Final Notice
FINAL NOTICE.docx
1
FINAL NOTICE
ACTION
1. By an application dated 21 December 2014 PDHL applied under section 55A of the
Financial Services and Markets Act 2000 for Part 4A permission to carry on the regulated
activities of debt adjusting and debt counselling.
2. The Application was incomplete.
3. For the reasons listed below, the Authority has refused the Application.
SUMMARY OF REASONS
4. On 30 July 2015, the Authority sent PDHL a letter informing the firm that it was minded
to refuse the Application, and on 14 September 2015 the Authority gave PDHL a
Warning Notice informing the firm that it proposed to refuse the Application.
5. The Authority gave PDHL the Warning Notice for two main reasons. First, the Authority
identified widespread and substantial failings in the advice process used by PDHL from
June 2014 to June 2015. The failings (taken individually and together) are of a type and
of a level such that the Authority cannot be satisfied that PDHL treats its customers
fairly and pays due regard to their interests and information needs. This is of particular
concern to the Authority given that the advice process is a key part of a debt
management firm’s business.
6. Secondly, the Authority identified issues in relation to the adequacy of PDHL’s systems
and controls. Specifically, the Authority:
1)
Considered that PDHL’s Board did not have available to it sufficient MI
(considering relevance, reliability and timeliness) in order to identify and
mitigate risks of regulatory concern arising out of the firm's activities. Further,
PDHL failed to keep a record of the information that was provided to its Board.
2)
Identified deficiencies in the policies and procedures as implemented by PDHL in
relation to the identification and treatment of particularly vulnerable customers.
The Authority identified certain of PDHL’s customers as particularly vulnerable
when PDHL did not identify them as such, and also identified issues in respect of
the expertise/knowledge of PDHL’s staff who dealt with particularly vulnerable
customers. As a result, the Authority considered that PDHL did not properly
identify (and potentially deal with) particularly vulnerable customers.
3)
Considered that PDHL’s QA processes did not adequately detect and ensure the
remedying of failures by its advisers to meet regulatory standards.
7. The Authority also identified cases where consumers had been advised to enter debt
solutions that were unsuitable for their circumstances. Examples of such cases are set
out at paragraph 36 below. The fair treatment of customers by PDHL, and the need for
PDHL to pay due regard to their customers’ interests, is a particular concern for the
Authority.
8. In response to the July Letter, PDHL has made significant changes to its business in
order to attempt to address the Authority’s concerns, including updating its policies and
procedures.
9. However, as PDHL itself admitted in the Oral Representations Meeting, the changes that
have been made are not sufficient for the Authority to ensure that PDHL, in relation to
the regulated activities for which permission is sought, will satisfy, and will continue to
satisfy, the Threshold Conditions. The Authority has reached this conclusion for the
following reasons:
1)
PDHL lacks appropriate human resources. There is a need for senior and Board
level recruitment following the recent resignation of PDHL’s Managing Director,
Head of Customer Services, Risk Manager and Compliance Director. Although a
new Head of Customer Services has joined the firm and interim appointments
have been made to fill the Managing Director and Compliance Director vacancies,
the Authority is concerned that, should it grant the Application, there would be a
lack of experienced senior management in place at a time when PDHL’s systems
and procedures and staff capability require significant improvement.
2)
PDHL also lacks appropriate human resources because it only has two members
of staff capable of dealing with particularly vulnerable consumers and lacks
sufficient QA staff and debt advisers. It informed the Authority that it needs 30
debt advisers in order to service effectively its customers, but currently only has
14 debt advisers that it has assessed as competent.
3)
Other non-financial resources of PDHL are inappropriate. The Authority has
identified outstanding issues with PDHL’s policies and procedures and is not
satisfied that the failings it identified in respect of PDHL’s advice process and
systems and controls have been adequately addressed. This is supported by
recent evidence which shows that PDHL’s customers remain at risk of not being
treated fairly.
4)
Further, even if the Authority had not identified such issues, updating its policies
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and procedures is not sufficient for PDHL to satisfy the Threshold Conditions, in
particular given the significant failings previously identified by the Authority.
Instead, the new policies and procedures need to be effectively implemented
(i.e. ‘embedded’) and PDHL needs to demonstrate that, as a result of the
changes it has made, it is now compliant with the relevant regulatory
requirements. PDHL has accepted that its new policies and procedures are not
yet embedded. This supports the view of the Authority which cannot therefore be
satisfied that the failings it identified in respect of PDHL’s advice process and
systems and controls have been effectively remedied.
10. In light of the above, the Authority concludes that it cannot ensure that, if the
Application were granted, PDHL would satisfy and continue to satisfy threshold condition
2D (Appropriate resources).
11. The above matters also lead the Authority to conclude that it cannot ensure that, if the
Application were granted, PDHL would satisfy, and continue to satisfy, threshold
condition 2E (Suitability).
12. By way of a decision notice dated 16 December 2015, the Authority gave PDHL notice
that it had decided to refuse the Application. PDHL referred this matter to the Upper
Tribunal on 16 December 2015, but withdrew that reference on 9 March 2016.
13. In light of the above, the Authority has refused the Application.
DEFINITIONS
14. The definitions below are used in this Final Notice.
“2013 Order” means the Financial Services and Markets Act 2000 (Regulated
Activities) (Amendment) (No. 2) Order 2013 (SI 2013/1881).
“2014 Order” means the Financial Services and Markets Act 2000 (Consumer Credit)
(Transitional Provisions) (No. 4) Order 2014 (SI 2014/2632).
“the Act” means the Financial Services and Markets Act 2000.
“the Application” means the application dated 21 December 2014 made by PDHL for
Part 4A permission, as referred to in paragraph 1 above.
“the Authority” means the Financial Conduct Authority.
“Business Plan” means the business plan provided by PDHL to the Authority as part
of the Application.
“CCJ” means County Court Judgment.
“the Compliance Consultant” means the external consultant appointed by PDHL to
compile the July Report and the October Report.
“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 Handbook” means the Authority’s Handbook of Rules and Guidance.
“IVA” means individual voluntary arrangement.
“the July Letter” means the letter the Authority sent to PDHL on 30 July 2015
informing the firm that it was minded to refuse the Application.
“the July Report” means the report dated 29 July 2015 compiled by the Compliance
Consultant on behalf of PDHL.
“Kensington” means Kensington Financial Management Consultants Limited.
“MI” means management information.
“the October Report” means the report dated 25 October 2015 compiled by the
Compliance Consultant on behalf of PDHL.
“the OFT” means the body that before 1 April 2014 was known as The Office of Fair
Trading.
“the Oral Representations Meeting” means the meeting on 10 November 2015 at
which PDHL made oral representations on the Warning Notice to the Authority’s
Regulatory Decisions Committee.
“PDHL” means the applicant, PDHL Limited.
“QA” means quality assurance.
“the QA Process” means PDHL’s quality assurance process introduced in June 2015
as referred to in paragraph 66 below.
“the RAO” means the Financial Services and Markets Act 2000 (Regulated Activities)
Order 2001.
“SYSC” means the Senior Management Arrangements, Systems and Controls
sourcebook in the Handbook.
“TCF” means treating customers fairly.
“Threshold Conditions” means the conditions set out in Schedule 6 to the Act for
which the Authority is responsible.
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
“the Visit” means the visit to PDHL’s offices by the Authority on 4 to 5 June 2015.
“the Warning Notice” means the warning notice given to PDHL on 14 September
2015.
RELEVANT REGULATORY PROVISIONS
15. Details of the regulatory provisions relevant to this Notice are set out in Annex A.
FACTS AND MATTERS
Background to the firm
16. PDHL has been trading as a debt management firm since July 2007. Between this time
and 31 March 2014, PDHL was licensed and regulated by the OFT.
17. On 1 April 2014, PDHL became regulated by the Authority (with interim permission
reference 603003). PDHL applied for full permission on 21 December 2014, within the
application period directed by the Authority within which PDHL was to make its
application.
Overview of PDHL’s business
18. PDHL acts as a debt management firm.
19. PDHL's business model entails sourcing indebted customers who are seeking debt
advice. PDHL's core business is to offer a range of debt solutions, of which some are
provided in-house and others are referred to selected specialist partnerships across the
United Kingdom. PDHL states that it will assess a customer's circumstances and provide
relevant debt advice. PDHL advises customers on debt solutions such as IVAs,
refinancing options or DMPs.
20. In order to advise customers on the available suitable debt solutions (including IVAs,
refinancing and DMPs) PDHL 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). PDHL's debt advice and debt management services therefore fall
under the Authority's consumer credit regime and the firm must be authorised by the
Authority to continue to carry out the activities set out in the Business Plan.
21. If the customer agrees to enter into a DMP, PDHL proceeds to negotiate with the
customer's creditors to set up repayment plans in respect of those debts where the
creditor is willing to co-operate, following which it seeks to receive and administer the
customer's payments to creditors.
22. PDHL's principal source of income is from the monthly fees it charges customers who are
on active DMPs. PDHL charges a fixed monthly arrangement fee which starts from the
first payment made to them by the customer. This fee includes up to four debts. If the
client has more than four debts, the client will be charged an additional fee for each and
every additional debt. The firm limits its fee to no more than 42% of the monthly
payment.
