On 27 June 2022, the FCA published a Dear CEO letter concerning its supervisory strategy for the Debt Advice portfolio.
The letter follows an earlier letter published in July 2020, and:
Provides an update on the key risks that the FCA has identified that debt advice firms pose to their customers and the markets in which they operate:
- consumers are unable to access debt advice when they need it, due to insufficient capacity in the sector;
- poor quality advice being offered to customers, which doesn’t adequately support recovery from financial hardship;
- customers in vulnerable circumstances do not achieve good outcomes, due to firms failing to correctly identify these customers;
- poor consumer outcomes driven by firms that fall outside of the FCA’s perimeter; and
- consumers not receiving redress owed to them due to firms operating with insufficient financial resources
Outlines the FCA’s expectations of debt advice firms, including how firms should be mitigating these key risks:
- insufficient capacity: the FCA encourages firms to proactively forecast demand and plan accordingly. Regular reviews of demand in the context of a firms’ capacity can help firms collectively improve access to debt advice for consumers on a more consistent basis, and drive sustainable debt advice in the sector. Increased emphasis and funding for digital advice has also been promoted by the Money and Pensions Service to address the issue of capacity in their departmental review;
- quality of advice: firms should ensure that, all advice given has regard to the best interest of customers, is appropriate to the individual circumstances of the customer and is based on a sufficiently full assessment of the financial circumstances of the customer. Additionally, customers should receive sufficient information about the available options identified as suitable for the customers’ needs. Finally, firms should ensure that they explain the reasons why the firm considers the available options suitable and other options unsuitable;
- customers in vulnerable circumstances: taking into account the current economic climate, it is imperative that firms embed the fair treatment of customers in vulnerable circumstances into their business models and firm culture, in an effort to reduce harm. Customers in default or arrears difficulties must be treated with forbearance and due consideration (including where firms administer debt management plans). Appropriate support should be offered where required, to ensure customers in vulnerable circumstances achieve outcomes as good as those for other customers;
- problems outside of the FCA’s regulatory remit: the letter reminds firms that receive leads from lead generators of their obligations under chapter 8.9 of the Consumer Credit Sourcebook (CONC). This includes ensuring that lead generators do not provide debt counselling unless they are authorised to do so;
- insufficient prudential resources: the FCA’s policy statement on wind down planning should be used to inform firms on how to assess whether they have sufficient resources to wind down in an orderly manner, with minimal adverse impact on customers and the wider markets. Firms operating in the debt advice sector are also reminded of their requirements, as set out in CONC 10.2, to ensure that the firm is always able to meet it liabilities as they fall due;
- data-led regulation: firms are expected to be aware of the requirements and guidance in chapter 15 of the Supervision Manual (SUP 15), and to submit notifications as required. This should be when an issue or event is identified, and firms should not wait until resolution to notify the FCA. Failure to notify the FCA of matters set out in SUP 15.3 could have a serious regulatory impact as it may impact the FCA’s ability to effectively supervise the firm, and raise questions on whether the firm is meeting the Effective Supervision Threshold Condition (COND 2.3).
- raising standards: the FCA is proposing to introduce a new ‘consumer duty’, that would set a higher standard of care that firms should provide to consumers in retail financial markets;
- environmental, social and governance: firms that lack diversity could be more prone to group thinking at decision-making levels and may not be able to understand the needs of their customer base, ultimately leading to consumer and market harm.
Sets out the FCA’s supervisory strategy and programme of work to ensure that firms meet its expectations, and harms are being appropriately remedied.