FCA ban on debt packager referral fees
The FCA announced that it is to ban referral fees, and other forms of commission or remuneration, paid by debt solution providers to debt packagers from October 2023.1Policy Statement PS23/5, available at The ban will cover …. ’any commission, fee or any other financial consideration, received by a debt packager firm, directly or indirectly, from a debt solution provider in connection with the firm referring customers to a debt solution provider, or any other related services ’.
The FCA stated their reasons for introducing the ban:
a. The consumers affected by the consequences of mismanagement of the conflict of interest often show signs of vulnerability, which may affect their ability to assess already complex options.
b. We have seen widespread non-compliance with existing rules even after we set our expectations on how the conflict of interest should be managed.
c. We have taken action against individual firms previously, but the scale of the noncompliance has meant this is not an effective way to stop it occurring throughout the wider market while using our resources effectively.
Exclusions
The ban will not apply to not-for-profit debt advice firms or to regulated providers of debt solutions (including debt management plans) who have a different business model to debt packagers. The FCA says: ’The conflict of interest from referral fees is less acute in the case of such firms who provide debt solutions themselves.’2Policy Statement PS23/5 However, the FCA is also introducing new Perimeter Guidance (PERG) making it clear that referring a client to debt solution providers who only offer one option will now be looked at as being debt advice, and therefore, insolvency practitioners may no longer have the exemption from FCA compliance. The FCA says: ’IPs who act as lead generators should also consider if they need authorisation, since their exclusion from carrying out regulated activity may not apply in this situation.’3Policy Statement PS23/5, para 1.23 This may cut the number of PTDs being awarded and may end up in more work for the not-for-profit sector as clients seek alternative advice.