DECISION NOTICE

ACTION

1. With effect from 1 April 2014, Nationwide Debt Consultants Limited (“NDC”) was
granted interim permission pursuant to article 56 of the Amendment Order to carry on
the regulated activities of:

a. Debt adjusting, under article 39D of the RAO; and

b. Debt-counselling, under article 39E of the RAO.

2. By an application dated 1 September 2014, NDC applied under section 55A of the Act
for Part 4A permission to carry on these regulated activities. The Application was
complete.

3. For the reasons given in this Decision Notice, and in accordance with section 55X(4)
of the Act, the Authority has decided to refuse the Application.

EFFECT OF THIS DECISION NOTICE

4. As soon as this Decision Notice is given to NDC, NDC’s interim permission in respect
of the regulated activities of debt adjusting and debt-counselling immediately ceases
to have effect. This occurs automatically by operation of law (pursuant to article
58(1)(a) of the Amendment Order). From this time, NDC is no longer permitted to
carry on these regulated activities (unless otherwise authorised to do so or exempt for
the purposes of section 19 of the Act).

5. NDC may apply to the Tribunal to suspend this ceasing of effect: see paragraph 89
below.

SUMMARY OF REASONS

6. For the reasons set out herein, the Authority cannot ensure that, in relation to the
regulated activities for which Part 4A permission is sought, NDC will satisfy, and
continue to satisfy, the Threshold Conditions. Specifically, the Authority does not
consider that NDC will satisfy, and continue to satisfy, the Threshold Conditions in
paragraphs 2C (Effective supervision), 2D (Appropriate resources) and 2E (Suitability)
of Schedule 6 to the Act.

7. During its assessment of the Application, the Authority identified a number of failures
by NDC to meet regulatory requirements. These included that NDC:

a. did not keep orderly records that are sufficient to enable the Authority to
ascertain that the firm was complying with its obligations under CONC when
giving debt advice, contrary to SYSC 9.1.1R. This meant that the Authority
was not able to satisfy itself as to the quality of the firm’s debt advice;

b. did not include in its written advice to its customers the matters specifically
required by CONC 8.3.4R, 8.3.4R(1), 8.3.4R(2), 8.3.4R(3) and 8.8.1R(8);

c. sent unclear and misleading communications to customers in relation to the
level of fees they pay to NDC, in breach of CONC 3.3.1R;

d. had a quality assurance (“QA”) process in place that the Authority could not
be satisfied was adequate. In particular, as a result of the failings in the
firm’s record keeping, the firm was unable even to confirm which files had
been subject to QA; and

e. was charging, between April 2014 and October 2015, a significant number
of its customers fees that were over 50% of the customer’s disposable
income, in breach of CONC 8.7.2R(2).

8. After the Authority raised these matters with it, NDC made a number of changes to its
processes that it considered addressed the deficiencies in paragraphs 7a to 7d and
agreed to pay redress to the customers affected by the firm’s non-compliance with
CONC 8.7.2R(2). Having considered the changes made by NDC to its processes, and
having reviewed five recent sample files and a QA Log in respect of three of those
files, the Authority considers that the matters referred to in paragraph 7b, with the
exception of the concerns in relation to CONC 8.3.4R and 8.3.4R(1), and in
paragraphs 7c and 7e have been addressed going forward. However, the firm has not
been able to demonstrate to the Authority’s satisfaction that it has both fully
understood the extent of the remaining deficiencies identified by the Authority and
effectively implemented the necessary changes to rectify those deficiencies going
forward. The Authority considers that the firm’s failure to recognise the deficiencies

identified by the Authority, and to remedy adequately some of those deficiencies,
reflects on the adequacy and competence of the firm’s human resources, including at
a senior management level, and on the adequacy of its systems and controls.

9. Further, the Authority’s review of certain of NDC’s files, including the five recent
sample files, has led to the Authority having concerns about the suitability of the debt
advice provided by NDC which the Authority has been unable to address effectively
due to NDC’s inadequate record keeping. In particular, the Authority has been unable
to ascertain whether, and how, in recommending a debt management plan (“DMP”) to
a customer, NDC took due account of the customer’s interests, particularly in
circumstances where, in a high proportion of the files the Authority reviewed, the
customer had a low level of monthly disposable income, was required to pay a
relatively high proportion of that disposable income in fees to NDC, and was
recommended a DMP with a long duration.

10. The Authority considers the failures and concerns outlined above to be serious, in
particular NDC’s ongoing failure to keep records in compliance with SYSC 9.1.1R
which has prevented the Authority from assessing the quality of NDC’s debt advice.
Consumers who approach debt management firms are typically in difficult
circumstances and rely on the expertise and professionalism of such firms. As poor
debt advice can lead to consumers attempting to make payments to reduce their debt
that they cannot afford, it is particularly important that firms can demonstrate that
they have had due regard to customers’ interests and have given customers advice
which is appropriate for their individual circumstances.

11. The Authority’s concerns are heightened because NDC:

a. holds an interim permission and has therefore been required to comply with
the Authority’s regulatory requirements and standards since 1 April 2014;

b. was (between 19 November 2008 and 31 March 2014) licensed and
regulated by the OFT, which applied substantially the same standards to
debt management firms as the Authority has applied to them since April
2014; and

c. would, if authorised, need to be capable of continuing to satisfy the
Authority’s regulatory requirements and standards on its own initiative and
without supervision or guidance by the Authority.

12. Given the above, and in circumstances where (i) the firm failed to identify itself the
deficiencies in paragraph 7; (ii) the firm has not been proactive in ensuring
compliance with the applicable regulatory rules; (iii) the firm has been unable
adequately to address all of the failures and concerns identified by the Authority; and
(iv) the firm’s senior management has not sought to undertake any training, obtain
advice or provide for any expert external input, guidance or systems to be available to
the firm, the Authority does not have confidence that NDC is ready, willing and
organised to comply, and continue to comply, with the applicable regulatory
requirements.

13. As a result, the Authority is not satisfied that:

a. it will be able to monitor effectively NDC’s compliance with the regulatory
standards and requirements applicable to a firm carrying on the regulated
activities of debt adjusting and debt-counselling;

b. NDC has in place human resources (including at a senior management level)

that are both able and willing to understand, and ensure the firm complies
with, the applicable regulatory standards and requirements;

c. NDC has adequate processes, systems and controls in place, and is ready,
willing and organised to comply with the applicable regulatory standards and
requirements; and

d. NDC will conduct its business in an appropriate manner, having regard to
the interests of consumers.

14. In light of the above, the Authority cannot ensure that, if the Application were
granted, NDC would satisfy, and continue to satisfy, Threshold Conditions 2C
(Effective supervision), 2D (Appropriate resources) and 2E (Suitability).

15. The Authority has therefore decided to refuse the Application.

DEFINITIONS

16.
The definitions below are used in this Decision Notice.

“the Act” means the Financial Services and Markets Act 2000.

“the Amendment Order” means the Financial Services and Markets Act 2000
(Regulated Activities) (Amendment) (No 2) Order 2013.

“the Application” means the application referred to in paragraph 2 above.

“the Authority” means the Financial Conduct Authority.

“CFS” means Common Financial Statement.

“CONC” means the Consumer Credit sourcebook in the Handbook.

“COND” means the section of the Handbook entitled “Threshold Conditions”.

“DMP” means debt management plan.

“the Firm Visit” means the visit conducted by the Authority to NDC’s place of business
on 5 October 2015.

“the Handbook” means the Authority’s Handbook of Rules and Guidance.

“I&E” means income and expenditure.

“IVA” means individual voluntary arrangement.

“NDC” means the applicant, Nationwide Debt Consultants Limited.

“the OFT” means the body that before 1 April 2014 was known as The Office of Fair
Trading.

“QA” means quality assurance.

