The regulator consulted on a ban in November after it raised concerns about the conflict of interest between giving advice based on a customer’s best interest and recommending firms which would give firms a higher commission.
Firms representing around two thirds of the market have either left or suspended activities since the FCA began looking into practices in July 2021.
Following November’s consultation, the regulator gathered additional evidence from the market. It will conduct another short consultation to give stakeholders in the market the chance to comment on the proposed ban.
If this is put into place, the FCA said this would “end the current debt packager business model” and cautioned that the change could come in relatively quickly.
The regulator could also clarify how unauthorised businesses that source customers and refer them to debt solution providers for advice would need to be authorised by the FCA.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Many people are facing pressures on their finances due to the rising the cost of living, so it’s crucial they get good quality debt advice.
“Unsuitable or poor advice can really harm people’s financial lives. We want to stop this harm by removing the conflict of interest between firms giving advice in the customer’s best interest and recommending an option that makes firms more money.”
