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Consumer access to debt advice risks being damaged by FCA changes

FCA authorisation is a big issue in the profession at the moment, and was among the topics covered by our member survey in October. The results provide an insight into the impact on the new regulations introduced in April 2015 relating to how insolvency practitioners can advise debtors with consumer debt.

In effect IPs must be authorised by the FCA to give comprehensive advice to those with consumer debt. While the aims of the reforms – tackling poor debt advice and raising standards in the debt management market – were welcome, the interpretation of the IP exemption by the FCA, is causing grave concern about the availability of comprehensive advice to consumers and the unnecessary costs of dual regulation of the profession.

According to the results of our survey nearly half (47%) of insolvency practitioners are not authorised to provide consumer credit advice.
And, more alarmingly, nearly one-in-ten (9.4%) IPs specialising in personal insolvency have stopped giving personal financial advice since the rules were introduced.
This has led to several problems.
Firstly, the FCA’s interpretation is limiting people’s access to high quality, impartial professional advice by forcing smaller IPs who are unwilling to meet the regulatory cost and burden of FCA authorisation out of the market. Insolvency practitioners are already regulated by their professional body and FCA authorisation is in our view unnecessary in light of the existing level of regulation of insolvency practitioners.
Secondly, the interpretation will increase confusion in the advice market. According to the new rules, IPs are exempt from the new procedures when they are ‘acting as an IP or in reasonable contemplation of being appointed as an IP’. The FCA interprets that exemption as ending the moment the insolvency practitioner realises that the debtor will not enter an IVA.
This produces needless complications. Usually it isn’t clear from the outset when providing financial advice that an IVA will be suitable and sometimes it is not. If it does become clear that an IVA is not the correct solution for a debtor, an IP who is not authorised by the FCA must stop giving advice and must send them elsewhere for further guidance. Insolvency practitioners are experts at giving impartial debt advice so we believe it is unnecessary to send those in financial difficulty from place to place searching for the right debt solution. Telling a debtor that they can no longer be advised by an IP and must go elsewhere only serves to make the debtor’s situation worse.
HM Treasury and the FCA have launched a Financial Advice Market Review which aims to close the financial advice ‘gap’; we will be submitting a response to the consultation that calls for a review of the implementation of the FCA authorisation rules for IPs. We have also written to the Economic Secretary, Harriet Baldwin MP, outlining our concerns. 

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.