The Financial Conduct Authority have warned that debt management firms must provide appropriate advice and charge fair fees to consumers.
The City watchdog told debt managers to ensure they have adequate processes for handling client money when assessments for consumer credit authorisation start next month.
Firms that provide services which pose a higher risk to consumers will be assessed first by the FCA once they fall under it’s remit.
These firms include debt management companies, payday lenders and credit brokers.
Victoria Raffe, director of authorisations at the FCA, said: “These firms are advising consumers who have often reached rock bottom, so it’s important that firms get it right.
“Many firms are falling well short of our expectations and they will need to raise their game if they want to continue operating.”
The FCA stated that the process for authorisation will now be more rigorous than the previous Office of Fair Trading licensing regime.
It has conducted targeted firm visits and found that many debt management firms were failing to adequately follow the consumer credit rules brought in to provide additional protection for consumers in April.
Since then the regulator has issued final notices against two firms who have had their applications refused, frozen the bank accounts of seven firms to protect client money, forced another two to entered administration, closed one to all business, and caused 14 more to stop taking on new business.
Just last week the FCA froze payments from Bolton debt management firms Gregson and Brooke Financial Services (trading as Expert Money Solutions), One Tick (trading as Debt Savers Direct and 1-Tick) and the Money Management Service.
The application periods for firms with interim permission start in October.