23. Where PDHL arranges a full and final settlement, PDHL charges a fee for arranging such
settlement. The fee is based on the reduction or saving made on the settlement.
24. Regarding the number of DMPs administered by PDHL:
1)
In the five years before submitting the Application to the Authority, PDHL had
bought 33 different client back books, totalling 14,823 consumers.
2)
At the time of making the Application, PDHL stated that it had approximately
14,000 consumers.
3)
Since submitting the Application, PDHL has bought a number of further client
back books from other debt management companies (including approximately
15,000 consumers migrated over from Kensington). The number of DMPs PDHL
is currently operating now stands at approximately 25,000.
25. In the Business Plan, PDHL stated that it intends to expand its client base through sales
via introducers, agents and its own website and by the acquisition of other debt
management companies’ client back books.
The Authority’s initial concerns with PDHL
26. In carrying out its assessment of the Application, the Authority visited PDHL’s offices on
4 to 5 June 2015 during which it conducted interviews with members of PDHL’s Board,
senior management and various members of PDHL’s staff, reviewed a number of PDHL’s
customer files and call recordings, and took into account the findings set out in the July
Report. As described below, the Authority identified concerns with PDHL’s advice
process and systems and controls which resulted in the Authority sending PDHL a letter
on 30 July 2015 informing the firm that it was minded to refuse the Application, and
giving PDHL a Warning Notice on 14 September 2015 informing the firm that it proposed
to refuse the Application.
Deficiencies in PDHL’s advice processes
27. As a firm carrying on debt management activities, PDHL is required to comply with
various obligations in CONC. In particular, CONC 8 sets out the conduct standards
expected of authorised firms that give debt advice. Having reviewed a number of PDHL’s
customer files, the Authority identified that PDHL is failing to comply with these
requirements; the Authority is concerned by the nature and extent of the breaches
identified, which indicate that PDHL is failing to meet regulatory standards in respect of
a key aspect of its regulated business.
28. The evidence out of which the Authority’s concerns arise (which are set out more fully
below) is as follows:
1)
A sample of 20 files that the Authority reviewed against applicable regulatory
requirements; the Authority identified a number of significant breaches of
regulatory requirements in that sample. By virtue of the random way in which
the sample was selected by the Authority and the objective analysis that was
undertaken of the files, the Authority is able to draw inferences about the level
of breaches of regulatory requirements across the 9,819 customer files from
which the sample was taken. The level of such failings identified at the firm-wide
level by this method is evidence of a widespread failure by PDHL to comply with
key regulatory requirements.
2)
The Authority also considered a number of call recordings that were provided by
PDHL to the Authority during a firm visit on 4 and 5 of June 2015. The failings on
the part of PDHL’s frontline staff that were identified in those calls reinforce the
concerns arising from the Authority’s sampling exercise.
3)
The Authority also reviewed a number of files that the Authority’s Supervision
Department first obtained as part of its ongoing supervisory relationship with
PDHL. As with the call recordings, the Authority identified a number of failings in
those files that are consistent with, and underscore, the concerns arising out of
the Authority’s sampling exercise.
29. The Authority’s concerns were heightened by the fact that, notwithstanding that PDHL
has been subject to the regulatory requirements of the OFT and the Authority for a
number of years (which are the same for material purposes), PDHL has failed to identify
and address these matters.
Sample of advice given by PDHL between June 2014 and June 2015
30. In order to assess the extent to which PDHL complies with the regulatory obligations
aimed at ensuring appropriate outcomes for customers, the Authority undertook a
sampling exercise focusing on PDHL's book of clients.
31. The Authority randomly selected, requested and reviewed a sample of 20 customer files
from a wider population of 9,819 customer files administered by PDHL.
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32. These files were reviewed by the Authority against some of the requirements in CONC
and the Handbook (it is not suggested that the Authority conducted an exhaustive
consideration of each and every provision in CONC or other parts of the Handbook). The
review focussed on the advice given by PDHL's staff in the 13 months preceding the
review (i.e. from June 2014 to June 2015 inclusive), the nature of the monitoring and
reviews conducted by PDHL and the adequacy of PDHL's record-keeping.
33. The methodology used in selecting and reviewing the sample is such that, from the
incidence of failings in the sample, the Authority is able to draw inferences about the
level of breaches of regulatory requirements across the 9,819 customer files from which
the sample was taken. The statistical methodology used by the Authority provides an
upper and lower bound within which, at a 95% confidence level, the level of such failings
in the population can reasonably be inferred to lie. For the purposes of this Notice, the
Authority has assumed that the lower bound represents the level of failings in the
population, i.e. the 9,819 DMPs/customer files from which the sample was drawn.
34. The Authority’s findings from its review of the files in this sample have been
‘aggregated’ by reference to the regulatory requirement in the table below. The table
shows the level of such failings identified in the sample and the level of such failings
that, at a 95% confidence level, the Authority infers will exist in the wider population.
CONC ref.
Regulatory requirement breached
No. of
fails out
Failing level
in
population
A firm must ensure that…all advice
given and action taken by the firm or
its
agent
or
its
appointed
representative…has regard to the best
interests of the customer
A firm must ensure that…all advice
given and action taken by the firm or
its
agent
or
its
appointed
representative…is appropriate to the
individual
circumstances
of
the
customer
A firm must ensure that…all advice
given and action taken by the firm or
its
agent
or
its
appointed
representative…is
based
on
a
sufficiently full assessment of the
financial
circumstances
of
the
customer
A firm must ensure that…customers
receive sufficient information about
the available options identified as
suitable for the customers' needs
A firm must ensure that…it explains
the reasons why the firm considers the
available options suitable and other
options unsuitable
CONC ref.
Regulatory requirement breached
No. of
fails out
Failing level
in
population
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…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
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…warns
the
customer…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
6
8%
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…warns
the
customer…of
the
actual or potential consequences of
ignoring
correspondence
or
other
contact from lenders and those acting
on behalf of lenders
6
8%
A firm must…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…the customer's financial position
(including
the
customer's
income,
capital and expenditure)
CONC ref.
Regulatory requirement breached
No. of
fails out
Failing level
in
population
A firm must…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…the
customer's
personal
circumstances (including the reasons
for the financial difficulty, whether it is
temporary or longer term and whether
the customer has entered into a debt
solution previously and, if it failed, the
reason for its failure)
A firm must…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…any
other
relevant
factors
(including any known or reasonably
foreseeable changes in the customer's
circumstances such as a change in
employment status)
A firm must ensure that a financial
statement sent to a lender on behalf of
a customer…is sent only after having
obtained the customer's consent to
send
the
statement
and
the
customer's confirmation as to the
accuracy of the statement
6
6%
A firm must send out an annual
statement to a customer setting out: a
balance showing the amount owed by
the customer, including any interest
charges at the beginning of the
statement period
A firm must send out an annual
statement to a customer setting out:
fees, charges and other costs applied
over the period of the statement...
A firm must send out an annual
statement to a customer setting out: a
narrative explaining the type of fee
applied, how the fee is calculated and
to what it applies
CONC ref.
Regulatory requirement breached
No. of
fails out
Failing level
in
population
A firm must send out an annual
statement to a customer setting out:
the duration or estimated duration of
the contract
A firm must send out an annual
statement to a customer setting out:
the total cost of the firms service over
the duration or estimated duration of
the contract
Maintain adequate records relating to
each debt management plan which the
firm
has
administered
for
the
customer until the contract between
the
customer
and
the
firm
is
completed or terminated
35. The Authority makes the following observations on the findings in the above table:
1)
The Authority takes the view that, broadly speaking, there are a number of
themes/aims underlying the above rules - these include ensuring that:
i.
the advice the customer receives is specific to their financial and personal
circumstances (and highlights the risks they face), and is not generic
advice;
ii.
the information the customer receives about the available options is
sufficient for them to make an informed choice as to how they wish to
proceed; and
iii.
the customer understands and is kept apprised of the steps being taken
by the firm on their behalf.
The Authority therefore considers that the provisions of CONC 8 referred to 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. The
Authority therefore considers that a firm's failure to comply with these rules is
highly relevant to assessing whether it meets the Threshold Conditions.
2)
Looking at the final column of the above table (and taking into account both the
nature of the rule in question and the level of failing identified), the Authority
considers that the level of each failing as identified in the wider population is
significant and concerning. The Authority considers this to be so when looking at
each rule individually, but even more so when they are viewed collectively.
3)
Factors that support the Authority's view that the breaches of CONC identified
above are serious include that:
i.
It is important that a robust assessment is undertaken, as accurately
establishing what the customer can (or cannot) contribute towards their
debts may be fundamental in determining what debt solution is best for
the customer and, where applicable, whether they can afford it: see for
example CONC 8.3.2R(1)(c), 8.3.2R(3), 8.3.7R(2)(a) and 8.3.7R(2)(c).
This requires the firm to undertake a reasonable and reliable assessment
of the customer's financial position, personal circumstances and other
relevant factors and insufficient, or inaccurate, information gathered to
inform the advice decision-making process calls into question the
appropriateness of the advice then provided.
ii.
