Trust deed protocol

• Ban on debt packager referral fees

A ‘trust deed protocol’ has been developed by the AiB and other industry bodies. It sets out operational process changes introduced to promote good practice, improve transparency in the PTD administration process and provide greater clarity on the AiB’s PTD supervision roles and responsibilities.

The protocol complements the AiB’s PTD Notes for Guidance for clients, creditors and trustees about PTD administration.

As it is a voluntary code of conduct, there is currently no legal requirement for PTD trustees to consent to and comply with the protocol. In the future, it could be incorporated into legislation. In the meantime, Scottish Ministers and the AiB would like PTD trustees to consent to the terms of the protocol so there is consistency in the administration of all PTDs.

The insolvency practitioners agreeing to abide by the protocol have agreed to only accept referrals for trust deeds from the Financial Conduct Authority (FCA) authorised firms. So, if bad advice is given, the client should have some redress to the FCA on the behaviour of the firm. This could be appropriate where the client’s situation has not been properly assessed by the CFT and/or no advice letter has been given out. See here for information about complaints.

The FCA is currently developing proposals that would ban the payment of fees to debt packagers.

Ban on debt packager referral fees

The FCA announced a ban on 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 fca.org.uk/publication/policy/ps23-5.pdf

The ban covers ‘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 its 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 has also introduced 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 [insolvency practitioners] 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.

 

1     Policy Statement PS23/5, available at fca.org.uk/publication/policy/ps23-5.pdf  »

2     Policy Statement PS23/5 »

3     Policy Statement PS23/5, para 1.23 »