“RAO” means the Financial Services and Markets Act 2000 (Regulated Activities)
Order 2001.

“SUP” means the Supervision manual part of the Handbook.

“SYSC” means the Senior Management Arrangements, Systems and Controls
sourcebook in the Handbook.

“Threshold Conditions” means the threshold conditions set out in Schedule 6 to the
Act for which the Authority is responsible (see Annex A for more detail).

“the Tribunal” means the Upper Tribunal (Tax & Chancery Chamber).

“the Warning Notice” means the warning notice given to NDC on 5 October 2016.

FACTS AND MATTERS

Background to the firm

17. NDC is a debt management firm that was incorporated on 6 May 2008 and is
applying for Part 4A permission to carry on the regulated activities of debt adjusting
and debt-counselling.

18. Between 19 November 2008 and 31 March 2014, NDC held a licence with the OFT to
act as a debt management firm.

19. On 1 April 2014, NDC became regulated by the Authority under interim permission
reference 617802 and applied for full authorisation on 1 September 2014.

Overview of NDC’s business

20. NDC’s business model entails sourcing indebted customers who are seeking debt
advice. NDC offers advice on a range of debt solutions, although the only debt
solution offered in-house by NDC is a DMP. In the event that a customer is
recommended a debt solution other than a DMP, NDC refers that customer to an
external provider.

21. In order to advise customers on the available suitable debt solutions, NDC has to
engage in the regulated activities of debt-counselling (the giving of advice to a
consumer about the liquidation of a debt) and debt adjusting (most notably the
activity of negotiating the terms of the discharge of debt with a customer’s lenders).
NDC’s debt management services therefore fall under the Authority’s consumer
credit regime and the firm must be authorised by the Authority to carry out the
regulated activities set out in its business plan.

22. If NDC advises a customer that a DMP is a suitable means of dealing with their debts
and the customer agrees to enter into a DMP, NDC proceeds to negotiate with some
or all of the customer’s creditors to set up repayment plans in respect of each debt.
If an agreement is reached with one or more of the customer’s creditors, NDC
requires the customer to make monthly payments to NDC from which NDC deducts
its fees and then distributes the customer’s payments to the creditors who have
agreed to participate in the DMP in agreed monthly sums.

23. NDC’s principal source of income is from the monthly management fees it charges
customers who are on active DMPs. NDC’s most recent terms and conditions
indicate that the firm charges:

a. 17.5% of a customer’s monthly payment where the monthly payment is in
excess of £175.01;

b. a minimum fee of £20 where a customer’s monthly payment is less than

£60;

c. a minimum fee of £25 where a customer’s monthly payment is between
£60.01 and £125;

d. a minimum fee of £30 where a customer’s monthly payment is between
£125.01 and £150; and

e. a minimum fee of £35 where a customer’s monthly payment is between
£150.01 and £175.

Alternatively, where the fee is calculated based on the number of creditors a
customer has (as opposed to the amount of their monthly payment), NDC charges
£20 where a customer has between two and five creditors, with an additional £5
charged for up to every five additional creditors, subject to a maximum of £100.

24. In addition, NDC charges an arrangement fee equivalent to the first two monthly
payments which is evenly distributed over the first six months. However, since the
Authority reminded the firm in October 2015 of its obligation to comply with CONC
8.7.2R(2) (see paragraph 65 below), NDC has capped the total monthly fee payable
by a customer at 50% of the customer’s monthly disposable income.

25. According to information provided by NDC on 17 June 2016, NDC had 1,037 debt
management customers as at that date.

NDC’s Record Keeping

26. In accordance with SYSC 9.1.1R, a firm must arrange for orderly records to be kept
of its business and internal organisation, including all services and transactions
undertaken by it, which must be sufficient to enable the Authority to monitor the
firm’s compliance with the requirements under the regulatory system (and in
particular to ascertain that the firm has complied with all obligations with respect to
customers).

27. In the absence of these records, a firm is not able to demonstrate to the Authority
that it is complying with requirements under the regulatory regime and the Authority
is not able to ensure good consumer outcomes have and are being achieved;
further, the firm is not able to satisfy itself that it properly understands the
customer’s history, can provide accurate advice that the customer will understand
and can identify gaps in that information.

28. In order to comply with SYSC 9.1.1R, the Authority therefore considers that NDC
should keep orderly records that are sufficient to enable the Authority to ascertain
that the firm has complied with its obligations under CONC 8 (i.e. in relation to the
giving of debt advice). SYSC 9.1.1R is not prescriptive as to the precise form in
which these records must be kept, provided that the overarching requirements of
that rule are met.

29. During its assessment of the Application, the Authority identified deficiencies in
NDC’s record keeping. The bases for the Authority’s concerns were:

a. During the Firm Visit, Mr Ali (the sole director of NDC) stated that NDC did
not keep notes of advice given to customers.

b. A review of the 25 customer files in relation to which NDC provided
new/initial advice to customers during the period 7 March 2016 to 17 May

2016 confirmed that NDC did not keep notes of the I&E assessments
carried out. In each case, NDC’s record of the I&E assessment and the
advice given during the meeting was limited to one or two sentences.

30. Given the limited nature of the firm’s record keeping, the Authority was unable to
assess from reviewing the files whether in each case NDC complied with a number of
relevant regulatory requirements in CONC 8 in relation to each (or indeed any) of
the 25 customers. The Authority was concerned by this because I&E assessments
are where NDC should be carrying out a reasonable and reliable assessment of the
customer’s financial and personal circumstances so that the customer can be
advised of the most appropriate debt solution. Accordingly, the Authority could not
be satisfied that the advice provided to these customers over the telephone was in
compliance with, for example, CONC 8.3.7R(2) and (5), 8.3.2R(1) to (3), 8.3.4R and
8.5.4R(1) and (2).

31. By way of example, the entry for the “advice assessment” in the case of customer
293591 only stated “advised client IVA based on circumstances”. Given the brevity
of the note, the Authority could not identify (for example) what specific information
the firm gathered as part of the fact-find, if the firm carried out a reasonable and
reliable assessment of the customer’s circumstances, the range of debt solutions
discussed with the customer (and what was discussed about each solution), if the
customer was provided with appropriate advice and if the customer was on a
suitable debt solution.

32. The Authority raised the deficiencies in NDC’s record keeping with the firm by way of
a letter dated 1 September 2016. In response, NDC acknowledged that the customer
files contained a “lack of detailed notes and documented evidence” and stated that it
had updated its record keeping policy and that “all records are now retained and
archived”.

33. However, in that response NDC did not provide sufficient evidence to demonstrate
that, going forward, it had established and effectively implemented a record keeping
policy that ensured it complies with SYSC 9.1.1R.

34. On 21 October 2016, in response to the Authority’s concerns in this area as set out
in the Warning Notice, NDC provided the Authority with five recent sample customer
files which, it stated, demonstrated that its record keeping now complies with SYSC
9.1.1R.

35. Whilst the notes within these five files of the firm’s advice calls are more detailed
than previously, the Authority considers that they still do not contain enough
information for either the Authority or the firm itself to know what advice was given
to each individual customer and on what basis that advice was provided.
Accordingly, the Authority is unable to assess from reviewing the files whether NDC
has complied with a number of relevant regulatory requirements in CONC 8,
including:

a. CONC 8.3.2R(2), as the notes of the advice calls are not sufficiently
detailed to enable the Authority to determine whether NDC provided the
customers with sufficient information about the available options identified
as suitable for the customers’ needs (such as the advantages,
disadvantages, risks, costs and estimated plan duration of the options
identified as suitable); and

b. CONC 8.3.2R(3), as the notes of the advice calls are not sufficiently
detailed to enable the Authority to determine whether NDC explained the

reasons why the firm considered a DMP or other options (such as self-
management, a consolidation loan or full and final settlement) suitable or
unsuitable for the customers.