Foreseeable changes in the customer's circumstances must be taken into
account to ensure that any recommended debt solutions are (and will
remain) appropriate and affordable: see for example CONC 8.3.7R(2)(c).
iii.
It is important that customers are able to make an informed choice in
relation to the options available to the consumer: see for example CONC
8.3.2R(2), 8.3.4R(2), 8.3.4R(3)(a), 8.3.4R(3)(c) and 8.3.7R(5).
4)
Further, it is important that firms make and retain adequate records of the advice
process (see for example CONC 8.8.1R(9) and SYSC 9.1.1R). Absent these
records:
i.
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;
and
ii.
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 their information.
5)
With regard to the Authority's findings on CONC 8.3.4R(2):
i.
PDHL has not provided the Authority with copies of the actual letters sent
to specific customers. The Authority understands that, prior to June
2015, PDHL did not have in place a process to retain copies of this
correspondence on its files/systems.
ii.
The Authority has had sight of the template letters that PDHL was using
(having been supplied with the templates by PDHL when querying the
lack of correspondence), but has not identified a template letter that sets
out (or provides for the setting out of) the advantages/disadvantages,
costs/risks of each option and the conditions of entry.
iii.
Given the above, the Authority has assumed that no such letter was sent
to customers in the sample period (and stated this assumption in its
letter of 30 July 2015 without challenge from the firm).
36. The Authority identified cases where consumers have been advised to enter into debt
solutions that were unsuitable for their circumstances. The fair treatment of customers
by PDHL, and the need for PDHL to pay due regard to their customers’ interests, is a
particular concern for the Authority. By way of example from the case files reviewed
(for illustrative purposes only):
1)
Consumer 818095 was unemployed and receiving £288 Job Seekers Allowance
per month and renting a room from a private landlord at a rate of £190 per
month. The Consumer informed PDHL on 7 October 2014 that they had lost their
employment but no review of their circumstances was conducted at this time (the
Consumer carried on paying the amount of £60 per month, assessed whilst they
were employed). An assessment was conducted on 3 December 2014 that
revealed that the Consumer had a negative disposable income and they were
passed to the ‘Care Team’. The ‘Care Team’ advisor conducted an income and
expenditure assessment and reduced the Consumer’s £190 monthly expenditure
on rent to zero at that point (on the basis that if he claimed housing benefit this
would be paid on his behalf). The advisor did not take account of the fact that the
benefit claim had not been accepted and that, even if accepted, payment would
be delayed. The minimum payment on the DMP was £20 per month but the
Consumer asked whether they could pay £10. Whilst accepting that the
Consumer was in a ‘severe hardship situation’, the advisor insisted that the
minimum payment remained £20 and advised the Consumer to contact their
creditors directly or approach ‘Citizens Advice’. The Consumer asked if they could
pay £15 instead but this was not accepted. The Consumer agreed to pay £20 per
month 25 minutes into the phone call. The DMP failed in February 2015. The
DMP was not an appropriate debt solution as the consumer did not have the
available income from which to maintain payments under the plan.
2)
Consumer 805802 was unemployed and receiving £288 Job Seekers Allowance
per month with a negative monthly disposable income of at least £470 (the
advisor did not ask for further expenses after this figure). The Consumer had split
from their spouse and had moved in with their mother. The Consumer was
attempting to pay the mortgage on the familial home and the council tax but had
built up arrears. After being passed to the ‘Care Team’ (on account of the
negative disposable income) the Consumer was advised that they could not afford
a fee-paying DMP and that they should contact ‘Citizens Advice’. The Consumer
stated that they could pay the minimum £30 payment per month if they borrowed
this amount from their mother. The Care Team advisor accepted this position and
amended the income and expenditure accordingly. The DMP failed within three
months. The DMP was not an appropriate debt solution as the consumer did not
have the available income from which to maintain payments under the plan.
3)
Consumer 19296 was retired and lived with their spouse on sickness benefits and
pensions. Their spouse had had cancer for four years and the couple had
‘struggled’ for six years to pay an interest only mortgage that had left them in
negative equity (they had been involved in three possession hearings). In
February 2015, the Consumer was paying £25 per week towards the DMP and
PDHL was taking in £38.50 per month in fees. The DMP had been operating since
May 2010 and PDHL had earned over £2,500 in fees. The debt at that point still
stood in excess of £18,000 and the interest had not been frozen with all of the
Consumer’s creditors. The Consumer’s house was repossessed that month and,
as a result of their health problems, the couple were being rehoused by the
Housing Executive. The nature and complexity of the debt problem means that
the DMP was not an appropriate long term debt solution in the circumstances.
Call recordings supplied during the Visit
37. During the Visit, the Authority asked PDHL to supply 10 recordings of recent income and
assessment calls made by two advisers during the period 1 January 2015 to 2 April 2015
(when the Advice Team was closed down by PDHL). PDHL was asked to put the calls
through its new quality assurance process (i.e. the QA Process), which had been
introduced in June 2015. There was no indication from PDHL that these calls had
previously been assessed in any way.
38. All of the 10 calls ‘failed’ the QA Process by triggering ‘auto-fails’, with failings found in
the following areas:
CONC provision relevant to the
failing
The QA Process ‘Auto Fail’
that was registered
No. of files
with
failure
8.3.2R(1)(c
)
Failure to complete a
proper assessment of
‘Income
and
Expenditure’
Has the agent completed the
income
and
expenditure
compliantly, making notes on
any expenditure which is outside
guidelines?
7
Failure to signpost to
free
advice
at
an
early point in the call
Has the agent signposted the
client regarding free services and
advised if a free solution comes
up we will advise this?
5
8.3.2R(1)(c
)
Failure to check on
the
position
of
consumer assets
Has the client checked for any
assets/claimable pensions (over
the value of £300), recorded
them on the clients account (with
full notes) and checked if the
client would be willing to sell
them to help clear the debts on
the plan?
Failure to advise the
consumer
of
all
relevant
solutions
(including
free
advice)
Has the agent advised the client
of
all
relevant
solutions
(including free services)?
3
8.3.2R(1)(c
)
Failure to request the
required
documentation
from
the client
Has
the
agent
requested
required
documentation
(e.g.
Proof of Income, DAA)? Ensuring
the effect it can have on the plan
is explained if we do not have
the documentation?
3
8.3.2R(1)(c
)
Failure
to
examine
the
position
with
regard
to
priority
debts
Has the agent confirmed if the
customer has any priority debts,
and have these been recorded
accurately?
Has
the
agent
appropriately
explained
how
these should be dealt with?
3
8.3.2R(1)(c
)
Failure
to
check
whether
the
consumer
had
any
CCJs or other legal
action in relation to
debts
Has the agent checked with the
client if any of the debts have
CCJs or any other legal action
(e.g. charging orders)
2
CONC provision relevant to the
failing
The QA Process ‘Auto Fail’
that was registered
No. of files
with
failure
Explain
the
advantages
and
disadvantages of the
different
solutions
discussed
Has the agent advised the pros
and cons of the client's chosen
solution?
1
8.3.7R(5)
Ensure the consumer
understood
the
information given
Did the client understand the
information that was provided?
1
8.3.2R(1)(a
)
Explain how to deal
with creditor contact
Has the agent advised on how to
deal
with
creditor
contact?
(under no circumstances should
the client be advised to ignore or
disregard the contact)
1
39. The Authority is concerned by the nature and extent of the failures identified by the QA
Process. The failings identified by the QA Process in these files are consistent with the
widespread failings identified by the Authority’s sampling exercise; the concerns
articulated by the Authority in paragraph 35 above therefore apply equally here.
Review of PDHL’s approach to transferred Kensington customers
40. The Authority also reviewed various files provided by PDHL that relate to consumers
whose DMPs were acquired by PDHL from Kensington in February 2015. This was a
significant acquisition by PDHL, comprising around 15,000 DMPs and over 50 members
of staff. In effect, this saw PDHL almost double the number of active DMPs it
administered, as its book of clients grew from approximately 17,000 to over 30,000.
41. In carrying out a review of 13 files where PDHL made contact with consumers
transferred (or purportedly transferred) from Kensington, the Authority identified a
number of instances where, in the Authority’s view, PDHL has not met the standard
required by the Authority’s rules.
CONC ref.
Regulatory requirement breached
No. of
fails out
A firm must ensure that…all advice given and
action taken by the firm or its agent or its
appointed representative…has regard to the
best interests of the customer
A firm must ensure that…all advice given and
action taken by the firm or its agent or its
appointed representative…is appropriate to the
individual circumstances of the customer
CONC ref.
