'Dear CEO letter' to debt management firms clarifies FCA's expectations on transfer of customers or their information

Following ongoing consolidation in the debt management market, Jonathan Davidson, FCA Director of Supervision (Retail and Authorisations), has published a 'Dear CEO letter' which sets out the FCA's expectations of debt management firms when customers or customer information are being transferred.

The FCA's concern is that customers' interests are appropriately protected during a transfer. It said:

• transfers must be lawful and in accordance with the Data Protection Act and the FCA's consumer credit sourcebook (eg all advice given and actions should have regard to the client's best interests, be based on reasonable and reliable assessments of the customer's financial information and circumstances and be in a durable medium)
• the FCA should be informed at an early stage, including providing the FCA with at least 10 working days' notice, of any proposed sale or purchase of customer lists or customer contacts
• firms must continue to meet their fiduciary duties in relation to client money
• firms must notify creditors of each transfer
• selling firms must:
• treat customers fairly in line with Principle 6, which includes ensuring their customers have a very clear view of the costs and benefits of the service provided and the other options available to them including that free advice can be sought via the Money Advice Service; and
• provide customers with a statement before any transfer takes place, which includes the total amount paid and still owing, the total amount paid by way of fees and charges to the firm for its services, the total amount of client money held by the firm on trust for the customer, a statement notifying the customer of the Money Advice Service and the services that if offers and a statement which explains that the customer's consent to the transfer is required
• purchasing firms must:
• maintain adequate financial resources (which includes compliance with the prudential requirements as set out at CONC 10);
• where the transfer includes a transfer of consumer contracts, not require or take payment from a customer before entering into a contract with the customer for services, and must provide each customer with a clear, fair, and not misleading statement regarding the contractual options available to the customer following the transfer; and
• where they take on a new customer on a debt management plan, regularly monitor and review the financial position and circumstances of the customer, signpost the customer to the Money Advice Service in its first communication with the customer, and ensure that the customer receives sufficient information about the available options identified as suitable for the customer's needs and the reasons why the options are suitable and the other options are unsuitable

The FCA indicates that failure to comply with its expectations and rules may lead to them using their powers to impose requirements on the selling firm, the buying firm, or both. The FCA may also review whether the firms in question are meeting the Threshold Conditions, for example as part of an authorisation application, and could result in firms losing interim permission or being refused authorisation. As such, the FCA expects CEOs to share the FCA's letter with their Boards or equivalent.
Going forward, the FCA could decide to conduct a thematic review in this area and/or require CEOs of debt management firms to attest that their firms comply with the FCA's expectations. If that happens, remember the adage: 'attest in haste, repent at leisure'. Firms should therefore consider carefully the points raised in the FCA's letter, and ensure they are able to demonstrate that the FCA's expectations are being met in relation to any transfer of customers of customer information.