Commons issues briefing note on claims regulation

The House of Commons has issued a briefing note ahead of an expected major change in claims management regulation. The January 2018 briefing note acknowledges that, at present, claims management companies (CMCs) are regulated by a unit of the Ministry of Justice (MoJ), under the terms of the Compensation Act 2006.

It goes on to say that consumer complaints about CMCs primarily concern companies handling financial claims, and notes that there are specific rules which apply to unsolicited text messages.

Finally, the briefing note makes reference to the inclusion of a Financial Guidance and Claims Bill in the 2017 Queen’s Speech. The note is accompanied by a copy of a report from June 2017 on the subject of CMCs and their regulation.

This report states that the Financial Guidance and Claims Bill is primarily designed to transfer regulation of CMCs from the MoJ to the Financial Conduct Authority (FCA). In the Spring Budget in 2016, the Chancellor of the Exchequer said of the proposed change of regulator:

“The new regime will be tougher and will ensure CMC managers can be held personally accountable for the actions of their businesses.”

The report also notes that a 2006 prediction that the number of CMCs would decrease once the Compensation Act became law failed to materialise. In 2006, there were around 500 companies estimated to be carrying out claims activities, yet by 2009/10 there were as many as 3,367 companies authorised by the MoJ. This number has fallen steadily to 1,388 in 2016/17, yet the present Government remains extremely concerned about the activities of some CMCs, and has thus decided that new legislation and a more stringent regulatory environment is required.

The report includes a 2013 quote from the then Justice Minister, who stated:

“As the scale of potential claims for PPI compensation has become clear, CMCs have become particularly active in this market. Unfortunately, this increase in activity has in some cases been accompanied by an unacceptable fall in standards.”

The report states that, once it has taken over as claims regulator, the FCA will be asked to devise a scheme for capping the fees that CMCs can charge. However, as payment protection insurance claims (PPI) can only be made for another 18 months or so – up until August 29 2019 – the Financial Guidance and Claims Bill also proposes an interim cap on PPI fees of 20%, inclusive of VAT.

The report goes on to acknowledge that there have been a number of concerns about the marketing practices of CMCs, such as companies engaging in cold calling and/or sending unsolicited texts. The report refers to the existing rules in this area, which include the Direct Marketing Association Code of Practice and the BCAP Code for Text Services.

Finally, reference is made to the fact that all CMCs are required to have complaints handling procedures in place, and that complaints about CMCs can be referred to the Legal Ombudsman.

The Financial Guidance and Claims Bill is currently at second reading stage in the Commons, and looks certain to deliver a major change to the claims management landscape in the UK.

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.


FCA to scrutinise all pension transfer advisers

With around 75,000 authorised firms currently supervised by the Financial Conduct Authority (FCA), it is perhaps not surprising that many firms have never been visited by a representative of the regulator for any sort of audit or inspection.

However, firms need to note that, as an alternative to visiting firms, the FCA does pay close attention to information supplied in data returns. This is especially true of firms operating in areas that the regulator considers to be high-risk, and one example of an area that is definitely considered to be high-risk is pension transfer advice.

All firms operating in the pension transfer market should note that the FCA is likely to be collecting data from them during the coming year. The regulator’s intentions were revealed in a letter from FCA head of supervision Megan Butler to Frank Field MP, chair of Parliament’s Work and Pensions Select Committee.

Pension transfer advisers have already been warned to expect new rules to be introduced in the coming months, including:

  • Where the transfer would involve a transfer or conversion of safeguarded benefits, the advice needs to be given in the form of a personal recommendation, and it will not be acceptable for firms merely to provide general guidance. Safeguarded benefits include: defined benefit (final salary) schemes, guaranteed annuity rates, deferred annuity rates, guaranteed basic annuities and guaranteed minimum pensions
  • A removal of the formal rule saying that advisers must initially assume that any transfer will be unsuitable for their client. However, the paper still says that “it remains our view that keeping safeguarded benefits will be in the best interests of most consumers.”
  • Expanded rules on how firms should assess suitability of advice. The FCA proposes that an assessment of suitability should encompass: the role safeguarded benefits play in providing the level of income a client expects or needs, whether the investments in the receiving scheme meet the client’s risk profile, and the way in which funds will be accessed by the client following any transfer
  • A transfer value analysis must include a comparison showing the value of the benefits being given up

The FCA is particularly concerned about pension transfer advisers as firms operating in this area are failing to match the high standards for advice suitability seen for other product areas.

On the last occasion when it published statistics for this, the FCA said that only 47% of the pension transfer advice cases it had reviewed were suitable, i.e. a minority of the cases. 17% were graded as unsuitable, and in the remaining 36% of cases it was unclear if the recommendation was suitable. When considering the suitability of the recommended product and fund, the FCA believes that suitability was only demonstrated in 35% of these cases. 24% were unsuitable and 40% were unclear.