Regulatory requirement breached
No. of
fails out
A firm must ensure that…all advice given and
action taken by the firm or its agent or its
appointed
representative…is
based
on
a
sufficiently full assessment of the financial
circumstances of the customer
A firm must ensure that…customers receive
sufficient
information
about
the
available
options identified as suitable for the customers'
needs
A firm must ensure that…it explains the reasons
why the firm considers the available options
suitable and other options unsuitable
A firm must…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…the
customer's financial position (including the
customer's income, capital and expenditure)
A firm must…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…the
customer's personal circumstances (including
the reasons for the financial difficulty, whether it
is temporary or longer term and whether the
customer has entered into a debt solution
previously and, if it failed, the reason for its
failure)
A firm must…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…any
other relevant factors (including any known or
reasonably
foreseeable
changes
in
the
customer's circumstances such as a change in
employment status)
A firm must ensure that a financial statement
sent to a lender on behalf of a customer…is sent
only after having obtained the customer's
consent
to
send
the
statement
and
the
customer's confirmation as to the accuracy of
the statement
3
42. The Authority is concerned by these failings on the part of PDHL, which are consistent
with (and reinforce) the concerns arising out of the sampling exercise.
43. That the files provided by PDHL to the Authority (of which these 13 formed a subset)
evidence failures to satisfy the regulatory standards, was accepted by PDHL in a
meeting with the Authority on 2 July 2015.
PDHL’s systems and controls
44. High level systems and controls requirements are set out in SYSC. The Authority
considers whether a 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 (COND 2.4.2(3)G).
45. Between 30 March and 29 July 2015 (the date of the July Report), on nine occasions the
Authority raised concerns with PDHL, including in respect of complaints from consumers,
the firm’s proposed growth strategy and the firm’s failure to provide information in
requested files for the Authority to review.
46. The July Report was commissioned by PDHL after the Authority gave it two notices
under section 165 of the Act, dated 17 April 2015 and 6 May 2015, which required PDHL
to provide information which was absent from case files provided to the Authority for
review. The scope of the July Report was to:
1)
determine what the reasons were for the failure to address the concerns of the
Authority;
2)
where necessary, outline identified gaps; and
3)
produce high level action plans.
47. In compiling the July Report, the Compliance Consultant visited PDHL, interviewed
members of the Board and senior management, and reviewed PDHL’s structure and
organisation, management information, policies and procedures and monitoring
documentation, and correspondence between PDHL and the Authority. In producing the
July Report, the Authority infers that the Compliance Consultant looked at PDHL’s
business as conducted over the period 21 December 2014 until 29 July 2015.
48. In assessing the material relevant to the Application (including that from the Visit and
the July Report), the Authority identified issues in relation to the adequacy of PDHL’s
systems and controls. The Authority’s resulting concerns are only heightened by the fact
that, notwithstanding that PDHL has been subject to the regulatory requirements of the
OFT and the Authority for a number of years, it has failed to identify and address these
matters.
Adequacy of management information
49. It is important that firms collate and escalate appropriate information to senior
management (in particular the governing body). The importance of MI can be seen from
SYSC 3.2.11A(1)G, which states that “[a] firm's arrangements should be such as to
furnish its governing body with the information it needs to play its part in identifying,
measuring, managing and controlling risks of regulatory concern. Three factors will be
the relevance, reliability and timeliness of that information.”
50. The July Report found, inter alia, that:
1)
“There is currently an insufficient formal record of information being presented
and discussed in preparation for [Authority] authorisation both at [Audit and Risk
Committee] and board level”.
2)
“The quality of MI prepared for the Board, is inadequate and does not provide
the Board with assurance that the business is being effectively managed or
monitored…”.
3)
“Information provided to the Board is brief and extremely high level; there is no
meaningful MI in regard to monitoring, challenge or adequacy of information
provided. It is therefore difficult to understand how the boards could have taken
comfort from such brief/basic information included in the board reports, which
provide little value”.
51. The Authority considers that the findings of the July Report were effectively confirmed
by PDHL’s senior management during the Visit. In his interview with the Authority
during the Visit, a director of PDHL:
1)
Explained that the Board’s practice was to review a set of MI on a weekly basis
in a ‘live environment’ (the Authority understands this to mean that the Board
were looking at ‘live data’ from various internal systems). As a result, no Board
packs or Board MI documents were created (and none are stored as part of any
record of what was reviewed and what actions were taken).
2)
Confirmed that the only meetings where minutes or notes were taken were
those where the purchase of back books were discussed and agreed (although
he stated there were plans to rectify this).
3)
Could not evidence what was said or what actions were taken from any of the
day-to-day meetings or Board meetings.
4)
Recognised that failing to keep minutes/notes was a significant defect.
52. Further, the July Report also identified deficiencies in the purpose and role of the Board.
The July Report found that:
“…there is no clearly defined purpose for the board structure…”
and
“From the information provided to us and through interview we could find no
evidence that the Firm has set out the role and levels of authority for the board
members”
and
“…there has been a lack of direction and understanding of the requirements as
set out by the [Authority]”.
53. The Authority notes that, when interviewed during the Visit, another PDHL director
confirmed that PDHL used to have monthly management meetings but that this now
occurred ‘about every couple of months’.
PDHL’s approach to particularly vulnerable customers
54. Under CONC, debt management firms are required to establish and implement clear and
effective policies and procedures to identify particularly vulnerable customers and to
deal with such customers appropriately (see CONC 8.2.7R).
55. There is no consumer credit rule or guidance as to who is a "particularly vulnerable"
customer, but in Occasional Paper No. 8: Consumer Vulnerability, the Authority gave the
following definition of a vulnerable customer: "someone who, due to their personal
circumstances, is especially susceptible to detriment, particularly when a firm is not
acting with appropriate levels of care". This document was published on 23 February
2015 and the Authority does not suggest it was available to PDHL before this date;
however, the Authority considers this does no more than articulate a pre-existing
concept. The appropriate treatment of particularly vulnerable customers is of particular
concern to the Authority given its consumer protection objective (section 1C of the Act).
56. The Authority identified issues in respect of PDHL’s identification and treatment of
consumers that could be considered ‘particularly vulnerable’. These issues relate to:
1)
PDHL’s identification (and consequently appropriate treatment) in practice of
particularly vulnerable customers; and
2)
the skills of the staff specifically responsible for dealing with particularly
vulnerable customers.
Identification of particularly vulnerable customers
57. These issues arise out of the customer files reviewed as part of the sampling exercise
and the file reviews relating to transferred Kensington customers, referred to above.
58. The Authority considers that five of the customers whose files formed part of the sample
referred to in paragraphs 30 to 35 were particularly vulnerable customers. It is not clear
to the Authority whether (and, if so, when) PDHL identified these customers as
particularly vulnerable; however, the Authority notes that they were neither identified as
particularly vulnerable in their case notes nor being dealt with by the advisors in PDHL
specifically responsible for particularly vulnerable consumers. The Authority considers
that these customers ought to have been identified as particularly vulnerable for the
following reasons:
1)
Two customers would be particularly vulnerable due to their financial
circumstances (on account of their negative disposable income).
2)
One couple would be particularly vulnerable because of the husband's health, the
wife's role as his sole carer, their low income, latterly the wife's ill health and
their overall lack of financial capability.
3)
One customer would be particularly vulnerable for health reasons (on account of
spinal cancer).
4)
One customer would be particularly vulnerable for health reasons (on account of
a heart condition) and their understanding of English.
59. The Authority has also been provided with PDHL’s ‘Call Monitoring Overview Report’ for
April 2015, the scope of which was ‘to provide qualitative data’ based on the monitoring
completed by the firm’s compliance team (the number of phone calls and advisors is not
noted in the document). In the ‘Areas of Concern’ section, the document states that
‘evidence of vulnerability’ was recorded 33.33% of the time (the document defines
‘vulnerable’ as referring to “…clients who have social, mental, physical problems that
stops them accessing, understanding the advice or stops them being able to make an
informed decision”). The Authority notes that the document also states that “[d]ue to a
lack of process and training agents are not identifying particularly vulnerable customers”
and suggests that “[w]ith the new process and training we should see this increase”.
60. On this point, the Authority also notes that the July Report states:
“There is very little evidence that all staff undertake training on regulatory
matters such as mandatory disclosure, TCF, vulnerable customers or when the
decision should be made to refer the customer to the most appropriate course of
action (e.g., referral to debt counsellors, DMP, IVA). For example one former
adviser informed us that the classification of a vulnerable customer would be
based solely on income”.
61. The Authority notes that at the time of the Visit in June 2015, PDHL had identified 16
consumers as ‘vulnerable’ out of a total population in excess of 30,000. Given the
matters set out above, the Authority considers that there is a real risk that the firm has
failed to identify and treat appropriately a far higher number of particularly vulnerable
customers, to which risk PDHL has paid insufficient regard since at least April 2014.
The adequacy of PDHL’s staff dealing with particularly vulnerable customers
62. The Authority also identified issues in respect of the expertise of the PDHL staff involved
in dealing with particularly 'vulnerable' consumers. As part of the Visit, the Authority
spoke to a member of PDHL's 'Care Team', who explained that she was one of a total of
two members of staff responsible for dealing with consumers identified as particularly
vulnerable. From these observations, the Authority considers that the member of staff:
1)
did not know where she should signpost consumers suffering from specific types
of vulnerability (for example, cancer to Macmillan Cancer Support);
2)
was unaware of ‘Income Maximisation’ steps and had not intervened to support
consumers in fuel poverty by, for example, referring them to charitable trusts
that might offer a grant to the consumer; and
3)
confirmed that PDHL did not have other strategies for intervening on behalf of
particularly vulnerable consumers, for example, requesting debt write off.