Suitability of advice given

36. As mentioned in paragraph 30 above, the limited nature of NDC’s record keeping
meant that the Authority could not be clear, when assessing the 25 files, what steps,
if any, the firm took when giving advice. However, there were a number of
indications in the 25 files that the firm may not have given suitable advice:

a. For customer 293593, on 10 March 2016 the file states that the customer
was advised that an IVA was the most suitable debt solution but, as the
customer was not in possession of all creditor information, a DMP was
advised temporarily whilst the customer collected this information. The
records for this customer go up to 27 June 2016 and there is no indication
on the file that, since 10 March 2016, NDC reminded the customer to
obtain all creditor information or that the firm took any other action to
ensure that the customer was on what it had identified as the most
suitable debt solution.

b. For customer 293591, NDC recorded on the customer’s financial statement
an expenditure of £150 for housekeeping for a one-person household.
Notwithstanding that this was only 43% of the relevant CFS guideline of
£348 (which, according to information provided by NDC during the
Authority’s assessment of the Application, the firm uses to assist it in
assessing expenditure levels), there was no evidence on the file that the
firm explored this with the customer and obtained an adequate
explanation.

c. For customer 293597, NDC recorded on the customer’s financial statement
an expenditure of £240 for housekeeping for a two-person household.
Notwithstanding that this was only 41% of the relevant CFS guideline of
£584, there was no evidence on the file that the firm explored this with
the customer and obtained an adequate explanation.

d. For customer 293646, the file states that the customer cannot speak
English. Notwithstanding this, there was no evidence on the file that NDC
ensured that the customer understood the correspondence and advice (for
example, by obtaining confirmation that the customer was being assisted
by someone who could speak both English and their language).

e. Information provided by NDC to the Authority showed that 21 of the 25
customers had monthly disposable income of £100 or less, and 16 of these
21 customers were paying 50% of their monthly disposable income in fees
to NDC (with the other five customers all paying over 38% of their
monthly disposable income in fees to NDC). The Authority has also seen
details of the duration of the DMP for 12 of the 25 customers, 10 of whom
had monthly disposable income of £100 or less, and the expected duration
of the DMP for seven of those 10 customers was over 10 years, with the
longest being over 90 years. In light of NDC’s inadequate record keeping,
the Authority is unable to ascertain whether, and how, NDC took into
account a customer’s low level of monthly disposable income and the
relatively high proportion that they were paying in fees in advising the
customer that a DMP of many years’ duration was suitable for them.
Without such information, the Authority cannot satisfy itself that NDC gave

advice having regard to the best interests of its customers.

37. In addition, the Authority considers that the five sample customer files mentioned in
paragraph 34 above did not alleviate its concerns as to the suitability of the advice
provided by NDC. In all these five cases, the notes in the files failed to reassure the
Authority that the advice provided by NDC had regard to the best interests of the
customer (as required by CONC 8.3.2R(1)(a)) and/or was appropriate to the
customer’s individual circumstances (as required by CONC 8.3.2R(1)(b). The
Authority identified the following issues:

a. In three of the files NDC recommended a DMP with a duration of over 40
years, but it was not clear why NDC considered that a DMP was in the best
interests of the customer and appropriate to their individual circumstances
given the very long period before the debt would be liquidated and the
very large cumulative fees that would be paid throughout the life of the
DMP.

b. In two of the files NDC’s advice appeared to be based on an assumption
that the customer’s financial circumstances would improve in the near
future, but the file did not include an adequate justification for that
assumption.

c. The customers had informed NDC that they had a level of monthly
disposable income of between £50 and £150. In each case, the customer
was required to pay 50% of their monthly disposable income in fees to
NDC for the first six months, and between 20% and 50% of their monthly
disposable income in fees to NDC thereafter. The level of a customer’s
monthly disposable income, and the proportion which a customer would
have to pay in fees, are relevant factors that should be taken into account
in considering whether a DMP is the appropriate solution for that
customer. The possibility of the customer not carrying on with the DMP for
its intended duration would also need to be evaluated. However, none of
the five files contain any information regarding whether and how NDC took
these factors into account in advising on the suitability of the DMPs.
Without such information, the Authority cannot satisfy itself that NDC gave
advice having regard to the best interests of its customers.

38. In light of the above, the Authority considers that NDC does not keep records in a
manner compliant with SYSC 9.1.1R. As a result, the Authority cannot identify
whether NDC's debt advice is given in a manner that complies with CONC 8. This is of
particular concern as the CONC provisions are designed to ensure that customers:

a. are provided with advice that is specific to their financial and personal
circumstances (and highlights the risks they face), and is not generic
advice;

b. are only advised to take out a DMP where this is suitable for them, taking
into account their individual circumstances;

c. are given information about the available options that is sufficient for them
to make an informed choice as to how they wish to proceed; and

d. understand and are kept apprised of the steps being taken by the firm on
their behalf.

39. The Authority therefore considers that the provisions of CONC 8 referred to in
paragraph 30 above are significant ones; this is especially so when one considers the
difficult circumstances faced by consumers who approach debt management firms
and the reliance they place on the expertise and professionalism of such firms.

40. In addition, the limited nature of NDC’s record keeping in relation to the basis of the
advice that the firm provided has also affected the Authority’s ability to address
effectively the concerns with the suitability of that advice that it has identified from
its review of the 25 customer files (see paragraph 36) and the five recent sample
files (see paragraph 37). In particular, the Authority has been unable to ascertain
whether, and how, in recommending a DMP to a customer, NDC took into account
the low level of the customer’s monthly disposable income (i.e. £100 per month or
less), the relatively high proportion that the customer would pay in fees to NDC
(50% or not much lower), and the long duration of the DMP (over 10 years), that
were features in a high proportion of the files that the Authority reviewed.

41. Further, the firm’s failure to demonstrate that it has effectively implemented record
keeping arrangements that comply with SYSC 9.1.1R, during a period where failures
were being identified by the Authority, reflects on the adequacy and competence of
the firm’s human resources, including at a senior management level.

Adequacy of advice documentation

42. The Authority assessed the 25 files mentioned in paragraph 29(b) above against
certain of the rules in CONC. Given the impact of the record keeping failing set out
above (see for example paragraph 30), the Authority was generally only able to
assess the adequacy of the firm’s written advice documentation sent to customers.

43. The Authority found that in 16 of the 25 customer files NDC had failed to comply with
CONC 8.3.4R, and that in each of the 25 customer files NDC had failed to comply
with CONC 8.3.4R(1), 8.3.4R(2), 8.3.4R(3)(a) to (e) and 8.8.1R(8). In addition,
throughout this period NDC failed to comply with CONC 8.2.4R(2).

44. These rules are set out in Annex A and are aimed at ensuring, amongst other things,
that customers are properly advised as to their options (and so can make an
informed decision) in respect of their debts and that customers are kept apprised of
the firm’s progress in dealing with their debts. The Authority was therefore concerned
by the nature and level of the failings identified (both when each rule is looked at
individually and collectively).

45. The Authority raised these failings with NDC in its letter of 1 September 2016 (see
paragraph 32). In its response on 15 September 2016, NDC provided updated
customer documentation. The Authority has carefully reviewed the updated customer
documentation and considers that it meets the requirements of CONC 8.3.4R(2) and
(3) and 8.8.1R(8). In addition, the Authority considers that NDC is now compliant
with CONC 8.2.4R(2). However:

a. the firm has not demonstrated that it has taken adequate steps to resolve
the remaining breaches (of CONC 8.3.4R and 8.3.4R(1)) going forward
(i.e. that the necessary changes have been made and effectively
implemented); and

b. the Authority notes that NDC did not identify and rectify the CONC
8.3.4R(2) and (3), 8.8.1R(8) and 8.2.4R(2) failings of its own volition, but
only rectified them once they were drawn to its attention by the Authority.


