The FCA has published a consultation on changes to its Handbook resulting from the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Regulations) which are expected to come into force in England and Wales on 4 May 2021. The aim is to clarify how the FCA’s rules interact with the Regulations. Firms should take note that, while the FCA doesn’t have powers under the Regulations to supervise compliance or enforce against them, it points out that ‘systematic non-compliance’ is likely to be of interest to it as this may place a question mark over whether a firm is meeting the specific CONC rules, the suitability requirements in its Threshold Conditions or breaching one of the Principles (eg Principle 6 – TCF).
The FCA explains in the consultation that there are some areas in its Handbook - specifically, some of the consumer credit conduct rules in CONC 5, 6 and 7 - where it thinks it’s necessary to clarify how its rules apply where the Regulations also apply, and avoid duplicating the effects of the Regulations in a disproportionate way. It has not identified any rules or guidance in MCOB or CONC 8 (Debt Advice) which need clarifying or amending.
For more on the Regulations, take a look at our previous Engage article.
Persistent debt rules
Repeat overdraft use rules
Monitoring a customer’s repayments for signs of actual or possible repayment difficulty
Suspending recovery of a debt for a reasonable period
As part of its amendments to the CONC conduct rules, the FCA is proposing the addition of two new Glossary definitions for ‘Debt Respite moratorium’ and ‘moratorium debt’.
Having discussed the Regulations with stakeholders, the FCA has not identified any MCOB rules or guidance which need clarifying or amending. It notes that, while the definition of ‘arrears’ used in the Regulations and its Handbook differs, it considers that ‘firms will understand the intended meaning clearly in any given context’.
Debt advice rules in CONC 8
the FCA decided that no changes are necessary.
However, it asks whether there are any other consumer credit rules or guidance that it should consider amending.
The Regulations will apply to debtors ordinarily resident or domiciled in England or Wales only, so firms will need to factor in the jurisdictional differences when looking at required systems, policies and processes changes.
Scotland already has a separate Debt Arrangement Scheme. As mentioned in HM Treasury’s June 2019 policy proposal response on the breathing space scheme, the government will continue to work with the Department for Communities and Department for the Economy in Northern Ireland to consider the introduction of an equivalent scheme in Northern Ireland.
The closing date for the consultation is 6 January 2021. The FCA makes it clear that the consultation invites feedback on its proposed changes to the Handbook, and does not constitute guidance on the interpretation or application of the Regulations. Separate government guidance on the Regulations for creditors and debt advice organisations is planned.
The Regulations have been approved by Parliament and are currently laid before Senedd Cymru. They are expected to come into force on 4 May 2021.
The government also intends to introduce a statutory debt repayment plan (SDRP) that would enable an individual in problem debt to enter into a formal agreement with their creditors to repay all of their debts over a manageable time period, whilst receiving protections from creditor action.
The Financial Services Bill 2019-21, which has just been introduced to Parliament, will amend the Financial Guidance and Claims Act 2018 (that made provision for the creation of the debt respite scheme, ie breathing space and the SDRP) to give the government the full range of powers it needs to implement the SDRP effectively. In particular, the explanatory notes to the Bill highlight that the amendments will mean that the SDRP can include debts owed to government, can be funded by a charging mechanism, and that creditors can be compelled to accept amended repayment terms. The explanatory notes also reiterate that the government intends to make the regulations to implement the SDRP over a longer timeframe and has not set a specific implementation date.
The projected impact of COVID-19 on individuals' finances reinforces the importance of being well prepared for the launch of breathing space. Banks and other creditors should consider the necessary changes to systems, policies and processes as soon as possible.