63. In interview the next day the staff member said that PDHL advised customers that there
is additional support available if the consumer is suffering from ill health. She explained
that the team dealing with particularly vulnerable consumers needed more training to
enable them to provide extra information to consumers in this regard. Whilst these
answers were an improvement on those she gave the day before, the Authority is
concerned that she was not able to properly answer the questions when they were first
asked (and, it infers, was only able to improve her answer by having the opportunity to
research the points).
64. The Authority has identified issues in respect of the adequacy of PDHL’s systems and
controls relating to the identification and appropriate treatment of particularly vulnerable
customers. The Authority considers that PDHL has not demonstrated that it has:
1)
in practice an adequate approach to the identification of particularly vulnerable
customers; and
2)
put in place a sufficient number of appropriately trained staff to deal with
particularly vulnerable customers (in particular given the comments above by a
member of the Care Team).
65. In light of the above, the Authority considers that PDHL has not established and
implemented clear and effective policies and procedures to identify particularly
vulnerable customers and to deal with such customers appropriately (as required by
CONC 8.2.7R).
PDHL’s quality assurance process
66. During its review of the Application, the Authority identified a number of issues with the
adequacy of the QA process which PDHL had been operating in substantially similar form
for most (if not all) of the period up to June 2015 and the QA Process introduced in June
2015. These include:
1)
The July Report considered the issue of QA and stated that “[t]he focus [of the
QA team] has been on reviewing each agent but has failed to pick up deficiencies
in the client on-boarding process”. Upon consideration of the failure rate, the
July Report stated “[d]uring our interviews with QA it was noted that there was a
very low pass rate for agents and that the majority were considered to be high
risk and therefore subject to 5 calls per month. We have been unable to
determine what remedial training is in place to ensure that agents meet
regulatory requirements or whether senior management have been informed of
this risk”.
2)
After reviewing the call recordings provided to the Authority following the Visit,
the Authority notes that the QA Process introduced in June 2015 failed to detect
a significant failing – namely a failure to present free debt adjusting and debt
counselling consistently (CONC 8.2.4R). Although it did identify one failure to
present different debt solutions in an impartial manner (CONC 8.3.7R(1)), it
failed to identify this same failure in a further four phone calls.
Changes made by PDHL to its business since 30 July 2015
67. As mentioned in paragraph 26 above, on 30 July 2015 the Authority sent PDHL a letter
informing the firm that it was minded to refuse the Application. This letter detailed the
Authority’s concerns and invited PDHL to respond to those concerns.
68. PDHL responded by way of letter dated 20 August 2015. PDHL stated in that letter that
"[t]he bulk of concerns expressed in [the 30 July 2015 letter] are historic failings and
PDHL fully acknowledges the serious nature of those failings and regrets them having
taken place". PDHL also stated in that letter that, since the Visit, “PDHL has made
considerable progress in addressing all of the issues raised in [the 30 July 2015 letter]”,
and that the changes it was making to its business would be completed and externally
validated by mid-November 2015. PDHL concluded that at such time it would be able to
demonstrate that all of the Authority’s concerns had been fully addressed and that it
was meeting the Threshold Conditions.
69. On 25 October 2015 the Compliance Consultant provided PDHL with the October Report.
The October Report was commissioned by PDHL as a follow-up to the July Report. The
scope of the Report was to:
1)
review PDHL’s Remediation Plan (i.e. PDHL’s plan for remedying the failings
identified by the Authority);
2)
review the work undertaken by PDHL and an external consultant to determine if
PDHL meets the Threshold Conditions; and
3)
provide a report expressing an opinion as to the completeness of the actions
taken.
70. The overall conclusion of the October Report was that PDHL would meet the Threshold
Conditions but for its lack of sufficient resources at senior management level. The
October Report noted that the Board had been seriously impacted by the recent
departures of key personnel, including the Managing Director, Head of Customer
Services, Risk Manager and Compliance Director. A new Head of Customer Services has
joined the firm and PDHL has informed the Authority that interim appointments have
since been made to fill the Managing Director and Compliance Director vacancies.
However, the Authority is required to consider whether, as at the date of this Decision
Notice, it can ensure that PDHL will satisfy, and continue to satisfy, the Threshold
Conditions. In the Authority’s view, the new appointees’ lack of experience of PDHL and
its systems, processes and staff, and their lack of familiarity with the firm’s
shortcomings that need to be addressed, as well as the issues set out in paragraphs 71
to 78 below, mean that the Authority cannot be satisfied that PDHL now satisfies the
Threshold Conditions.
71. The October Report also concluded that PDHL lacks sufficient staff and skills in other
areas of the firm, in particular in relation to QA and the provision of debt advice.
Regarding QA, the October Report noted that PDHL does not have an internal audit
function and is looking to recruit two more QA analysts. Regarding debt advice, the
October Report stated that PDHL currently only has 14 debt advisers that it has
assessed as competent, significantly fewer than the 30 debt advisers which, in the Oral
Representations Meeting, PDHL informed the Authority that it needs in order to service
effectively its customers. The debt advisers who failed the assessment included some
team leaders, reinforcing the Authority’s view that PDHL does not have appropriate
resources.
72. The Authority has reviewed the October Report and, whilst acknowledging the changes
that PDHL has made to its business in an attempt to address the concerns detailed in
the Authority’s letter of 30 July 2015, considers that it demonstrates that PDHL has not
been able to sufficiently address the Authority’s concerns as detailed in the July Letter
and the Warning Notice.
73. For example, one of the key findings of PDHL’s advice process identified by the Authority
from its review of the sample files, as detailed in paragraph 34, was the failure by PDHL
to comply with the requirements of CONC 8.3.4R and provide a written summary of the
advice given to the customer. The October Report noted that PDHL’s QA team continued
to concentrate on telephone calls only, and so could not provide assurance that PDHL is
complying with CONC 8.3.4R.
74. Another example concerns the MI provided to the Board. As described in paragraph 50
above, the July Report considered that the MI provided to the Board was insufficient. In
contrast, the October Report concluded that the Board was being provided with too
much information, with the result that senior management had to spend time sifting
through the MI to identify relevant material. As this is likely to frustrate the Board’s
ability to identify and address important concerns effectively and promptly, the Authority
considers that the Board is still not being provided with appropriate MI.
75. In addition, the Authority has reviewed the material provided to the Compliance
Consultant by PDHL and considers that some of this material makes it clear that the
Authority’s concerns have not been addressed. For example, one of the documents
provided was a Board meeting information pack, dated 22 October 2015. This pack
included the Compliance Board Report for September 2015 which highlighted a number
of serious regulatory concerns, including:
• PDHL’s agents did not know what TCF meant nor what the Authority’s Principles
for Businesses are, and showed a lack of knowledge of assets and benefits.
• Suitable advice was achieved in up to 84.13% of cases (i.e. in over 15% of cases
unsuitable advice was given), and only 35% of calls passed (i.e. 65% of calls
failed to meet the required standards).
• Information obtained in respect of customers’ income and expenditure, and
therefore their disposable income, is not accurate.
• An audit review concluded that vulnerability was not identified in four out of 18
instances, showing that PDHL’s agents and team leaders are not picking up on
vulnerability.
• PDHL’s agents provided incorrect information to the client in over 25% of the calls
reviewed.
• An external consultant considered that PDHL’s customers were getting the right
outcomes, but that PDHL was achieving this by accident and, if the same agents
were to act in the same way with new customers, the outcome may not be in the
customers’ best interests.
76. The Authority has also had sight of an email from an external consultant to PDHL dated
12 October 2015, which was included with the material provided to the Compliance
Consultant. The third party had listened to two calls, both of which related to cases
which were among those considered by the Authority when it reviewed a sample of
PDHL’s advice (see paragraph 31 above). The external consultant concluded that the
calls did not evidence that suitable advice was provided, for the following reasons:
• “In both cases the expenditure details of the customer were acquired in a
haphazard manner.
• One of the customers [was] not informed that free debt counselling services are
available.
• IVA was identified as the preferred solution in both cases and became almost a
hard-sale.
• In one call, the customer repeatedly said his overtime was not guaranteed but it
was used in the I&E [i.e. the details of the customer’s income and expenditure].
• Fees were not disclosed to the customer in one instance.”
77. The issues outlined above, which evidence serious issues in a range of areas which are
integral to debt counselling and debt adjusting, demonstrate that, despite the changes
made by PDHL and its determination to improve its compliance with regulatory
requirements, PDHL has still not remedied the failings identified by the Authority in the
Warning Notice and that PDHL’s customers remain at risk of not being treated fairly.
