Claims management companies enter FCA regulation
1 Apr 2019 02:44 PM
The Financial Conduct Authority (FCA) began regulating the claims management industry as of yesterday (1 April). All claims management companies (CMCs) in England, Scotland and Wales will now have to demonstrate they meet and maintain minimum standards set by the FCA. All existing and new CMCs will need to apply to the FCA for authorisation.
More than 900 CMCs have registered for 'temporary permission' to continue operating while they go through the FCA authorisation process.
Once authorised, the FCA has a range of tools and powers it can use if firms do not comply with the rules. This may involve requiring a firm to change its business practices (eg ensuring its communications with consumers are clear, fair and not misleading), imposing a financial penalty or refusing to authorise a firm if there is serious misconduct.
The new FCA regime aims to boost consumer protection and the professionalism of the sector by driving up standards in the industry. The FCA wants CMCs to be trusted providers of high quality, good value services that help consumers pursue legitimate claims for redress.
New FCA requirements will benefit consumers by ensuring that CMCs give people the information they need to make informed decisions. The new FCA requirements include:
- due diligence on lead generation and rules to prevent firms encouraging customers to make fraudulent, frivolous or vexatious claims or claims which have no good basis
- providing clear, upfront information to customers about the fees they charge and the services they will provide
- giving customers a summary document about the services they will provide before the customer signs a contract
- telling customers about free alternatives such as the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS), including in advertising
- recording and retaining customer telephone calls for a year after their final contact with a customer will reduce the chances of high pressure sales techniques and support robust resolution of customer complaints
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, yesterday said:
'Today brings a new regime and rules for regulating the claims management industry. Many CMCs play an important role in helping to secure compensation for customers, including for those who otherwise might not make a claim. The new regime has consumer protection and CMC professionalism at its heart. It will mean that customers will be protected from claims management cowboys and get a better deal.'
If you're considering using a CMC, please refer to our page about using CMCs which has information about how to claim compensation (including for free yourself), what to expect from a CMC if you decide to use one, and how to check you are using an authorised CMC.
Notes to editors
- Concerns about misconduct by some CMCs sparked a government review that led to a change in regulation. The changes announced yesterday result from the independent Brady review(link is external) of the UK’s claims management industry.
- The Financial Guidance and Claims Act 2018 (FGCA)(link is external) transfers the regulation of CMCs from the existing Claims Management Regulator (CMR), which is part of the Ministry of Justice (MoJ), to the FCA.
- As of yesterday, the Claims Management Ombudsman(link is external), a Financial Ombudsman Service, will take on responsibility for resolving complaints about CMCs from the Legal Ombudsman – as the regulation of these companies transfers to the FCA. Just like the Legal Ombudsman previously did, the ombudsman service will now be able to look at complaints about CMCs who work in a range of sectors, including financial services, personal and criminal injury, housing disrepair, specified benefit and employment. Complaints about CMCs can now be brought directly to the Financial Ombudsman Service, and those already with the Legal Ombudsman are being transferred across.
- On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has 3 operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA.