Claims management companies (CMCs) will be regulated by the Financial Conduct Authority (FCA) from April 1 2019, which means that from that date, they could be subject to enforcement action if they fail to comply with the requirements of their new regulator.
Some of the punishments the FCA can impose will be familiar to CMCs from the Ministry of Justice (MoJ) regime, while other sanctions the regulator can impose are ones which the MoJ did not have the power to impose.
The action the FCA can take against individual firms includes:
- A fine – and there is no maximum amount that applies to the FCA’s monetary penalties. The only ‘cap’ that exists here is that the FCA will not impose a fine that is so large that the firm would go out of business were they to pay it
- A ban on carrying out particular activities – the FCA might for example can instruct the firm to stop doing business in a particular area
- A ban on a financial promotion being used – the FCA regularly reviews financial promotions and may take this step when it believes its rules have been breached
- A complete withdrawal of the firm’s authorisation – this is perhaps the strongest sanction available to the FCA. Withdrawing a firm’s permission to carry out regulated activities effectively means they need to stop trading, unless they also carry out activities that do not fall under the FCA’s remit. Obviously, this sanction is sometimes imposed in cases of very serious misconduct, but many firms have lost their authorisation simply because they failed to submit a data return to the FCA. CMCs therefore need to make absolutely sure they comply with the deadlines for submitting these returns
- Initiating a prosecution – the FCA may do this when a firm is suspected of having broken the law. Examples might include where a firm is suspected of money laundering or other financial crime, or of conducting unauthorised business, or making false claims to be FCA authorised
The FCA can also take action against senior individuals within authorised firms, and this will definitely be something that is new for CMCs. The actions that the regulator can take here includes:
- A fine – if they are judged to be responsible for regulatory breaches within their firms, senior individuals can be forced to pay fines from their own pocket. Again, this can be for an unlimited amount, subject to the proviso that the FCA will not impose a fine that the individual does not have the means to pay
- A ban on working in senior roles – this would mean that the individual would have to cease their existing senior role, and would be unable to obtain employment as an Approved Person in any other FCA-authorised firm
- A ban on working in financial services – this is perhaps the strongest sanction that can be imposed on an individual, and it would prevent them from working in any capacity in any financial services firm
- Initiating a prosecution – the FCA may do this when an individual is suspected of having broken the law
One of the reasons why the FCA sometimes imposes fines and bans against senior individuals is that, if only the firm was to be punished, it could be possible for the firm to put themselves into voluntary liquidation to avoid the fine. Without this power to sanction senior managers, it would also be theoretically possible for the directors of a banned firm to start a new firm together.
The Senior Managers & Certification Regime comes into force in December 2019, but it is still possible for the FCA to take action against individuals prior to this time.
Details of all enforcement action the FCA takes is published on its website, and these notices go into great detail about exactly how the regulator’s rules and/or principles were breached. Other firms in the same sector are expected to read these notices and consider if they need to take action to amend their practices and procedures.
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