Financially struggling individuals are facing shrinking options for expert debt advice due to the way the new FCA authorisation regime has been implemented, warns insolvency trade body R3.
According to R3 research, almost one-in-ten insolvency practitioners working in personal insolvency say they have had to stop offering personal finance advice since the new regime started in April 2015, because of the FCA’s confusing interpretation of the new rules and the penalties for getting it wrong.
Under the new rules, insolvency practitioners, who are already regulated by accounting and legal bodies, must also apply to the FCA to be authorised to give full consumer credit advice.
Phillip Sykes, President of R3, says: “The new rules are a mess and they hurt people in financial trouble most of all. The rules subject the insolvency profession to double-regulation, the cost of which many smaller firms can’t afford. As a result, the avenues for expert, impartial advice for those in financial trouble are shrinking rapidly.”
“The FCA and Treasury need to review their interpretation of the new rules as a matter of urgency.”
Phillip Sykes adds: “At a time when household levels of debt are rising and an interest rate increase is approaching, the FCA should be thinking about how to increase access to comprehensive, expert debt advice rather than unnecessarily restricting access.”
“The government is carrying out a Financial Advice Market Review as it is concerned there is a gap in the market for financial advice. The FCA is actually widening that gap.”
R3 says that the new rules are confusing for the profession and those in need of advice.
Insolvency practitioners are exempt from the new authorisation regime, but, under the FCA’s interpretation of the rules, only when they are giving advice to someone they expect will have to enter a formal insolvency procedure.
According to R3’s research, almost a third of people (30%) advised by insolvency practitioners in 2014 did not go on to enter an insolvency procedure.
Under the new rules, a non-FCA-authorised insolvency practitioner must stop giving advice as soon as it becomes clear an individual is not likely to enter a formal insolvency procedure.
Phillip Sykes says: “The FCA’s interpretation of the new rules is bizarre. Insolvency practitioners have a duty to offer impartial advice, which means they need to talk people through all their options, from informal to statutory debt solutions. It is usually not clear at the outset what might be best for an individual and whilst formal insolvency can be the right solution for some, it will be a last resort for many. Early advice can help to avoid the need for a formal insolvency solution.”
“Under the new rules, an insolvency practitioner might get halfway through giving someone advice and then will have to stop and send them somewhere else once they realise formal insolvency is not appropriate. It’s not fair on the person seeking advice for them to be passed from pillar to post.”
Phillip Sykes adds: “Insolvency practitioners have been giving expert, impartial advice for decades about statutory and non-statutory debt solutions; if their advice falls short of these high standards, they can expect to hear from their regulator.”
“The FCA risks fragmenting the debt advice landscape by not giving the insolvency profession a full exemption from the need for authorisation to provide advice. People will have to go to one place for advice about statutory debt solutions and another place about everything else. This increases the risk that people will end up in debt solutions not appropriate to their situation.”
“We support the principle behind the FCA’s new rules, but it has made an error with how they have been implemented. Those providing non-statutory debt solutions should require FCA authorisation; those simply trying to explain how they work should not.”