Debt management firms - additional steps: consumer credit

Find out the key areas we consider when a debt management firm applies for authorisation.

Debt management firms applying for authorisation have to demonstrate that their business models are built around the fair treatment of their customers.

Key areas we look at with a debt management firm’s business model include:

  • fees and charges
  • use of third parties, such as lead generators
  • back book acquisition
  • how the firm will provide suitable, affordable and sustainable debt solutions
  • cross-selling
  • financial incentives for staff
  • client money rules
  • prudential standards

We will also consider:

  • competence
  • non-disclosure of information

Fees and charges

We will look to see if the level of fees and charges are set in a way that treats clients fairly.

We will consider how your firm meets our key requirements, including:

  • how you will meet our suitability threshold condition. One of the requirements of this threshold condition is that you can demonstrate that your firm conducts its affairs in an appropriate manner (see more at COND 2.5)
  • our rules in CONC 8.3.2(1) R. These state that you must ensure that all advice given and action taken has regard to the best interests of the client
  • our rules on fees and charges in CONC 8.7, particularly taking into account the purpose of our rules in CONC 8.7.2R and 8.7.3G

Parts of a charging model that could raise concern include:

  • prioritising the recovery of costs over the benefit to the client.
  • not taking account of how the debt solution works in practice for the client, or the level of debt reduction; and
  • charging each client a flat percentage of their monthly disposable income as an ongoing fee regardless of their circumstances and how much money they have available.

Models should take into account the level of repayments a client makes (CONC 8.7.3G(4)). We would expect to see:

  • the percentage of a client’s monthly disposable income taken in fees to vary depending on the amount being paid to their creditors; and
  • to have regard to the interests of clients and treat them fairly.

Use of third parties, such as lead generators

We will look at how you consider, and mitigate, the risks presented by the use of third parties, such as lead generators. Your firm has responsibility to your clients when you use third parties and you should pay particular attention to our rules at CONC 8.9.

The use of third parties at any point in the overall sales or advice process may pose risks to your clients. You should be able to demonstrate that you have:

  • undertaken due diligence proportionate to the potential risks posed to clients
  • your resources and procedures can sufficiently monitor the activities of any third party acting on your behalf

Back book acquisition

If you are considering buying another firm’s back book, or have bought one, we will look at how you have considered your ability to meet your obligations to your new clients. In particular, how you:

  • review the ongoing suitability of  each client’s debt plan; monitor each client’s ability to meet their obligations under that debt plan
  • protect client funds
  • fairly apply fees and charges

Read more about our expectations of firms when customers or their information is being transferred.

Intangible assets

Acquiring a back book can create significant intangible assets. You will need to be aware of the impact this will have on the calculation of your prudential resources. Our rule at CONC 10.3 sets out how you need to calculate this.

Provision of suitable, affordable and sustainable debt management solutions

We will look at how you ensure that all advice given is suitable and has regard for the best interests of the client (Principle 9 and CONC 8.3.2R)

Carrying out an appropriate assessment of the client’s financial position (income, capital and expenditure) is key to ensuring that debt management solutions are affordable and sustainable (CONC 8.3.7R (2)(a)).

We also require debt management firms to conduct regular reviews of their customers’ financial position and circumstances.

We assessed these and other areas in our thematic review of debt management advice.


We will expect you to be able to demonstrate that any product or service sold to a client entering in or completing a debt solution is appropriate and of value to that client.

You should particularly consider how you can demonstrate this if a product or service has the potential to either:

  • increase the duration of the debt solution; and/or
  • divert clients’ money away from reducing priority debts more quickly

Financial incentives for your staff

We will look at your firm’s remuneration and incentive schemes. If an adviser’s pay or bonuses are heavily dependent on customers taking up debt plans or other products with your firm there may be a significant risk of a client getting inappropriate advice (see CONC 8.3.6G). Examples of higher risk practices include:

  • incentives varying for different types of debt solution – therefore, advisers are incentivised to recommend one solution over another
  • the level of incentives increasing with increased levels of disposable income – this could lead to inaccurate assessments of client income and expenditure

Incentive schemes that are clearly linked to measures of the quality of advice (such as the sustainability and performance of the plan provided) are more likely to demonstrate that your firm’s business model is aligned to clients’ interests.

You should ensure that you can manage the risks of advisers providing inappropriate advice because of financial incentives you offer them. You may find it helpful to read the results of our review of financial incentives, which sets out issues we have found in other financial firms and sets out some of our expectations.


We will expect your firm’s staff to have the competence and capability to carry out the regulated activities that your firm applies for.

Approved persons

Your firm will need to put forward senior members of staff to be your approved persons, and we will assess them to see if they are fit and proper to carry on these positions of responsibility. Part of this will include looking at their competence.

Our rules do not set minimum amount of experience for someone to be deemed competent, but when we assess your application, we will expect to see evidence of how the proposed approved persons have been deemed competent to carry out their roles.

There are different ways you could demonstrate this. Examples we have seen include firms telling us how long the individuals have carried out the activities applied for, the volumes of business undertaken and details of training that has been completed. Our rules at COND 2.4 and FIT 2.2 provide further detail.

Non-disclosure of information

It is important that you fully disclose to us any information that we ask for. Any non-disclosure of information that could impact our assessment is taken seriously, especially where there is an apparent attempt to mislead.

If in doubt, it is better to disclose information rather than withhold it as the success of your application could be affected if we find that you have deliberately withheld information or provided false or incomplete facts.

More generally, under the Principles for Businesses that all regulated firms must meet, we make it clear that we expect firms to be open and honest in their dealings with us (see principle 11). Knowingly or recklessly giving us information that is false or misleading can be a criminal offence under section 398 of the Financial Services and Markets Act 2000.