46. The Authority considers that the firm’s failure to identify the above failings, and to
rectify adequately some of them (even after they were drawn to its attention by the
Authority), reflects on the adequacy and competence of the firm’s human resources,
including at a senior management level, and on the adequacy of its systems and
controls.

Unclear and misleading fees information provided to customers

47. In reviewing the 25 files referred to above, the Authority identified that NDC’s
“Welcome to NDC” letter did not accurately reflect the fees that the customer
subsequently paid to the firm.

48. By way of example, in the case of customer 293615, the “Welcome to NDC” letter
dated 13 April 2016 stated:

“During our discussion you advised us that you have approximate outstanding
balances totalling £22142.00. After assessing your financial circumstances we
calculated you have a monthly disposable income of £55.00 per month. We
distribute payments to your creditors from month one and evenly distribute
our fees over the first 6 months which is equivalent to your first two months
payment totalling £110.00, any further fees will be charged over the
remaining lifetime of your plan.

There is an on-going monthly management fee equivalent to 17.50% of your
monthly payment subject to a minimum fee of £20 per month depending on
number of creditors and the complexity of your file. Based on your estimated
plan of £55.00 per month this will be £20.00 per month and we use this to
pay for the ongoing costs of administering your plan.”

49. The Authority considers this letter to be unclear as to whether, in addition to paying
fees to NDC of £18.33 per month for the first six months of the DMP (i.e. £110 over
six months), the customer would be paying the ongoing monthly management fee of
£20 from the first month or only after the first six months. In fact, information
provided by NDC on 17 June 2016 shows that this customer was actually paying
£27.50 a month in fees to the firm, a figure which is not reflective of either the
stated arrangement fee (£110 over 6 months), the ongoing monthly management
fee (£20) or the combined total of the two fees (£38.33 per month).

50. The Authority considers that the “Welcome to NDC” letters sent by NDC to 12 of the
25 customers whose files were reviewed were unclear and misleading in a similar
way, because their description of the fee to be paid was confusing and because they
did not provide the accurate fee that these customers were paying to the firm.
Accordingly, the Authority considers that NDC was not complying with CONC 3.3.1R.

51. The Authority raised concerns with the “Welcome to NDC” letter with NDC on 1
September 2016. In its response, NDC “acknowledge[d] that [the firm’s] fees can be
easily misunderstood by clients and [that the firm] needs to be clear in explaining
that [the] management fee is payable from the first month in addition to the set-up
fee at a maximum of 50% [of the customer’s monthly disposable income]” and
stated that it had, in light of the Authority’s concern, amended its customer
documentation to make the fees information “more detailed and easier to
understand”. The Authority considers that the fees information in the amended
documentation is not unclear or misleading, but notes that the amendments to the
customer documentation were made only after the Authority drew this matter to the
firm’s specific attention.

52. The firm’s failure to identify and rectify these failings without prompting by the

Authority reflects on the adequacy of the firm’s human resources, including at a
senior management level, and its ability to take due account of the interests of
customers.

NDC’s QA Process

53. During its assessment of the Application, the Authority identified concerns with the
adequacy of NDC’s systems and controls in relation to its QA process.

54. During the Firm Visit, Mr Ali stated that both he and NDC’s only other debt advisor
carry out QA in respect of each other’s cases and that 10% of all debt advice cases
are quality assured.

55. On 18 February 2016 and 7 June 2016, the Authority asked NDC to provide copies of
all policies, procedures and guidance, including the QA policy. The Authority did not
receive the QA policy in response to these requests; the QA policy was only provided
on 15 September 2016 after the Authority had formally set out its concerns to NDC.

56. Further, when the Authority asked NDC on 7 June 2016 to provide information in
relation to its book of debt management customers, it asked the firm to include
details of which customers’ files had been subject to a QA review by NDC. However,
NDC did not comply with this part of the Authority’s request. On 21 June 2016 Mr Ali
informed the Authority that this QA information had not been provided as NDC was
unable to determine which customer files had undergone a QA assessment.

57. On 21 October 2016, in its written response to the Warning Notice, NDC informed the
Authority that it had reviewed its QA procedure and had put in place a QA register.
It provided the Authority with a document entitled ‘Quality Assurance Log’ (i.e. the
QA register) which showed that three of the five sample customer files mentioned in
paragraph 34 above had been through the QA process between 10 and 19 October
2016 and that, for all three files, no compliance breaches had been found, no actions
were required to rectify any breaches and the advice process met the Authority’s
rules and guidance. On 30 November 2016 Mr Ali informed the Authority that it was
he who had carried out the QA review in respect of these three cases and that he
carries out the vast majority of the QA reviews.

58. The Authority reviewed the QA Log and the three files and identified the following
issues:

a. the limited notes in the files (see paragraph 35 above) meant that it was
not possible to ascertain from the files whether suitable advice had been
given. When this issue was raised with Mr Ali on 30 November 2016, Mr
Ali replied that he asked the adviser whose work he was assessing to
confirm that, in giving advice, the applicable CONC rules had been
complied with. Mr Ali failed to appreciate that a QA process which relies
on verbal assurances from an adviser that they had acted appropriately is
clearly inadequate;

b. the QA Log does not enable either NDC or the Authority to determine
which files went through the QA process before the QA Log was created;

c. the QA Log does not include details of who carried out the QA review;

d. none of the files which went through the QA process contain any records
(such as a QA checklist) to demonstrate that they have gone through the
QA process;

e. it is not clear, either from the QA Log or from the files, how relevant
compliance issues had been considered in the QA process; and

f.
Mr Ali failed to identify the concerns identified by the Authority in its
review of the same files (as set out in paragraphs 35 and 37 above).

59. Mr Ali also informed the Authority on 30 November 2016 that he relied on his own
experience to satisfy himself that he would carry out a QA review properly and that
he had not considered it necessary to seek the assistance of any independent third
party in rectifying any of the issues identified by the Authority since NDC became
regulated by the Authority. The fact that Mr Ali has not sought to undertake any
training, and has not sought to obtain advice or provide for any expert external
input, guidance or systems to be available to the firm, despite being aware that
neither he nor anyone else in the firm had identified the failings that the Authority
had pointed out to NDC, is of concern to the Authority, in particular because of his
statement that he carries out the vast majority of the QA reviews.

60. Given the importance of the QA process (both in detecting issues with frontline
advice and in feeding into management information for senior management) in
ensuring a firm achieves suitable customer outcomes, the Authority is not satisfied
that NDC has made arrangements to put in place an adequate QA process to comply
with the requirements and standards for which the Authority is responsible under the
regulatory system.

61. Further, the Authority considers that the firm’s failure to provide the QA policy until
seven months after the Authority had requested it and its failure to put in place an
effective QA process, during a period when the firm was being evaluated by the
Authority and failings were being brought to its attention, reflects on the adequacy
and competence of the firm’s human resources, including at a senior management
level, as well as with the adequacy of its systems and controls.

Concerns as to level of fees

62. A firm must ensure that the obligations of a customer in relation to the amount, or
the timing of the payment, of its fees and charges do not undermine the customer’s
ability to make significant repayments to their lenders throughout the DMP, starting
with the first month of the plan (CONC 8.7.2R(2)). CONC 8.7.3G(1) gives guidance
that an obligation is likely to be viewed as undermining the customer's ability to
make significant repayments to their lenders if it has the effect that the firm may
allocate more than half of the sums received from the customer in any one-
month period from the start of the DMP to the discharge (in whole or in part) of its
fees or charges.

