Five financial services firms have stopped providing regulated debt advice until further notice following an FCA review of the practices of debt packager firms.

The regulator also stated that it has used formal powers to stop another firm from providing regulated advice.

The FCA has published correspondence between FCA executive director, consumers and competition, Sheldon Mills, and Insolvency Service CEO, Dean Beale, which set out how the two organisations are working together to provide co-ordinated regulation and to protect consumers who need debt advice.

Debt packager firms advise consumers on how to deal with their debts, often referring them to an insolvency practitioner or debt management firm, for which they receive referral fees. These fees can be many times higher when firms refer consumers to an insolvency practitioner to potentially enter into an Individual Voluntary Arrangement (IVA), or Protected Trust Deed (PTD) in Scotland, than for other debt solutions.

The FCA stated it has been “very clear” to firms that it expects them to manage this conflict of interest to ensure their advice is right for consumers, and not just the financial interests of firms.

However, the regulator has identified concerns that some debt packager firms appear to have manipulated consumers’ income and expenditure to meet the criteria for an IVA or PTD, and also used persuasive language to promote these products to consumers without fully explaining the risks involved.

Mills commented: “The practices we’ve seen in this sector fall far short of the standards we expect from firms, let alone those claiming to offer help to people in need. We will not allow firms to profit from debt advice which puts their customers at risk of harm.”

Following the review, the FCA wrote to five firms identifying “significant concerns” over their practices as well as concern that the firms were continuing to offer advice to consumers while those issues remained unresolved. The firms all subsequently applied for voluntary requirements to be imposed, which mean that they can no longer provide regulated advice services until the regulator is satisfied that they can comply with the rules.

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