A reminder to Insolvency Practitioners about the limitations of their exclusion from FCA regulation

The FCA’s consultation on ‘CP21/30: Debt packagers: proposals for new rules’ closed on 22 December 2021, and a revised policy statement by the FCA is expected shortly. In anticipation of potential changes by the FCA, the IPA has already seen some small changes to advertising in the personal insolvency space, so we are issuing a reminder to Insolvency Practitioners about the FCA’s exemption and the implications of getting it wrong. 

Insolvency Practitioners need to ensure that their websites and all advertising follow the relevant guidance from the Insolvency Service, AiB and the ASA, and the Insolvency Code of Ethics. Each IP must ensure it is made clear that any advice given is in reasonable contemplation of your own appointment as an Insolvency Practitioner. The FCA exemption is personal to each Insolvency Practitioner and it is not permissible for relevant advice to be given in respect of an alternative Insolvency Practitioner’s appointment.    

The FCA are quite clear that the exclusion from being required to be regulated for Insolvency Practitioners is as follows:

PERG 2.9.26G01/04/2014RP

These exclusions apply to a person acting as an insolvency practitioner. The term “insolvency practitioner” is to be read with section 388 of the Insolvency Act 1986 or, as the case may be, article 3 of the Insolvency (Northern Ireland) Order 1989. The exclusions relating to debt adjusting, debt counselling and providing credit information services also apply to any activity carried on by a person acting in reasonable contemplation of that person’s appointment as an insolvency practitioner.

PERG 2.9.27G01/04/2014RP

A person acting as an insolvency practitioner or in reasonable contemplation of that person’s appointment as an insolvency practitioner include anything done by the person’s firm in connection with that person so acting. For these purposes, the reference to “the person’s firm” means the person’s employer, the partnership in which he is a partner or the limited liability partnership of which he is a member, as the case may be.

The FCA exclusion is clear that advice given has to be given in reasonable contemplation of ‘that person’s appointment as an insolvency practitioner’. IPs need to be qualified to act in accordance with s390 of the Insolvency Act 1986, granted the authorisation by a Recognised Professional Body (RPB) under s390A.

Acting without correct FCA permission is an offence. The relevant rules state that if a person undertakes regulated activity (or purports to do so) without being authorised by the FCA, they are deemed to breach the general prohibition (s19 FSMA). As set out in s23 FSMA, a person who contravenes the general prohibition is guilty of an offence and liable to:

(a)  on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both;

(b)  on conviction on indictment, to imprisonment for a term not exceeding two years or a fine, or both.

Any IP who is subject to action by the FCA is liable to further regulatory action by their RPB in respect of the conviction.

IPs should not lend their names to debt advice websites without the realistic prospect of their own appointment. As a minimum, this would need to be as nominee, and the advice needs to be documented.