63. Between April 2014 and October 2015 NDC charged a number of its customers fees
that were not in compliance with CONC 8.7.2R(2), i.e. fees that were over 50% of
the customer’s disposable income and therefore had the potential to undermine the
customer’s ability to make significant repayments to their lenders. Further, as set out
below, the Authority considers that NDC failed to act in its customers’ interests by
not promptly arranging to put these customers in the position they should have been
in had NDC complied with CONC 8.7.2R(2). This is of significant concern given that it
is likely (given the nature of customers who seek assistance from debt management
firms) that these customers included those of limited means and/or in vulnerable
circumstances.

64. Following a review of information supplied by NDC on 4 September 2015, the

Authority noted that approximately 250 out of NDC’s 1,122 DMP customers were
paying over 50% of their disposable income in fees to NDC each month.

65. The Authority contacted NDC on 21 October 2015 in relation to its non-compliant fee
structure during the period 1 April 2014 to 21 October 2015. Mr Ali’s response was
that, until the Authority’s engagement on this issue, he had been unaware that the
CONC rules on fees applied to customers who had been taken on as customers
before 1 April 2014. NDC stated in response to the Authority’s concern about the
firm’s misunderstanding of the CONC rules on fees that the firm had “misinterpreted”
these rules. The Authority considers that NDC’s failure to recognise its non-
compliance with CONC 8.7.2R(2) over a prolonged period demonstrates that the firm
does not pay sufficient regard to the interests of consumers and also reflects on the
adequacy and competence of the firm’s human resources, including at a senior
management level, and on the adequacy of its systems and controls.

66. On 2 November 2015 the Authority asked NDC to pay redress to the affected
customers. In a conference call on 4 November 2015, Mr Ali displayed some initial
reluctance to pay redress, on the basis that he had only become aware of the issue
upon notification by the Authority and that he had ensured that, going forward, the
firm would be compliant with the CONC rules. After further discussion, on 4
November 2015 Mr Ali agreed to provide redress to the affected customers.

67. On 5 November 2015, Mr Ali stated in an email “I would like to confirm that as per
our discussion on 4th November 2015 I am happy to refund the clients identified as
being overcharged the redress…Finally I am committed to provide the redress and
would be more comfortable in releasing the redress funds soon as authorisation is
granted.” In an email to the Authority dated 10 November 2015, NDC stated “I will
be happy to provide the redress but I need some reassurance that FCA authorisation
will be granted. I need confidence so I can keep colleagues reassured because due to
delay in authorisation and uncertainty in the market they been anxious and worried
about their jobs and it is difficult to retain good colleagues.”

68. The Authority recognises that redress was willingly provided to the affected
customers, but is concerned that NDC did not seek to provide redress promptly and
unconditionally. The Authority therefore cannot be satisfied that, in the absence of
close supervision of NDC by the Authority, the firm’s senior management will pay due
regard to the interests of NDC’s customers and ensure that they are treated fairly.

IMPACT ON THE THRESHOLD CONDITIONS

69. The regulatory provisions relevant to this Warning Notice are referred to in Annex A.

70. In light of the facts and matters set out above and for the reasons set out below, the
Authority cannot ensure, in respect of the regulated activities of both debt adjusting
and debt-counselling, that if the Application were granted NDC will satisfy, and will
continue to satisfy, Threshold Conditions 2C (Effective supervision), 2D (Appropriate
resources) and 2E (Suitability).

Threshold Condition 2C: Effective supervision

71. Threshold Condition 2C requires that a firm must be capable of being effectively
supervised by the Authority having regard to all the circumstances. This includes
retaining orderly records of its business (including of the advice provided by the firm
and information gathered from its customers) that are sufficient for the Authority to
be able to monitor compliance with regulatory requirements.


72. The Authority does not consider that NDC satisfies, and will continue to satisfy,
Threshold Condition 2C, in particular in relation to its debt-counselling activities, in
light of the concerns identified above as regards NDC’s record keeping and QA
process. Despite the Authority notifying NDC of its concerns with NDC’s record
keeping and QA process, and despite NDC taking action to attempt to address those
concerns, NDC continues to have inadequate records of the advice it has given and of
the basis for that advice and, as a consequence, an inadequate QA process, and
appears to be unaware of these deficiencies. The Authority therefore considers that
NDC’s record keeping and QA process are not sufficient to enable the Authority to
monitor effectively the firm’s compliance with the regulatory provisions in CONC
relating to the giving of debt advice.

Threshold Condition 2D: Appropriate resources

73. Threshold Condition 2D requires that a firm’s resources must be appropriate in
relation to the regulated activities conducted or proposed. As COND 2.4.2G(2)
provides, ‘appropriate resources’ includes financial and ‘non-financial resources’ such
as human resources, effective means by which to manage risks and any systems,
controls, plans or policies that the firm maintains. In this context, the Authority will
interpret ‘appropriate’ as meaning sufficient in terms of quantity, quality and
availability. Consideration will be given to whether these resources are sufficient to
enable the firm to comply with the requirements imposed or likely to be imposed on
the firm in the course of the exercise of its functions.

74. NDC has not demonstrated that it has senior management with adequate
competence to both understand the applicable regulatory requirements and be able
to ensure, either through their own actions or through implementing effective
systems and controls, that the firm complies with them of its own accord. As a
result, the Authority is not satisfied that NDC has in place human resources
(including at a senior management level) that are both able and willing to understand
and ensure the firm complies with regulatory standards and requirements.

75. The Authority’s concerns with NDC’s human resources (including at senior
management level) are based on:

a. NDC’s failure to identify and rectify, on its own volition and without
prompting from the Authority, its failures to comply with CONC and/or
SYSC regulatory requirements in relation to: record keeping; its written
advice documentation; its communications regarding the level of fees to
be paid by its customers; its QA process; and the level of its fees;

b. The fact that NDC has not been proactive in ensuring compliance with the
applicable regulatory rules, but has instead only reacted to concerns raised
by the Authority;

c. NDC’s failure to demonstrate, even after regulatory failings had been
drawn to its attention by the Authority, that it had taken adequate steps to
resolve all rule breaches going forward (i.e. that necessary changes had
been made and effectively implemented), in relation to: record keeping;
its written advice documentation; and its QA process;

d. Mr Ali’s failure, when carrying out a QA review of three recent files which
had been created after NDC had taken all steps that it considered were
required to address the deficiencies identified by the Authority, to identify
concerns identified by the Authority in its review of the same files; and


e. Mr Ali’s decision not to seek expert external advice, guidance or
assistance, nor to undertake or ask others to undertake any training, in
order to enable NDC and its management to improve their understanding
of the regulatory requirements that the firm must comply with and
enhance the firm’s ability to ensure proactively its compliance with its
regulatory obligations.

76. As a result of these concerns, the Authority does not consider that it can ensure that
NDC satisfies, and will continue to satisfy, Threshold Condition 2D.

Threshold Condition 2E: Suitability

77. Threshold Condition 2E requires that, inter alia, a firm must be fit and proper having
regard to all the circumstances, including the need to ensure that its affairs are
conducted in an appropriate manner, having regard in particular to the interests of
consumers and the integrity of the UK financial system.

78. NDC has not satisfied the Authority that it is a fit and proper person having regard to
all the circumstances, including the nature of the regulated activities that it seeks to
carry on. In particular, the Authority considers NDC’s lack of fitness and propriety to
be evidenced by:

a. its failure to put in place adequate processes to comply with applicable
regulatory requirements and standards, in particular in relation to its
record keeping and QA process, despite being regulated by the Authority
since 1 April 2014 and previously by the OFT (which applied substantially
the same standards);

b. its failure to recognise its failings, including its prolonged failure to
recognise that it was overcharging a significant proportion of its
customers;

c. its failure to take any pre-emptive steps to remedy its failings; and

d. its apparent lack of awareness of issues that might cause harm to
consumers, as demonstrated by its provision of inadequate advice
documentation and unclear and misleading fees information to customers,
and by its initial reluctance to pay redress promptly to customers that it
had overcharged.