78. Further, even if the Authority had not identified such issues, updating its policies and
procedures at this late stage in the application process is not sufficient for PDHL to
satisfy the Threshold Conditions, in particular given the significant concerns previously
identified by the Authority and the time that PDHL has already had in which to resolve
some basic failings in how it carries on its regulated activities. Instead, the new policies
and procedures need to be effectively implemented (i.e. ‘embedded’) and PDHL needs to
demonstrate that, as a result of the changes it has made, it is now compliant with the
relevant regulatory requirements. However, the October Report concluded, and PDHL
has accepted, that its new policies and procedures are not yet embedded. Until this
process has taken place, neither the senior management of PDHL nor the Authority have
sufficient basis to be satisfied that the new policies and procedures are being
implemented in the manner required to meet the relevant regulatory requirements.
Once they have been implemented, PDHL would then need to conduct meaningful and
effective analysis, including outcome testing (which may not be concluded until 2016),
before it can assure the Authority that its concerns have been resolved. This is on the
assumption that PDHL will detect and remedy all issues promptly and satisfactorily, and
the past conduct of the firm does not provide the Authority with confidence that this will
be achieved rapidly.
79. The Authority is therefore not satisfied that the failings it identified in respect of PDHL’s
advice process and systems and controls have been effectively remedied, so that PDHL
will satisfy, and will continue to satisfy, the Threshold Conditions. Indeed, PDHL has
admitted it is not currently meeting the required regulatory standards as, during the
Oral Representations Meeting, it stated that it did not consider that it was currently
satisfying the Threshold Conditions (although it considered it was “nearly there”).
IMPACT ON THE THRESHOLD CONDITIONS
80. The Authority considers that, having regard to all the circumstances, it cannot at this
time be satisfied that PDHL will satisfy, and continue to satisfy, the Threshold
Conditions, in particular, threshold conditions 2D (Appropriate resources) and 2E
(Suitability).
Threshold condition 2D: Appropriate resources
81. Threshold condition 2D requires that a firm's resources must be appropriate in relation
to the regulated activities that it carries on or seeks to carry on. As COND 2.4.2G(2) and
2.4.2G(2A) provide, 'appropriate resources' includes financial resources, non-financial
resources and means of managing its 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 the term '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 by the Authority in the course
of the exercise of its functions.
82. The Authority concludes that it cannot ensure that PDHL satisfies, and will continue to
satisfy, the appropriate resources threshold condition in light of the failings identified
above in relation to PDHL's advice process, systems and controls and human resources.
83. As regards PDHL’s advice process:
1)
As set out more fully in paragraphs 34 to 35 above, the Authority identified
widespread and substantial failings in PDHL's advice process. The failings are of
a type and of a level such that, in the Authority's view, the Authority cannot be
satisfied that PDHL treats its customers fairly and pays due regard to their
interests and information needs.
2)
The failings that the Authority has identified are supported by (i.e. consistent
with and reinforced by) the outcomes of further file reviews conducted by the
Authority: see paragraphs 38 to 39(call recordings on the Visit) and 41 to
42(Kensington book files) above.
3)
The changes made by PDHL to its business had not adequately addressed these
failings by November 2015 (see paragraphs 72 to 76 above). Whilst further
progress may be being made in this regard, PDHL is not able to provide evidence
that they have now been satisfactorily resolved.
4)
The Authority's concerns are heightened by the fact that PDHL:
i.
holds an interim permission and has therefore been required to comply
with the Authority's regulatory requirements and standards since 1 April
2014; and
ii.
was before April 2014 licenced and regulated by the OFT, which applied
effectively the same standards to debt management firms as the
Authority has applied to them since April 2014.
5)
The rules that PDHL has breached are designed to ensure that those offering
debt advice do so in a way that gives due regard to the needs of the firm's
customers (in circumstances where those customers find themselves in a
difficult/stressful situation and are likely to place significant reliance on the firm's
expertise).
84. As regards PDHL's systems and controls in relation to MI:
1)
In light of the findings of the July Report, which were effectively confirmed by
PDHL’s senior management during the Visit (see paragraphs 50 to 53 above),
the Authority considered that the Board did not have available to it sufficient MI
(considering relevance, reliability and timeliness) in order to identify and
mitigate risks of regulatory concern arising out of the firm's activities. In light of
the findings of the October Report, the Authority continues to consider that the
MI provided to the Board is not of appropriate quality, and in particular considers
that the Board is being provided with too much unrefined information, so that
senior management have to spend time sifting through the MI to identify
relevant material. The Authority considers this is likely to frustrate the Board’s
ability to identify and address important concerns effectively and promptly.
2)
Without appropriate MI being escalated to senior management, the Authority
considers that senior management will not have an adequate awareness of the
performance of PDHL and will not be able to satisfy itself that PDHL's affairs are
being conducted in a sound and prudent manner with the interests of consumers
being given adequate consideration.
85. As regards PDHL's systems and controls in relation to particularly vulnerable customers:
1)
CONC 8.2.7R requires that a firm must establish and implement clear and
effective policies and procedures to identify particularly vulnerable customers
and to deal with such customers appropriately. Given the matters described in
paragraphs 57 to 65, the Authority’s view is that PDHL does not meet this
requirement in practice.
2)
The Authority is concerned that the number of particularly vulnerable customers
identified by the firm is too low. This is not only on the face of the figures, but
also because the Authority has (as set out in paragraph 58) identified
particularly vulnerable customers that the firm has not identified and treated
appropriately.
3)
The Authority's concerns as to the expertise and knowledge of PDHL's specialist
staff (see paragraph 62 above) similarly leads the Authority to conclude that the
firm has not yet implemented effective policies and procedures in this area.
86. As regards PDHL's systems and controls in relation to QA:
1)
The July Report contains recent evidence of failings in respect of the sufficiency
of the QA process which PDHL had in place in the period up to June 2015.
Specifically, it raises concerns as to the low pass rate of advisers subjected to
that QA process: see paragraph 66 above. Given that PDHL has been subject to
the OFT's/the Authority's regulatory requirements for a number of years, this
state of affairs is of significant concern.
2)
The October Report provides evidence of even more recent failings in respect of
the QA Process. Specifically it notes that PDHL’s QA team continued to
concentrate on telephone calls only, and so could not provide assurance that
PDHL is complying with the requirements of CONC 8.3.4R to provide a written
summary of the advice given to the customer (see paragraph 73 above).
87. The Authority acknowledges the recent changes that PDHL has made to its policies and
procedures but concludes that PDHL has not done enough to address its failings in
relation to PDHL’s systems and controls (see paragraph 78 above). The Authority also
considers that, as the new policies and processes have not yet been embedded, PDHL is
not yet in the position to determine whether they are, in fact, adequate (or requiring
further revisions), and so the Authority cannot be satisfied that they are fit for purpose.
88. As regards PDHL’s human resources:
1)
PDHL lacks sufficient resources at senior management level following recent
departures of key personnel. Although a new Head of Customer Services has
joined the firm and PDHL has informed the Authority that it has made interim
appointments to cover the positions of Managing Director and Compliance
Director, in the Authority’s view the new appointees’ lack of experience of PDHL
and its systems, processes and staff, and their lack of familiarity with the firm’s
shortcomings that need to be addressed, means that the Authority cannot at this
time ensure that PDHL will satisfy the Threshold Conditions.
2)
PDHL also lacks sufficient resources in other areas of the firm. It informed the
Authority, in the Oral Representations Meeting, that it needs 30 debt advisers in
order to service effectively its customers but currently only has 14 debt advisers
that it has assessed as competent. It also only has two members of staff
capable of dealing with particularly vulnerable consumers and lacks sufficient QA
staff.
89. In summary, the Authority considers that the above matters demonstrate that PDHL
does not have appropriate non-financial resources and does not have effective means by
which to manage risks. As such, the Authority cannot ensure that, were the Application
to be granted, PDHL would satisfy, and would continue to satisfy, threshold condition
2D.
Threshold condition 2E: Suitability
90. 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.
91. The matters referred to in paragraphs 83 to 88 also raise issues in respect of the
suitability of PDHL. In particular, the Authority considers that the firm has:
1)
Not 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 (see COND 2.5.6(1A)G). This is
evidenced by PDHL's failure to identify and remedy promptly the issues as to its
systems and controls around MI, QA and particularly vulnerable customers.
2)
Not taken reasonable care to ensure that robust information and reporting
systems have been developed, tested and properly installed (see COND
2.5.6(16)G). This is evidenced by the failings in respect of the adequacy of the
MI and QA.
92. In the circumstances, the Authority considers that the firm has not demonstrated that it
can ensure that its affairs are conducted in an appropriate manner, having regard in
particular to the interests of consumers (COND 2.5.1A(1)(c)). The Authority therefore
cannot ensure that, were the Application to be granted, PDHL would satisfy, and would
continue to satisfy, threshold condition 2E.
REPRESENTATIONS
93. Annex B contains a brief summary of the key representations made by PDHL and how
they have been dealt with. In making the decision which gave rise to the obligation to
give this Notice, the Authority has taken into account all of the representations made by
PDHL, whether or not set out in Annex B.
IMPORTANT NOTICES
94. This Final Notice is given under section 390 of the Act.
95. Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information
about the matter to which this Notice relates. Under those provisions, the Authority
must publish such information about the matter to which this Notice relates as the
Authority considers appropriate. The information may be published in such manner as
the Authority considers appropriate. However, the Authority may not publish
information if such publication would, in the opinion of the Authority, be unfair to you or
prejudicial to the interests of consumers or detrimental to the stability of the UK
financial system.
