ and 2360 ‘Advertising and marketing for insolvency appointments’.
Finally, the current version of SIP 3.1 states that “An insolvency practitioner should ensure that the information and explanations provided to a debtor about all the options available are such that the debtor can make an informed judgement as to whether an IVA is an appropriate solution.”
SIP 3.1 can be read here.
R3 will be tracking developments on what happens next and liaising with the RPBs to consider whether any additional guidance is required.