79. Further, following its review of certain of the firm’s files, including five recent sample
files, the Authority has concerns with the suitability of the advice given by NDC, as
the files indicate that NDC may not have had regard to the best interests of the
customer in recommending a DMP.

80. These concerns lead the Authority to conclude that NDC is not fit and proper having
regard to all the circumstances, including the need to ensure that its affairs are
conducted in an appropriate manner. Accordingly, the Authority does not consider
that it can ensure that NDC satisfies, and will continue to satisfy, Threshold
Condition 2E.

REPRESENTATIONS

81. Annex B contains a brief summary of the key representations made by NDC and how
they have been dealt with. In making the decision which gave rise to the obligation
to give this Decision Notice, the Authority has taken into account all of the

representations made by NDC, whether or not set out in Annex B.

PROCEDURAL MATTERS

82. This Decision Notice is given under section 55X(4)(f) and in accordance with section
388 of the Act.

83. The following paragraphs are important.

Decision maker

84. The decision which gave rise to the obligation to give this Decision Notice was made
by the Regulatory Decisions Committee.

The Tribunal

85. NDC has the right to refer the matter to which this Decision Notice relates to the
Tribunal. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper
Tribunal) Rules 2008, NDC has 28 days from the date on which this Decision Notice is
given to it to make a reference to the Tribunal. A reference to the Tribunal is made
by way of a signed reference form (Form FTC3) filed with a copy of this Decision
Notice. The Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery
Chamber, Fifth Floor, Rolls Building, Fetter Lane, London EC4A 1NL (tel: 020 7612
9730; email: fs@hmcts.gsi.gov.uk).

86. Further information on the Tribunal, including guidance and a link to ‘Forms and
leaflets’ which include Form FTC3 and notes on that form, can be found on the HM
Courts and Tribunal Service website:

http://www.justice.gov.uk/tribunals/tax-and-chancery-upper-tribunal

87. A copy of Form FTC3 must also be sent to Garry Hunter at the Financial Conduct
Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS at the same time
as filing a reference with the Tribunal.

88. Once any such referral is determined by the Tribunal and subject to that
determination, or if the matter has not been referred to the Tribunal, the Authority
will issue a Final Notice about the implementation of that decision.

89. As part of a reference, NDC may ask the Tribunal to grant an order under rule 5(5) of
the Tribunal Procedure (Upper Tribunal) Rules 2008 suspending the ceasing of its
interim permission pending the Tribunal’s substantive decision on the matter.

Access to evidence

90.
Section 394 of the Act does not apply to this Decision Notice.

Confidentiality and publicity

91. This Decision Notice may contain confidential information and should not be disclosed
to a third party (except for the purpose of obtaining advice on its contents). In
accordance with section 391 of the Act, a person to whom this Decision Notice is
given or copied may not publish the Decision Notice or any details concerning it
unless the Authority has published the Decision Notice or those details.

92. However, the Authority must publish such information about the matter to which a

decision notice or final notice relates as it considers appropriate. NDC should
therefore be aware that the facts and matters contained in this Decision Notice may
be made public.

Authority contacts

93. For more information concerning this matter generally, contact Garry Hunter, Senior
Manager, Authorisations Division at the Authority (direct line: 020 7066 2518 /
email: garry.hunter@fca.org.uk).





Beverley Walker, Manager, DMC Secretariat, on behalf of

Peter Hinchliffe

Deputy Chair, Regulatory Decisions Committee

ANNEX A – REGULATORY PROVISIONS RELEVANT TO THIS DECISION NOTICE
Relevant Statutory Provisions

1. Section 55A(1) of the Act provides for an application for permission to carry on one
or more regulated activities to be made to the appropriate regulator. Section 55A(2)
defines the “appropriate regulator” for different applications.

2. Section 55B(3) of the Act provides that, in giving or varying permission, imposing or
varying a requirement, or giving consent, under any provision of Part 4A of the Act,
each regulator must ensure that the person concerned will satisfy, and continue to
satisfy, in relation to all of the regulated activities for which the person has or will
have permission, the Threshold Conditions.

3. Section 55X(4)(f) of the Act provides that, if a regulator decides to refuse an
application under Part 4A of the Act, it must give the applicant a decision notice.

4. Under article 58(1)(a) of the Amendment Order, a firm’s interim permission, in so far
as it relates to the regulated activities of debt adjusting and debt-counselling, ceases
to have effect, if the firm applies to the appropriate regulator for Part 4A permission
to carry on those activities, on the date on which that application is determined.

5. The Threshold Conditions that relate to the Application are set out in Part 2 of
Schedule 6 to the Act. In brief, the Threshold Conditions are:

(1) Threshold condition 2B: Location of offices

(2) Threshold condition 2C: Effective supervision

(3) Threshold condition 2D: Appropriate resources

(4) Threshold condition 2E: Suitability

(5) Threshold condition 2F: Business model

Relevant provisions of the Handbook

Threshold Conditions - COND

6. In exercising its powers in relation to the granting of a Part 4A permission, the
Authority has regard to guidance published in the Handbook, including COND.
Provisions relevant to the consideration of the Application include those set out
below.

General guidance

7. COND 1.3.2G(2) states that, in relation to Threshold Conditions 2D to 2F, the
Authority will consider whether a firm is ready, willing and organised to comply on a
continuing basis with the requirements and standards under the regulatory system
which will apply to the firm if it is granted Part 4A permission.

8. COND 1.3.3BG provides that, in determining whether the firm will satisfy, and
continue to satisfy, the Threshold Conditions, the Authority will have regard to all
relevant matters, whether arising in the United Kingdom or elsewhere.

Threshold Condition 2C: Effective supervision

9. COND 2.3.1A(1) states that a firm must be capable of being effectively supervised by
the Authority having regard to all the circumstances including the way in which the
firm’s business is organised.

10. COND 2.3.3G states that, when the Authority is assessing Threshold Condition 2C,
factors which the Authority will take into consideration include, among other things,
whether it is likely that the Authority will receive adequate information from the firm,
and those persons with whom the firm has close links, to enable it to determine
whether the firm is complying with the requirements and standards under the
regulatory system for which the Authority is responsible and to identify and assess
the impact on its statutory objectives; this will include consideration of whether the
firm is ready, willing and organised to comply with Principle 11 (Relations with
regulators) and the rules in SUP on the provision of information to the Authority.

Threshold Condition 2D: Appropriate resources

11. COND 2.4.2G(2) states that the Authority will interpret the term 'appropriate' as
meaning sufficient in terms of quantity, quality and availability, and 'resources' as
including all financial resources (though only in the case of firms not carrying on, or
seeking to carry on, a PRA-regulated activity), non-financial resources and means of
managing its resources; for example, capital, provisions against liabilities, holdings of
or access to cash and other liquid assets, human resources and effective means by
which to manage risks.

12. COND 2.4.2G(3) states that high level systems and control requirements are in
SYSC. The Authority will consider whether the firm is ready, willing and organised to
comply with these and other applicable systems and controls requirements when
assessing if it has appropriate non-financial resources for the purpose of Threshold
Condition 2D.

13. COND 2.4.4G states that, when assessing whether a firm has appropriate resources,
the Authority will have regard to matters including whether the firm has taken
reasonable steps to identify and measure any risks of regulatory concern that it may
encounter in conducting its business and has installed appropriate systems and
controls and appointed appropriate human resources to measure them prudently at
all times.

Threshold Condition 2E: Suitability

14. COND 2.5.1A UK states that the applicant must be a fit and proper person having
regard to all the circumstances, including the need to ensure that the firm's affairs
are conducted in an appropriate manner, having regard in particular to the interests
of consumers and the integrity of the UK financial system.

15. COND 2.5.2G(2) states that the Authority will also take into consideration anything
that could influence a firm's continuing ability to satisfy Threshold Condition 2E.