96. The Authority intends to publish such information about the matter to which this Final
Notice relates as it considers appropriate.
Authority contacts
97. For more information concerning this matter generally, contact Garry Hunter, Manager,
Credit Authorisations Department at the Authority (direct line: 020 7066 2518 / email:
garry.hunter@fca.org.uk ).
Peter Hinchliffe
Acting Chair, Regulatory Decisions Committee
ANNEX A
RELEVANT REGULATORY PROVISIONS
1.
The Authority’s operational objectives, set out in section 1B(3) of the Act, include the
consumer protection objective. Section 1C(1) of the Act provides that the Authority’s
consumer protection objective is: securing an appropriate degree of protection for
consumers.
2.
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.
3.
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 for which that regulator is responsible.
4.
The Threshold Conditions are set out in schedule 6 of the Act. In brief, the Threshold
Conditions relate to:
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
Principles for Businesses (“PRIN”)
5.
This section of the Handbook sets out the fundamental obligations of all firms under the
regulatory system.
6.
Principle 3 provides that a firm must take reasonable care to organise and control its
affairs responsibly and effectively, with adequate risk management systems.
Guidance on the Threshold Conditions (“COND”)
7.
This section of the Handbook sets out the minimum standards for becoming and
remaining authorised.
8.
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.
9.
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.
10. COND 1.3.3CG provides that, when assessing the Threshold Conditions, the Authority
may have regard to any person appearing to be, or likely to be, in a relevant
relationship with the firm, in accordance with section 55R of the Act (Persons connected
with an applicant). For example, a firm's controllers, its directors or partners, other
persons with close links to the firm (see COND 2.3), and other persons that exert
influence on the firm which might pose a risk to the firm's satisfaction of the Threshold
Conditions, would be in a relevant relationship with the firm.
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(2A) states that “non-financial resources” for the purposes of the
Threshold Conditions include any systems, controls, plans or policies that the firm
maintains and the human resources that the firm has available.
13. 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.
14. COND 2.4.4G states that, when assessing whether a firm has appropriate resources,
the Authority will have regard to matters including:
(d)
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.
(f)
Whether the resources of the firm are commensurate with the likely risks it will
face.
Threshold condition 2E (Suitability)
15. COND 2.5.1A(1)G states that the applicant (‘A’) must be a fit and proper person having
regard to all the circumstances, including:
(c)
The need to ensure that A'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.
(d)
Whether A has complied and is complying with requirements imposed by the
Authority in the exercise of its functions, or requests made by the Authority, relating
to the provision of information to the Authority and, where A has so complied or is
so complying, the manner of that compliance.
16. COND 2.5.2G(2)G states that the Authority will also take into consideration anything that
could influence a firm's continuing ability to satisfy threshold condition 2E. Examples
include the firm's position within a UK or international group, information provided by
overseas regulators about the firm, and the firm's plans to seek to vary its Part 4A
permission to carry on additional regulated activities once it has been granted that
permission.
17. COND 2.5.4G(2) 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 business in compliance with proper
standards and its affairs with the exercise of due skill, care and diligence.
18. 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 has been open and co-operative in all its dealings with the Authority
and any other regulatory body (see Principle 11 (Relations with regulators)) and
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 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.
(7)
The firm has put in place procedures which are reasonably designed to:
(a) ensure that it has made its employees aware of, and compliant with, those
requirements and standards under the regulatory system that apply to the
firm for which the Authority is responsible and the regulated activities for
which it has or will have permission;
(b) ensure that its approved persons (whether or not employed by the firm)
are aware of those requirements and standards under the regulatory
system applicable to them;
(c) determine that its employees are acting in a way compatible with the firm
adhering to those requirements and standards; and
(d) determine that its approved persons are adhering to those requirements
and standards.
(14) The governing body of the firm is organised in a way that enables it to address
and control the regulated activities of the firm, including those carried on by
managers to whom particular functions have been delegated.
(16) The firm has taken reasonable care to ensure that robust information and
reporting systems have been developed, tested and properly installed.
Consumer Credit Sourcebook (“CONC”)
19. 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, the General Provisions section of the Handbook
(“GEN”) and SYSC, and the requirements in or under the Consumer Credit Act 1974.
20.
CONC 8.2.4R states that a debt management firm must prominently include:
(1)
in its first written or oral communication with the customer a statement that free debt
counselling, debt adjusting and providing of credit information services is available
to customers and that the customer can find out more by contacting the Money
Advice Service; and
(2)
on its web-site the following link to the Money Advice Service web-site
(https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator).
21. CONC 8.2.7R states that a firm must establish and implement clear and effective policies
and procedures to identify particularly vulnerable customers and to deal with such customers
appropriately.
22.
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.
23. 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:
(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 DMP or another non-statutory repayment plan there is
no guarantee that any current recovery or legal action will be suspended or
withdrawn.
24.
CONC 8.3.7R states that a firm must:
(1)
provide the customer with a source of impartial information on the range of debt
solutions available to the customer in the relevant country of the UK;
(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 longer 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).
(3)
refer a customer to an appropriate not-for-profit debt advice body in
circumstances where the customer:
(a) has problems related to debt requiring immediate attention with which the
firm is unable or unwilling to assist the customer; or
(b) does not have enough disposable income to pay the firm's fees.
(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.
25. CONC 8.5.1R states that a firm must ensure that a financial statement sent to a lender
on behalf of a customer:
(1)
is accurate and realistic and must present a sufficiently clear and complete
account of the customer's income and expenditure, debts and the availability of
surplus income;
(2)
state any fees or charges being made by the firm;
(3)
is sent only after having obtained the customer's consent to send the statement
and the customer's confirmation as to the accuracy of the statement;
(4)
is provided to the customer's lenders as soon as practicable after the customer
has confirmed its accuracy; and
(5)
is also sent to the customer, together with any accompanying correspondence.
26.
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; and
(3)
where applicable, notify a customer that a particular lender will not deal with the
firm (for whatever reason), as soon as possible after the firm becomes aware
that the customer owes a debt to that lender.
27. CONC 8.8.1R states that a firm in relation to a customer with whom it has entered into
a DMP must:
(8)
provide a statement to the customer at the start of the DMP, 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; and
(9)
maintain adequate records relating to each DMP which the firm has administered
for the customer until the contract between the customer and the firm is
completed or terminated.
Senior Management Arrangements, Systems and Controls (“SYSC”)
28. This section of the Handbook sets out the responsibilities of directors and senior
management.
29. SYSC 3.2.11A(1)G states that a firm's arrangements should be such as to furnish its
governing body with the information it needs to play its part in identifying, measuring,
managing and controlling risks of regulatory concern. Three factors will be the relevance,
reliability and timeliness of that information.
30. SYSC 3.2.2G states that a firm's reporting lines should be clear and appropriate having
regard to the nature, scale and complexity of its business. These reporting lines,
together with clear management responsibilities, should be communicated as
appropriate within the firm.
31. SYSC 9.1.1R states that 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 appropriate regulator (or any other
relevant competent authority under MiFID or the UCITS Directive 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 clients.
ANNEX B
REPRESENTATIONS
1. PDHL’s representations (in italics), and the Authority’s conclusions in respect of them,
are set out below.
Regulation by the OFT
2. PDHL operated under a license from the OFT between 1 July 2007 and 31 March 2014
and at no time did the OFT express concern about the manner in which PDHL’s business
was conducted.
3. The lack of concern expressed by the OFT about PDHL’s business does not mean that
the OFT considered PDHL to be acting in compliance with its regulatory standards or
indeed that PDHL was complying with them. The rules in CONC which the Authority
considers PDHL has failed to comply with are not materially different to the OFT’s debt
management guidance that PDHL was previously subject to. The fact that PDHL has
been subject to broadly the same regulatory standards since 2007 heightens the
seriousness of its failure to put in place appropriate processes, systems and controls
prior to and during the course of its application for authorisation.
Appropriateness of the Authority’s action
4. The Authority’s action is inappropriate, unnecessary and has been taken in haste
without due regard to the systems and controls the business is installing in response to
the requirements of CONC, which were first brought into force in April 2014 and most
recently updated in August 2015. Time is required to model PDHL’s business around
the new CONC regime and to install conforming structures.
5. The Authority does not consider its action to be inappropriate, unnecessary or to have
been taken in haste. As mentioned in paragraph 3 above, the CONC regime is not
materially different to the OFT’s regime, and the updates to CONC in August 2015 have
not materially altered the standards that PDHL has to meet. As PDHL has been subject
to broadly the same regulatory standards since 2007 it has had sufficient time to put in
place appropriate processes and systems and controls. Further, PDHL submitted the
Application in December 2014 but it was not until after the Visit in June 2014 that it
started to make changes to its business. If PDHL had started to make changes earlier,
there would have been more chance that the revised policies and procedures would be
embedded by the time the Authority determined the Application.
