A debt management firm applying to us for authorisation needs to show that its business model is built around the fair treatment of its customers. Here are some of the key areas we consider in making this judgment.
We will consider how your firm meets our key requirements, including:
- Your ability to demonstrate that your firm conducts its affairs in an appropriate manner. See the Handbook for details about our suitability criteria
- Our rules and guidance around pre contract information and advice: a firm must be able to ensure that all advice given and actions taken are done with the best interests of the client.
- Our rules and guidance on fees and charges: especially around the amount and timing of fees or charges due (see CONC 8.7.2R) and the scheduling of those sums payable (see CONC 8.7.3G)
- Our rules on debt management firms holding client money, as set out in the Client Assets module of our Handbook (see CASS 11)
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. For more detail, see CONC 8.3.2R of the Handbook.
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.
Debt management firms must also conduct regular reviews of their customers’ financial position and circumstances. Find out more details of what we expect of firms that administer Debt Management Plans in our Dear CEO letter dated 8 December 2016 (PDF)
Use of third parties, such as lead generators
Your firm has a responsibility to your clients when you use third parties such as lead generators. Using third parties at any point in sales or advice could create or increase risks to your clients, so we would want to see that:
- you have undertaken due diligence proportionate to the potential risks posed to clients
- you have adequate resources and procedures to monitor the activities of any third party acting on your behalf
See the Handbook for more detail on the rules around lead generators
Back book acquisition
If you have bought another firm’s back book, or are thinking about doing so, we will look at how you have considered your ability to meet your obligations to your new clients.
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.
See our Handbook for full details of how to calculate prudential resources
Find more details of what we expect from firms buying customer contracts or contact details in our Dear CEO letter dated 26 November 2015 (PDF)
Your firm must 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 also look at your firm’s remuneration and incentive schemes. You should ensure that you can manage the risks of advisers providing inappropriate advice because of financial incentives you offer them.
We will look for evidence that your firm’s staff are competent and capable to carry out the regulated activities that your firm applies for.
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 a minimum amount of experience for someone to be deemed competent, but when we assess your application, we will look at how you have established the competence of your proposed approved persons.
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
- and/or the volumes of business they have undertaken
- and/or details of training that has been completed
Before taking over the regulation of consumer credit in April 2014, we carried out this in-depth review of the quality of debt management advice.