There has been much discussion in the world of credit and debt about what the debt advice landscape will look like after the FCA authorisation process is completed. It is possible that many fee-charging debt management companies will be permanently removed from the market. This is to be welcomed if future consumer detriment is prevented as a result.
However, we are concerned that there is a very real chance that a new regulatory gap in the market is opening up instead.
Insolvency practitioners (IPs) who give debt advice “in reasonable contemplation of that person’s appointment as an insolvency practitioner” have not been required to seek FCA authorisation, as the industry was successful in arguing that they are already regulated by their professional bodies. We wonder whether the level of supervision afforded by professional bodies will prove to be adequate in comparison with the rigorous authorisation and supervision process maintained by the FCA.
The carving out of IPs from FCA authorisation has muddied the waters when it comes to debt management companies that employ insolvency practitioners as part of their wider offering. It is confusing for all parties to establish whether an IP firm is required to be FCA authorised (as well as reporting to their regulatory body) for giving advice on the full range of debt options. We would argue that it could be dangerous to allow services to spring up (so-called ‘IVA factories’) that do not have the same rigorous standards for providing holistic debt advice as do FCA-authorised debt advice providers.
This problem is compounded by the government’s decision not to bring lead generation companies, which pass leads on to debt management companies for debt advice, under full FCA regulation. Authorised debt management companies were instead given the responsibility under the Consumer Credit Sourcebook (CONC 8.9, for those readers with a copy!) to ensure that the lead generation companies they use are compliant with the rules.
However, we are now seeing a worrying growth in lead generation companies solely passing on leads to IPs for IVAs, which is a course of action that neatly bypasses FCA scrutiny. This could easily result in a much less rigorous or holistic debt advice process being carried out, and the exacerbation of a new trend in possibly unsuitable IVA products being sold to clients with lower incomes and lower available income.
Why the FCA must regulate both
To prevent this potential consumer detriment, it is vital that both insolvency practitioners and lead generation companies fall under full FCA authorisation.
This is, of course easier said, than done. The Insolvency Service and FCA will need to work together to resolve the issues in relation to IP authorisation. Ideally, we believe authorisation should come under the FCA, but perhaps with the regulated professional bodies having an additional role in recognition of the complex legal framework governing IVAs.
The issue of regulating lead generation is ultimately one for the Treasury. We strongly recommend that the FCA be given the responsibility to regulate the activities of lead generation for debt advice – through the creation of a new regulated activity of “effecting introductions to debt advice”.
It is vital that as the FCA closes one regulatory gap through firm action to clean up the fee-charging debt management industry, we do not allow loopholes for firms to potentially cause consumer detriment in other ways. We will be continuing to make the case for action on both fronts in the coming months.
PS For those interested in this subject, it’s worth taking a look at the excellent Debt Camel’s blogs on IP regulation…