Home

















 


Is your trust deed regulated by the Financial Conduct Authority?

11th November 2014

On April 1st 2014 the Financial Conduct Authority took over the regulation of debt advice. The provision of debt advice was previously supervised by the Office of Fair Trading, an organisation hampered by insufficient resources and comparativelylimited powers.

The very extensive powers and resources of the FCA provide it with a unique opportunity to improve the standards of debt advice available to consumers. This is fundamentally important given the excessive consumer detriment that can result when poor advice is provided to someone who is experiencing financial difficulty.The recent price cap placed upon the payday loans sector demonstrates the FCA’s willingness and capability to act decisively.

Debt advisory firms have moved into the FCA sphere of control with “interim permissions” based upon their authorised areas of business under the OFT. We have now reached the point at which these interim permissions will soon expire. The first firms must now apply to the FCA for the “full permissions” required to undertake this important work in the future. Speculation is rife that many firms simply will not meet the standards expected by the FCA and will subsequently cease being in commercial existence when their applications are rejected.

Given the FCA’s emphatic focus upon “treating customers fairly” many readers might think that it’s a positive development that debt advice has become regulated by this proactive and powerful authority. In reality however some people will find that those who are advising them about their debts will not be regulated by the FCA at all.

Insolvency practitioners (the professionals that act as “trustee” in a Scottish trust deed) might be excluded from FCA regulation. Where an insolvency practitioner is acting in “reasonable contemplation of appointment as an insolvency practitioner” they may not be required to hold FCA permissions at all.

To put it another way… if a member of the public asks an insolvency practitioner for advice about debt, and the IP has a reasonable expectation of being appointed to handle a protected trust deed or sequestration for them, the IP might conclude that they do not require authorisation from the FCA. In such circumstances they will work under the supervision of their regulatory professional body, just as they do currently.

This exclusion from FCA regulation applies only in relation to personal insolvency appointments. If the insolvency practitioner also provides debt management plans and/or debt arrangement schemes they will have to become authorised and regulated by the FCA.

Is it important (in the future) that you choose an insolvency practitioner who is regulated by the Financial Conduct Authority? People will take different viewpoints on this. For example, an IP who has been granted full permissions by the FCA must have been able to prove to the regulator that treating customers fairly sits right at the heart of their business. This might sensibly be taken by a potential client to be a very reassuring signal.

Should you read anything negative into the fact that another IP has chosen to remain outside of the scope of FCA regulation altogether? The existing insolvency regulators are considered by insolvency practitioners to be tough and demanding already. Might the FCA (to some extent at least) add to an IP’s compliance burden without necessarily improving the services received by their clients? Might the additional time and financial burden of FCA regulation take energy away from providing excellent advice and services to clients?

The potential exclusion of insolvency practitioners from aspects of the FCA regulatory regime is currently causing confusion within the industry and controversy amongst some interested parties. Many interested parties feel that there should be a single regulatory standard for all providers of debt advice and debt solutions. Many industry insiders are unsure exactly where the FCA perimeter in this respect is located.  

It remains to be seen whether consumers will also consider this exclusion to be controversial and confusing in the future. Will one set of consumers seeking debt advice be better protected than another? Will one type of debt solutions provider be more consumer-orientated than another? Will consumers have the same rights of redress between different types of advice provider according to their regulator? As it stands nobody really knows the answers. It’s therefore a subject we’re likely to revisit in the future.

Trust Deed Latest News

Wylie & Bisset Grant Thornton

(c) Channel Active Limited. Company Number: 06412452. Data Protection Registration: Z1332750.
Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.
Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.