Why would debt advisors need huge Professional Indemnity insurance?

Brendan Burgess

Brendan Burgess

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The CB is consulting on the regulation of debt advisors Authorisation for Debt Management Firms - CB consultation

3. Professional Indemnity Insurance

a debt management firm shall have in place professional indemnity insurance (“PII”), against liability arising from professional negligence, covering the debt management services in accordance with paragraphs 3.2 – 3.4 below.

3.2 The amount insured shall be at least equivalent to the total value of all the debts of consumers related to the services of the debt management firm subject to a minimum cover of €1,500,000, with no limit on the number of claims in any one year.
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So, if you have 50 clients who owe €2m each, you will need €100m of PI?

This can't be what is intended.
 
I am trying to figure out why Debt Advisors need PI insurance at all?

If they handle clients' cash, they need to be bonded. But many advisors just provide advice or negotiate on behalf of clients.

Doctors need PI, because they can negligently misdiagnose an illness.
Solicitors need PI, because their clients can lose substantial sums through poor advice or other negligence from their solicitors.
Auditors need it as they might not detect a fraud which they should have uncovered.


But Debt Advisors?

There is no right answer to the questions debt advisors would be asked. We see that often on Askaboutmoney where I would list out the options and make a recommendation and someone else, would make a different recommendation. It's a judgment call and it's a hard call as it's hard to know what would be acceptable to the clients. I might be wrong, but I don't consider myself negligent.

I am trying to imaging a case study where the debt advisor could be considered negligent. He lists out the options available but fails to mention an important option which would clearly be the best option. I don't think that the best option is ever that clear.

He gives some clearly incorrect advice e.g.
"Don't tell the PIP about your savings in Northern Ireland"
"Don't worry about the BoSI debt - it will disappear after 3 years"
"Your wife should add her name to your mortgage as she is liable for your debts anyway"
"Pay me enormous fees and I will be able to make your debts disappear"

There will often be a PIP or a solicitor involved who would counter this advice before the client implemented it.


I am sure that there could be some sort of case, but it would be so rare that I don't think that PI should be compulsory.
 
Being a skeptic it looks to me that they would be rigging the system in favor of large companies with lots of capital pushing out the smaller independent advisers.

Why 'they' would want to do this -- well, just look into the near past.
 
khards said:
Being a skeptic it looks to me that they would be rigging the system in favor of large companies with lots of capital pushing out the smaller independent advisers.

Why 'they' would want to do this -- well, just look into the near past.
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This is correct. I also heard a bond must be put in place of circa 100k. Impossible for the small guys hence the small independents now running their practices from NI.
 
Wishes said:
hence the small independents now running their practices from NI.
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Will they be allowed to offer debt advice from the North and not be regulated here?

What is the situation in the UK? Is debt advice as distinct from debt management, regulated?
 
In the UK, there are separate categories of licenses e.g.


  • Category D - debt adjusting
  • Category E - debt counselling
  • Category F - debt collecting
  • Category G - debt administration
Category E is the one to which I am referring.


There is a good summary on but it doesn't mention PI. I assume it's not required.

Debt Counselling (Category E) Licence


The OFT considers credit licence applications based on factors such as:
• Competence
• Quality of documentation provided
• Any previous regulatory action or criminal convictions.


A Category ‘E’ Licence is required if you intend to advise individuals about how to discharge specific debts (where the debts arise under consumer credit or hire agreements).



Debt counselling is regarded by the OFT as a high-risk activity, which means that in addition to the standard application form, applicants need to complete a Credit Competence Plan. Here you will be required to give comprehensive information regarding matters such as your competence to practise debt counselling, the advertising you intend to carry out, the business procedures and practices you intend to adopt, your Data Protection policy and the records you intend to keep. A visit from the OFT to your business is also highly likely.


The cost of obtaining a licence is made up of the Consumer Credit Licensing Fee and a Consumer Credit Jurisdiction (CCJ) Levy. The CCJ Levy funds the Financial Ombudsman Service (FOS), which adjudicates on complaints regarding financial services organisations in the UK.
Total cost for sole traders is £670, comprising a £530 Consumer Credit Licensing Fee and a £140 CCJ Levy.



75% of category E licence applications are processed within 50 working days.


Consumer Credit Licences are usually granted for an indefinite period, although an additional payment may be required after five years.
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Brendan Burgess said:
Will they be allowed to offer debt advice from the North and not be regulated here?

What is the situation in the UK? Is debt advice as distinct from debt management, regulated?
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Effectively;
Companies once registered in UK will passport in under EU law and can offer the whole panoply of Debt Advice/Debt Management/Insolvency services . The Uk Regulations appear more sensible than our Central Bank are imposing? .If these companies are Regulated in Uk our Centrals input will be at best (housekeeping).It also means the work leaves Ireland.

I understand Debt Advice per se is NOT regulated ie any one can give advice.

Comment;
Our Central Bank is NOW very good at setting rules EVEN before we have an Insolvency /Debt Management service active .What I see is wilful and woeful mismanagement by our Central Bank.
Could it be that since they were so clearly incompetent in the fluffy times they feel they have to do the bully boy now?
PS: See my note on PPI Claims and Central Banks handling.

Please someone tell me I am wrong.
 
Gerry Canning said:
. The Uk Regulations appear more sensible than our Central Bank are imposing? .If these companies are Regulated in Uk our Centrals input will be at best (housekeeping).It also means the work leaves Ireland.

I understand Debt Advice per se is NOT regulated ie any one can give advice.
.
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Hi Gerry

Remember, this is a consultation. Make a submission on the issue.

It seems clear to me that the UK distinction between debt counselling and debt management is a good one and should be followed here.
 
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