Darren Newton, accused by the UK's Financial Conduct Authority of using customers’ money for the purchase of a debt management firm called First Step Finance Limited, is appealing against its decision to ban him from financial services.

First Step began trading in 2007, offering a debt reduction service (a form of debt management) to its customers, under licence from the Office of Fair Trading. On 1 April 2014, consumer credit regulation became the job of the Financial Conduct Authority, which did not licence First Step.

A standard debt management plan - of which HNW clients occasionally avail themselves along with others - is an informal arrangement conducted on behalf of customers by a debt management firm, which usually tries to freeze the interest and charges they must pay on their debts. Customers make monthly payments to the firm, from which it deducts its fee. The balance of each monthly payment is paid by the firm on a pro-rata basis to the customer’s creditors. It may take many years for the debts to be paid off. First Step, however, offered its customers a different model of debt reduction. It sought to reduce the total indebtedness of each customer by challenging the enforceability of the debt contracts; seeking to set off mis-selling claims (payment protection insurance, i.e. PPI, or others) against certain debts on behalf of the customer; and negotiating a compromise of the customer’s debts overall. As First Step undertook this process it received monthly payments from its customers but made no, or only token, payments to the creditors.

With this model, First Step was supposed to use its customers’ monthly payments, less fees due to First Step, to build up a 'pot' of money for each customer. The money in this pot was 'client money' and should have been used to make an offer of full and final settlement of the debts with each of the relevant customer’s creditors. The client money was not to be used by First Step for any purpose other than paying the customer’s creditors or repaying the customer.

According to the FCA, Newton wrongly directed or allowed First Step to transfer money, some or all of which was client money, totalling £322,500, to Mrs Christine Whitehurst, the former sole director and shareholder of First Step. The regulator says that he knew that First Step was not allowed to use client money other than for the benefit of its customers. Newton was the firm's director between October 2013 and 28 May 2014. As the payments to Mrs Whitehurst were made from First Step’s office account, which contained 'commingled' funds (i.e. funds comprising a mixture of First Step’s own monies and client monies), the FCA considers that these payments used client money and therefore must have increased the firm's £6-7 million client money shortfall.