FCA targets debt management industry as new assessments loom
The Financial Conduct Authority is keen to boost the reputation of the debt management industry by ensuring that they act responsibly.
Among the factors listed by the FCA is the need to provide appropriate advice, while firms should also not charge unfair fees and should have adequate processes in place to deal with client finance.
Assessments for consumer credit authorisation are due from next month and debt management firms, payday lenders and credit brokers are those likely to be assessed first.
These firms need to provide clear and appropriate advice for many individuals and businesses that are facing tricky financial situations.
As a result, the FCA is keen to ensure that only the best and most appropriate advice is given in any situation.
Previously, the Office of Fair Trading was responsible for the licensing of these firms, although the FCA will now take over.
The change has been in the pipeline for a considerable period and the government is keen to address the credit market given the large number of people using it.
The more rigorous assessment is set to see firms forced to showcase a business model where all services and fees are relevant, fair and transparent.
Suitable advice must also be provided that is given with the interest of the client at heart, rather than being driven by incentives.
This would follow a similar model to insolvency practitioners whereby the best outcomes for the individual or business are sought.
New consumer credit rules providing additional protection for consumers were introduced in April 2014, but the FCA voiced concerns amid fears they are not being adequately followed.
Since April the regulator has issued final notices to two firms who had their applications refused, frozen the bank accounts of seven to protect client money and forced two others into administration.
In addition, one firm has been closed to all business and 14 more prevented from taking on new business.
The tough approach is suggestive of a regulator that is keen to improve the state of the industry by ensuring that all involved act in the correct manner.
By Phil Smith