The Financial Guidance and Claims Bill is currently completing its passage through Parliament. The Bill includes provision for a transfer of regulation of claims management companies (CMCs) from the Ministry of Justice (MoJ) to the Financial Conduct Authority (FCA).
The FCA’s latest Business Plan reveals that it expects the handover to happen in spring 2019, and that it will commence a consultation on the new claims management rulebook later in 2018.
This transfer of regulation is sure to result in a dramatic increase in the regulatory burden faced by CMCs in England and Wales (Scotland and Northern Ireland are not covered by the Bill’s provisions on this subject). At present, the entire MoJ Conduct of Authorised Persons Rules and the Complaints Handling Rules can be written on just 26 pages. A swift glance at the size of the FCA’s rulebook, known as the Handbook, should be sufficient to illustrate just how large a change lies ahead for CMCs. It is inevitable that some CMCs will choose to leave the industry rather than make the wide-ranging changes to their practices and procedures that will be required to comply with the FCA’s rules.
The Bill gives the FCA the power to design an appropriate regulatory regime for the claims sector, and to restrict the fees that CMCs can charge.
The Bill also provides for the transfer of CMC complaints oversight to the Financial Ombudsman Service (FOS). At present, if a consumer disagrees with their CMC’s resolution of a complaint, they can refer the matter to the Legal Ombudsman. Once the FCA has commenced regulating CMCs, complaints about claims management can be referred to the FOS. The FOS has the power to make legally binding orders for firms to pay up to £150,000 in redress to individual consumers.
Under the FCA regime, senior management of CMCs will need to get used to the idea of personal accountability. As well as authorising firms to operate within financial services, the FCA authorises key individuals at each authorised firm. This means that CMC directors and management will need to satisfy their new regulator that they are ‘fit and proper’ to carry out their roles. An FCA fit and proper assessment encompasses: honesty, integrity and reputation; competence and capability; and financial soundness.
As well as taking enforcement action against firms, the FCA can also impose punishments on senior individuals within authorised firms. Hence CMC directors and management could find themselves fined or banned from working in the industry if they are deemed to be personally responsible for their company’s misconduct.
It is too early to know exactly what rules the FCA might prescribe for CMCs. However, as a starting point, all claims companies that intend to continue to operate after the handover to the FCA should ensure that the fair treatment of customers is central to their corporate culture. The FCA has 11 Principles for Business, which all authorised firms are expected to comply with, and one of the best known of these Principles is number six, which requires a firm to “pay due regard to the interest of its customers and treat them fairly.”
It also seems likely that the eventual FCA rulebook for CMCs will incorporate most, if not all, of the recommendations of the Brady review, which include:
- A standardised disclosure document for each CMC sector to improve the quality of information provided to clients
- Signposting of alternative claims resolution channels
- A requirement to record all client calls and to retain these for 12 months following the conclusion of a contract
Significant restrictions on the way in which CMCs can promote their services can also be expected under the FCA regime.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.