6. In addition, in considering whether to grant the Application, the Authority has had
regard to whether PDHL would be capable of continuing to meet its regulatory
obligations. The Authority considers that the delay in addressing compliance failings,
during a period in which these have been pointed out by the Authority and the firm is
relying on expert external consultants, causes concern over the firm’s ability to act in
compliance with its regulatory obligations when the additional scrutiny is not taking
place.
PDHL’s interim permission
7. In accordance with Article 58(1)(a) of the 2013 Order, PDHL’s interim permission will
continue until the Application is determined. Pursuant to Article 58(3)(c) of the 2013
Order, the Application will be determined when a decision notice takes effect. Section
133A(4) of the Act provides that, if the matter is referred to the Tribunal, the Authority
must not take the action specified in a decision notice until the reference, and any
appeal against the Tribunal’s determination, has been finally disposed of. Should the
Authority issue a decision notice, PDHL will refer the matter to the Tribunal and PDHL’s
interim permission will therefore continue while the Tribunal is considering the matter.
8. Under section 133(4) of the Act, the Tribunal may consider any evidence relating to the
subject-matter of the reference, whether or not it was available to the decision-maker
at the material time. Therefore, should the Tribunal determine the Application, it will
consider whether PDHL is meeting the Threshold Conditions at that time, by which point
PDHL’s new policies and procedures will be embedded.
9. If the effect of giving a decision notice is that PDHL’s interim permission ceases, this
would be likely to lead to PDHL going into administration and would have a detrimental
effect on PDHL’s 25,000 customers (as the Money Advice Service does not have the
capacity to take on so many customers), its staff and creditors. It is therefore
disproportionate and unnecessary to give a decision notice, in particular as PDHL is
nearly in the position of meeting the Threshold Conditions.
10. Article 58(3)(c) of the 2013 Order was amended by Article 2 of the 2014 Order and now
provides that, in respect of firms with an interim permission, the date on which an
application for full authorisation is determined is the date on which the decision notice
is given. The Authority’s view is that this means that PDHL’s interim permission ceases
to have effect from the date of this Notice. This is the legal consequence of the
Authority’s decision to refuse the Application. However, it is not an action of the
Authority; the only action the Authority is taking is to refuse the Application.
Therefore, the Authority’s view is that should PDHL refer the matter to the Tribunal, the
Authority’s decision to refuse the Application will not take effect until the Tribunal
directs the Authority to take such an action (if the Tribunal makes such a direction), but
this does not impact on the status of PDHL’s interim permission, which the Authority
considers ceases on the giving of this Notice. It is for PDHL to consider if any action
may be pursued in the Tribunal or elsewhere that may defer the legal impact of this
Notice on PDHL’s interim permission.
11. The Authority has taken into account PDHL’s view that, if its interim permission ceases,
this would have a detrimental impact on the firm’s customers, staff and creditors and
that the Authority’s decision is disproportionate and unnecessary. However, the
Authority considers that, at this time, it cannot ensure that PDHL will satisfy, and will
continue to satisfy, the Threshold Conditions and so, in all the circumstances, it is
appropriate and necessary to refuse the Application. The Authority is of the view that
the Money Advice Service would be able to assist any customer of PDHL who contacts
it,
PDHL should be given credit for the work it has undertaken to meet regulatory expectations
12. Since submitting the Application, PDHL has undertaken a large amount of work to meet
the Authority’s regulatory expectations, including: responding to section 165
information requests; commissioning the July Report; retaining an external consultant
to assist with devising and implementing a remediation plan; and giving voluntary
undertakings not to grow the business further whilst addressing some of the Authority’s
concerns and to return and cap fees relating to Kensington customers. PDHL should be
given credit for this work.
13. The Authority acknowledges that PDHL has made efforts to meet the Authority’s
regulatory standards. However, as PDHL itself admitted in the Oral Representations
Meeting, it is not currently meeting the Threshold Conditions. In addition, the Authority
has had regard to whether PDHL would be capable of continuing to meet its regulatory
obligations should it approve the Application, and considers that the delay in addressing
compliance failings, during a period in which these have been pointed out by the
Authority and the firm is relying on expert external consultants, causes concern over
the firm’s ability to act in compliance with its regulatory obligations when the additional
scrutiny is not taking place. The Authority therefore considers it is appropriate not to
approve the Application.
PDHL will satisfy the Threshold Conditions
14. The Authority’s view that PDHL will not satisfy the Threshold Conditions is neither
justified by, not consistent with, the significant changes which PDHL has been making
to its business and which are continuing to be made.
15. Since the July Report PDHL has undergone a significant re-organisation both in terms of
business structures and personnel which demonstrate a commitment to reform and the
adoption of new structures which will bring the business in line with the requirements of
CONC. This is supported by the findings in the October Report.
16. The Authority acknowledges that PDHL has made significant changes to its business
since the July Report but its view is that these have not yet satisfactorily addressed the
failings outlined in the Warning Notice. In considering whether to approve the
Application, the Authority has to decide whether PDHL is meeting the Threshold
Conditions at the date of this Notice, and the Authority cannot ensure that PDHL will
satisfy the Threshold Conditions if there is only a possibility that PDHL will meet the
Threshold Conditions in the future. PDHL stated in the Oral Representations Meeting
that it is not currently meeting the Threshold Conditions, and the Authority shares that
view for the reasons set out in this Notice.
Anomalies in the Authority’s findings from its sample review
17. There are anomalies in the Authority’s findings from its sample review as extrapolated
and applied to the whole of the PDHL customer base. For example, where 13 out of 20
files reviewed are alleged to have failed a compliance test, the prediction for the whole
population is variously 40% and 32%.
18. The reason for the different percentages, despite the same number of files having been
found to be in breach, is that the sample of 20 files was broken down into two sub-
populations and the Authority weighted the findings for each sub-population to reflect
the composition of the 9,907 files constituting the whole population.
Report from the Compliance Consultant dated 13 December 2015
19. On 9 December 2015, the Authority told PDHL that it would issue its decision in respect
of the Application on 16 December 2015. On 14 December 2015, PDHL submitted to
the Authority a further report, dated 13 December 2015, from the Compliance
Consultant. This report, based upon information provided by PDHL and reviewed by the
Compliance Consultant prior to 11 December 2015, concludes that PDHL now meets
threshold conditions 2D (appropriate resources) and 2E (suitability) and the regulatory
requirements relating to a debt management firm set out in CONC 8. Although PDHL
did not specifically ask the Authority to treat the submission as an additional
representation, that is how the Authority has treated it.
20. The Authority has reviewed the report and, having regard to the timing of this
submission and the requirement in section 55V(2) of the Act that the Authority must
determine an application within 12 months from the date on which it received the
application, considers there is insufficient time for the Authority to satisfy itself that the
changes described by the report have addressed the Authority’s concerns. This is
because the history of the Application suggests that the conclusions set out in the
report cannot be fully relied upon without some further verification and, even if the
changes described in the submission were all sufficient to resolve previous failings
(which, as described below, does not appear to be the case), they would need to be
implemented and embedded in order for the Threshold Conditions to be met.
21. Further, the Authority is of the view that the report does not establish that PDHL has
satisfactorily resolved all the failings identified in this Notice. In particular, the
Authority notes:
•
PDHL now has a pool of 18 debt advisers considered to be competent, which
should shortly increase to 21, but this is still far fewer than the 30 debt advisers
that PDHL informed the Authority that it needs in order to service effectively its
customers.
•
The report concludes that PDHL now operates upon a solid management base.
However, the Managing Director is acting in an interim capacity, has been in this
role for only a short period of time and appears also to be the firm’s MLRO and
have responsibility for compliance. This, together with the firm’s reliance on
external support, leads the Authority to question the report’s conclusion and also
does not give the Authority confidence that PDHL would be able to comply with
relevant regulatory requirements without significant external input.
•
It is not clear from the report whether PDHL now has sufficient QA staff and, if
so, whether this is as a result of recruitment, training or buying in of services.
•
New guidelines have been provided to debt advisers which the report considers
should ensure that appropriate advice is provided to customers, but the
Authority has not been given sufficient time to review whether these guidelines
are appropriate and effective.
•
The report states that three recent customer cases were reviewed and
appropriate advice was given in each case. The Authority is not satisfied that
this is an adequate basis for a proper assessment of PDHL’s capability. It also
has not been given sufficient time to carry out its own review of these cases to
verify the findings.
•
The report does not provide evidence that the Authority’s concerns, set out in
this Notice, regarding the identification and treatment of particularly vulnerable
consumers have been addressed.
22. Overall, while the Authority notes PDHL’s continuing activity and its commitment to
achieving compliance with the relevant regulatory requirements, this report does not
fully resolve the Authority’s concerns. The report’s very late submission and contents
do not give the Authority confidence that the necessary actions have been implemented
and embedded (i.e. will be followed in the ordinary course of business). For a written
submission at this very late stage to cause the Authority to overcome evidence of
existing failings and be satisfied that a firm is satisfying, and will continue to satisfy,
the Threshold Conditions from its own resources, the Authority would expect to see
evidence that is clear, unconditional and capable of being evaluated on the basis of the
written submission alone. PDHL’s submission of 14 December 2015 does not provide
such evidence.