Firms that provide services which pose a higher risk to consumers will be assessed first, including debt management firms, payday lenders and credit brokers.
Victoria Raffe, director of authorisations at the FCA, said: “These firms are advising consumers who have often reached rock bottom, so it’s important that firms get it right. Many firms are falling well short of our expectations and they will need to raise their game if they want to continue operating.”
The process for authorisation will be more rigorous than the previous Office of Fair Trading licensing regime, said the regulator.
The FCA said it expects all debt management firms to meet required standards, including:
• a business model where customers benefit fully from the service offered, and fees are fair and transparent
• providing suitable advice that takes into account a client’s circumstances and for debt solutions to be appropriate, affordable and sustainable
• advice to be provided by trained staff whose interests are in getting the best outcomes for the customer, rather than driven by incentives
• appropriate systems and controls that will protect client money
• notifying the FCA if they have obtained a book of customers from a firm or a legal entity undertaking debt management
• telling customers about free debt services and signposting them to the Money Advice Service for more information in their first communication with the customer.
The FCA has conducted targeted firm visits and has found that many debt management firms are failing to follow the consumer credit rules brought in to provide additional protection for consumers in April.
The regulator listed a raft of actions taken against debt management firms, including final notices against two firms who have had their applications refused and has frozen seven firms’ bank accounts to protect client money.
Following regulator action, two firms have entered administration, one firm is closed to all business and fourteen firms have agreed to stop taking on new business.
The FCA continues to investigate a number of debt management firms.
Firms may apply for interim permission from the start of October 2014.
For further information and detail on how to apply for regulation, click HERE.