16. COND 2.5.4G(2)(c) states that examples of the kind of general considerations to
which the Authority may have regard when assessing whether a firm will satisfy, and
continue to satisfy, Threshold Condition 2E include, but are not limited to, whether
the firm can demonstrate that it conducts, or will conduct, its affairs with the
exercise of due skill, care and diligence.

17. COND 2.5.6G provides that examples of the kind of particular considerations to which
the Authority may have regard when assessing whether a firm will satisfy, and

continue to satisfy, this Threshold Condition include, but are not limited to, whether:

(1) The firm is ready, willing and organised to comply with the requirements
and standards under the regulatory system (such as the detailed
requirements of SYSC and, in relation to a firm not carrying on, or
seeking to carry on, a PRA-regulated activity only, the Prudential
Standards part of the Authority’s Handbook) in addition to other legal,
regulatory and professional obligations; the relevant requirements and
standards will depend on the circumstances of each case, including the
regulated activities which the firm has permission, or is seeking
permission, to carry on.

(1A) The firm has made arrangements to put in place an adequate system of
internal control to comply with the requirements and standards for which
the Authority is responsible under the regulatory system.

Consumer Credit Sourcebook - CONC

18. This section of the Handbook is the specialist sourcebook for credit-related regulated
activities. As provided in CONC 1.1.2G, the purpose of CONC is to set out the
detailed obligations that are specific to credit-related regulated activities and
activities connected to those activities carried on by firms. These build on and add to
the high-level obligations, for example, in PRIN, GEN and SYSC, and the
requirements in or under the CCA.

19. CONC 3.3.1R(1) states that a firm must ensure that a communication or financial

promotion must be clear, fair and not misleading.

20. CONC 8.2.4R states that a debt management firm must prominently include:

(2) on its web-site the following link to the Money Advice Service web-site

21. CONC 8.3.2R states that a firm must ensure that:

(1)
all advice given and action taken by the firm or its agent or its appointed
representative:

(a)
has regard to the best interests of the customer;

(b)
is appropriate to the individual circumstances of the customer; and

(c)
is based on a sufficiently full assessment of the financial
circumstances of the customer;

(2)
customers receive sufficient information about the available options
identified as suitable for the customers’ needs; and

(3)
it explains the reasons why the firm considers the available options
suitable and other options unsuitable.

22. CONC 8.3.4R states that, a firm must ensure that advice provided to a customer,

whether before the firm has entered into contract with the customer or after, is
provided in a durable medium and:

(1)
makes clear which debts will be included in any debt solution and which
debts will be excluded from any debt solution;

(2)
makes clear the actual or potential advantages, disadvantages, costs and
risks of each option available to the customer, with any conditions that
apply for entry into each option and which debts may be covered by each
option;

(3)
warns the customer:

(a)
of the actual or potential consequences of failing to continue
to pay taxes, fines, child support payments and debts which
could result in loss of access to essential goods or services or
repossession of, or eviction from, the customer's home;

(b)
of the actual or potential consequences of not continuing to
make repayments under credit agreements or consumer hire
agreements;

(c)
of
the
actual
or
potential
consequences
of
ignoring
correspondence or other contact from lenders and those
acting on behalf of lenders;

(d)
that action to recover debts may be commenced, which may
involve further cost to the customer; and

(e)
that by entering into a debt management plan or another
non-statutory repayment plan there is no guarantee that any
current recovery or legal action will be suspended or
withdrawn.


23. CONC 8.3.7R states that a firm must:

(2)
before giving any advice or any recommendation on a particular course of
action in relation to the customer’s debts, carry out a reasonable and
reliable assessment of:

(a)
the customer’s financial position (including the customer’s
income, capital and expenditure);

(b)
the customer’s personal circumstances (including the reasons
for the financial difficulty, whether it is temporary or long
term and whether the customer has entered into a debt
solution previously and, if it failed, the reason for its failure);
and

(c)
any other relevant factors (including any known or reasonably
foreseeable changes in the customer’s circumstances such as
a change in employment status);

(5)
seek to ensure that a customer understands the options available and the
implications
and
consequences
for
the
customer
of
the
firm’s
recommended course of action.


24. CONC 8.5.4R states that a firm must:

(1)
take reasonable steps to verify the customer’s identity, income and
outgoings;

(2)
seek explanations if a customer indicates expenditure which is particularly
high or low.

25. CONC 8.7.2R states that a firm must ensure that the obligations of the customer in

relation to the amount, or the timing of payment, of its fees or charges:

(2)
do not undermine the customer’s ability to make (through the firm acting
on the customer’s behalf) significant repayments to the customer’s lenders
throughout the duration of the debt management plan, starting with the
first month of the plan.

26. CONC 8.7.3G(1) states that for the purposes of CONC 8.7.2R (2), an obligation is

likely to be viewed as undermining the customer's ability to make significant
repayments to the customer's lenders if it has the effect that the firm may allocate
more than half of the sums received from the customer in any one-month period
from the start of the debt management plan to the discharge (in whole or in part) of
its fees or charges.

27. CONC 8.8.1R states that a firm in relation to a customer with whom it has entered

into a debt management plan must:

(8)
provide a statement to the customer at the start of the debt management
plan, and at least annually or at the customer's reasonable request, setting
out:

(a)
a balance showing the amount owed by the customer,
including any interest charges at the beginning of the
statement period;

(b)
fees, charges and other costs applied over the period of the
statement, including any upfront fee or deposit, such as an
initial arrangement fee, an arrangement fee, any periodic or
management or administrative fee, any cancellation fee and
any other costs incurred under the contract;

(c)
a narrative explaining the type of fee applied, how the fee is
calculated and to what it applies;

(d)
the duration or estimated duration of the contract;

(e)
the total cost of the firm's service over the duration or
estimated duration of the contract.

Senior Management Arrangements, System and Controls - SYSC


28. This section of the Handbook sets out the responsibilities of directors and senior

management.

29. SYSC 9.1.1R states a firm must arrange for orderly records to be kept of its business

and internal organisation, including all services and transactions undertaken by it,
which it must be sufficient to enable the appropriate regulator to monitor the firm’s
compliance with the requirements under the regulatory system, and in particular to
ascertain that the firm has complied with all obligations with respects to clients.

ANNEX B – REPRESENTATIONS

1. NDC’s representations (in italics), and the Authority’s conclusions in respect of them,
are set out below.

Record keeping

2. The five sample customer files are evidence that the firm’s record keeping
arrangements now comply with SYSC 9.1.1R.

3. The firm is improving in its record keeping and notes of advice given will be more
detailed in future.

4. The Authority acknowledges that the five recent sample customer files indicate that
NDC’s record keeping has improved in recent months. However, as is explained in
paragraph 35 of this Decision Notice, the Authority considers that the notes in the
files still do not contain enough information for either the Authority or the firm itself
to know what advice was given to each individual customer. As a result, the
Authority is unable to assess from reviewing the files whether NDC has complied with
a number of relevant regulatory requirements in CONC 8. Accordingly, the Authority
considers that NDC has not demonstrated that it keeps records in a manner
compliant with SYSC 9.1.1R.

5. NDC’s statement that notes of advice given will be more detailed in future is not
sufficient evidence to demonstrate that it has established and effectively
implemented a record keeping policy that ensures it complies with SYSC 9.1.1R.

Suitability of advice given – 25 files

6. Customer 293593: customers are chased by phone for outstanding documents, but
at that time calls were not logged in the customer file. All calls are now logged in the
customer file.

7. Customers 293591 and 293597: as previously confirmed to the Authority, NDC uses
the Step Change 2015 budget guidelines. This is in addition to the CFS guidelines.
The household expenditure for these customers was within the Step Change
guidelines. All files now have sufficient I&E notes.

8. Customer 293646: the customer speaks Bengali and so does the advisor who dealt
with her, whilst the customer’s husband speaks English.

