The FCA has published a “Dear CEO” letter in the light of its concerns with the way debt management firms are carrying out their annual review of customers’ debt management plans (DMPs).

Among other things, the Dear CEO letter highlights the following issues:

  • administering DMPs and annual reviews. Where a firm administers a DMP it must ensure that the customer’s DMP is reviewed each year. In carrying out a review of the DMP, a firm must: (i) carry out a reasonable and reliable assessment of the customer’s financial position (including their income, capital and expenditure), personal circumstances and any other relevant factors before giving any advice or make any recommendations; (ii) ensure that all advice is given and action taken is appropriate to the customer’s individual circumstances and has regard to their best interests; and (iii) following a review, inform the customer of the outcome of the reassessment. If the outcome of the firm’s assessment is that it is appropriate for the DMP to continue, the firm must advise the customer appropriately (including advising on which solutions are available). Any advice given must be provided to the customer in a durable medium;
  • unresponsive customers and terminating a DMP. If a customer fails to respond to requests for information and is uncooperative, the firm must take all reasonable steps to renew a dialogue and to encourage the customer to participate meaningfully in the review process. Firms are not permitted to simply carry out a “desk based” review involving no or only limited steps to refresh the information about the customer’s financial circumstances, and relying on old information that the firm ought to know is liable to have become inaccurate. Further, where following a review the firm concludes that the DMP is not, or is no longer, appropriate to the financial circumstances of the customer, the firm must terminate the DMP; and
  • client money and terminating and DMP. If clients continue to make payments even though a firm has stopped administering a DMP, any money received or held on behalf of a client must be held in compliance with the FCA’s client money rules.

Firms must be able to evidence its compliance with the applicable regulatory requirements including that it has adequate staffing, expertise and systems and controls. Firms will also need to consider the specific needs of particularly vulnerable consumers.

View FCA “Dear CEO” letter reminding debt management firms of annual review requirements, 8 December 2016