9. NDC’s representations do not satisfy the Authority that suitable advice was given by
NDC, and reinforce the Authority’s concerns regarding the records kept by NDC in
relation to these customers.

10. Customer 293593: as notes of phone calls with the customer were not recorded in
the customer file, NDC failed to demonstrate that it complied with its regulatory
requirements as regards ensuring that the customer was on what the firm considered
to be a suitable debt solution. NDC’s inability to provide details of the calls to the

customer, and details of any other steps the firm took to ensure the customer was on
a suitable debt solution, is indicative of the firm’s record keeping not being sufficient
to enable (i) the firm to know what actions had been taken in respect of the
customer, and (ii) the Authority to ascertain that the firm had complied with all of its
regulatory obligations with respect to this customer.

11. Customers 293591 and 293597: During the Authority’s assessment of the
Application, NDC twice informed the Authority in writing that it uses the CFS
guidelines. The Authority’s Regulatory Decisions Committee (which made the
decision on behalf of the Authority to give this Decision Notice) has seen no evidence
that NDC also uses the Step Change guidelines or that NDC previously told the
Authority this. The insufficiency of NDC’s record keeping means that the Authority
cannot be clear as to whether the firm adequately explored with the customers their
low housekeeping figures, and therefore whether the firm gave suitable advice.

12. Customer 293646: NDC’s response raises further questions regarding the firm’s
record keeping, as it is unclear from the file whether the customer’s husband can
read and write English, as well as speak it, and whether the firm has the customer’s
express consent for written communications to be provided to and read by the
customer’s husband.

Suitability of advice given – five sample customer files

13. The files do contain adequate records regarding likely future improvements in
customers’ financial circumstances. For example, the file for one customer stated
that they were actively seeking full time employment.

14. The Authority does not consider that a statement by a customer that they are looking
for work is adequate justification for proceeding on the basis that the customer’s
financial circumstances will improve in the near future. This approach carries the risk
that, if the customer’s financial circumstances do not improve, the customer might
be unable to afford to maintain the DMP, having paid significant fees to NDC.

Adequacy of advice documentation

15. In respect of all 25 files, NDC did not fail to comply with the following CONC
provisions: 8.3.4R, 8.3.4R(1), 8.3.4R(2), 8.3.4R(3)(a), 8.8.1R(8) and 8.2.4R(2).
NDC has also made amendments to its processes and to the documentation provided
to its customers, so that its advice documentation is now compliant with all these
CONC provisions as well as CONC 8.3.4R(3)(b) to (e).

16. The Authority continues to be of the view that 16 out of the 25 customer files were
not compliant with CONC 8.3.4R, that all 25 customer files were not compliant with
CONC 8.3.4R(1), 8.3.4R(2), 8.3.4R(3)(a) to (e) and 8.8.1R(8), and that NDC was not
compliant with CONC 8.2.4R(2) at that time.

17. Having reviewed the revised documentation provided by the firm, as well as the five
sample customer files, the Authority is satisfied that the updated customer

documentation meets the requirements of CONC 8.3.4R(2), 8.3.4R(3), 8.8.1R(8) and
8.2.4R(2). However, the Authority is concerned that NDC’s compliance with these
rules only comes after repeated prompting from the Authority, and considers this
reflects on the adequacy of NDC’s human resources (including at a senior
management level).

18. Further, the Authority considers that the five sample customer files demonstrate that
NDC is not compliant with CONC 8.3.4R and 8.3.4R(1).

Unfair and misleading fees information provided to customers

19. Previously the “Welcome to NDC” letter had to be read in conjunction with the Terms
and Conditions which included detailed cost analysis. The letter has since been
revised so that it now includes self-explanatory details in respect of the total
repayable and the duration and total cost of the DMP, and is therefore easy for
customers to understand.

20. As is explained in paragraphs 47 to 50 of this Decision Notice, the Authority considers
that the “Welcome to NDC” letter that NDC previously used was unclear and
misleading and therefore that NDC was in breach of CONC 3.3.1R. The Authority
considers that the revised letter is not unclear or misleading, but considers that
NDC’s failure to identify and rectify this issue without prompting by the Authority
reflects on the adequacy of the firm’s human resources, including at a senior
management level.

NDC’s QA process

21. NDC now has appropriate systems and controls in place for QA. It has reviewed its
QA procedure and put in place a QA register.

22. Since 21 October 2016, when it provided its written response to the Warning Notice,
NDC has amended the QA register so that it now provides details of who carried out
the QA. NDC will also ensure that files which have been through the QA process
contain notes to that effect.

23. Despite the changes made by NDC to its QA procedure, the Authority is not satisfied
that NDC has made arrangements to put in place an adequate QA process to comply
with the requirements and standards for which the Authority is responsible under the
regulatory system. The Authority’s concerns, including with the QA Log/register that
NDC provided to the Authority on 21 October 2016, are set out at paragraphs 58 to
60 of this Decision Notice.

24. The Authority notes that NDC has stated that it has subsequently made further
changes to its QA process. However, NDC has not provided the Authority with
sufficient evidence to demonstrate that it has established and effectively
implemented an adequate QA process or indeed put in place adequate record keeping
arrangements, without which the firm cannot carry out QA effectively.

Concerns as to level of fees and redress exercise

25. NDC was proactive in providing redress to customers.

26. The Authority has no reason to believe that NDC did not pay redress to a satisfactory
level. However, NDC did not promptly arrange to provide redress unconditionally
and instead sought to link the payment of redress to the granting of the Application.
This indicates that, were the firm to be authorised, the firm’s senior management
may not pay due regard to the interests of its customers and ensure that they are
treated fairly.

Taking account of consumers’ interests

27. NDC does not advise all customers to take out a DMP. NDC only advises a customer
to do so if the customer satisfies the firm’s criteria, for example, regarding the level
of their disposable income.

28. Some customers are advised that an IVA or bankruptcy is more suitable and are
referred to other firms for advice on such debt solutions. Some customers leave the
DMP because they pay off all of their debts early. Some customers ask to pay less or
to pay more and NDC assesses and deals with these requests.

29. If a customer does not complete a DMP that does not mean NDC did not give them
good advice as the customer’s circumstances may have changed.

30. The Authority acknowledges that NDC’s records indicate that it does not advise every
customer to take out a DMP.

31. The Authority is not aware of any reviews of DMPs that NDC undertook of its own
volition that resulted in a change to the customer’s payment and, when asked by the
Authority, Mr Ali could not identify any. Mr Ali informed the Authority that “barely
anyone” had completed a DMP since they started giving advice on DMPs in 2008, but
around 30 customers a month quit an existing DMP. It is not clear to the Authority
that NDC has any system in place to assist it in understanding if it was taking due
account of the interests of consumers.

Impact on the Threshold Conditions

32. The firm acknowledged that it had previously been non-compliant in some respects,
but it had addressed and rectified its past failings. The five sample customer files
demonstrate that NDC is satisfying the Threshold Conditions and complying with
relevant rules in CONC and SYSC.

33. The Authority accepts that NDC has addressed some of its past failings, and
acknowledges that the firm sought to act appropriately when failings were pointed
out to it. However, the Authority considers that the firm has not been able to
demonstrate that it has both fully understood the extent of the remaining deficiencies
identified by the Authority (see paragraph 8 of this Decision Notice) and effectively

implemented the necessary changes to rectify those deficiencies going forward.
Further, the Authority is concerned that NDC did not identify and rectify the failings
that have been addressed of its own volition, but only once the Authority had drawn
them to its attention.

34. For the reasons given in this Decision Notice, the Authority considers that NDC
continues not to comply with certain CONC and SYSC rules, and has concluded that it
cannot ensure that NDC will satisfy, and continue to satisfy, the Threshold
Conditions, specifically Threshold Conditions 2C, 2D and 2E.