At a recent seminar organised by the Tax Incentivised Savings Association, Brian Corr, the FCA’s head of retail competition, said of pension transfer advice:

“I don’t think that there is currently a mis-selling scandal as such, but we have identified that there is a potential problem.”

Firms giving advice on pension transfers must ensure that each case is checked by a pension transfer specialist who has the skills and experience to determine whether the advice is suitable, and who holds a specialist pension qualification such as G60 or AF3.

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.


PPI CMC fined for making 75 million nuisance calls

A Darlington-based claims management company has been fined £350,000 after making a massive 75 million automated nuisance marketing calls.

Data protection watchdog the Information Commissioner’s Office acted after the payment protection insurance (PPI) claims company engaged in its large-scale illegal campaign between November 2015 and March 2016.

Not only did the company breach regulations by making these calls to individuals who had not consented to receiving them, but it also broke the law in another way, as the calls did not identify the company who was making the communication.

Some of those who complained to the ICO spoke of being called more than once per day by the company, and of calls being made late in the evening.

In an attempt to ensure it can recover the fine, the ICO has blocked attempts by the company’s director to wind up the company. He failed to co-operate with information requests from the ICO during its investigation, and when he did respond, he merely sent a letter saying that the company had ceased trading.

ICO Enforcement Group Manager Andy Curry said:

“This company blatantly ignored the laws on telephone marketing, making a huge volume of intrusive calls over a short period of time and without any apparent attempt to ensure they had the consent of the people they were harassing.

“The ICO will come down hard on rogue operators who want to treat the law and the UK public with contempt. We hope the Government will bring forward plans to introduce personal liability for directors as a matter of urgency, to stop them from escaping punishment after profiting from nuisance calls and texts.

“In the absence of a change in the law, the ICO will continue to face challenges in the recovery of penalties, and rogue directors will think they can get away with causing nuisance to members of the public.”

Although this is an example of a PPI claims company showing a blatant disregard for the law, the ICO says that complaints regarding the marketing practices of companies in this sector are decreasing. The regulator’s December 2017 report on ‘Nuisance calls and messages’ says:

“Throughout 2017 the number of reported concerns about PPI re-claim has been considerably lower than in previous years. We have yet to see the increase which we had anticipated following the launch of the FCA campaign in August.”

The ICO report suggests that there are many more complaints being made regarding nuisance calls and messages concerning accident claims, energy saving and debt management. The ICO is currently investigating 175 companies over their marketing practices, and no company in any business sector can afford to neglect the relevant legislation regarding marketing, and who can and cannot be contacted.

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.


Advisory firm stops trading after refusing to pay FOS award

A Kent-based financial advisory firm has had its permission cancelled by the Financial Conduct Authority (FCA) after it failed to comply with an instruction from the Financial Ombudsman Service (FOS) to pay redress to a client regarding a Self-Invested Personal Pension (SIPP) investment.

Foreman Financial Services, which also traded as Grainger Co Financial Services, was the subject of a complaint by the client, who argued that the firm had failed to ascertain the suitability of a property investment in which the SIPP monies would be placed. After the firm rejected the complaint, both an adjudicator and an ombudsman at the FOS upheld the complaint, and directed Foreman to pay sufficient compensation to put the client back in the position they would have been in had the SIPP transfer not been made.

However, the firm failed to comply with this instruction. When a firm does not pay an FOS redress instruction, it is inevitable that the FCA will then impose the ultimate sanction of cancelling the firm’s permission.

The client, Mr S (referred to as Mr C in the FCA final notice), was advised to use his SIPP to buy a Harlequin property. Foreman argued to the FOS that it was another firm who introduced Mr S to Harlequin, and said that this firm should bear responsibility for the advice. However, ombudsman Roy Milne noted that this second firm was not authorised to give pension or investment advice, and that Foreman should have considered the suitability of the entire pension investment.

Mr Milne’s judgement said:

“Mr S wanted to invest in Harlequin based on what he had been told by the other adviser. But, that adviser wasn’t authorised to give advice on pensions or investments. Being authorised to give advice comes with responsibilities. I think that the adviser at Foreman should have made sure Mr S understood the risks. And the advice had to be suitable. Mr S was transferring all of his pension to invest in Harlequin. This was clearly a high risk transfer. It was not suitable for Mr S.

“Mr S was referred to Foreman for advice to set up the SIPP. That’s because the other parties involved weren’t regulated to give the advice. This seems to me to be a crucial part of the process. Foreman had to give suitable advice. And I think ought to have made it clear that it was the only firm able to give that advice.”

In a statement on its website, Foreman said:

“It is with great sadness that we would like to inform our past and present clients that Foreman Financial Services Ltd (trading as Grainger Co Financial Services) has permanently ceased trading.

“We would like to thank you for your business and wish you every success in the future.”

Harlequin Property, which is now insolvent, signed contracts with around 6,000 investors to build luxury villas in the Caribbean and in other holiday destinations, but completed only a few hundred of these. Company chairman David Ames is awaiting trial on fraud charges related to the failed property scheme.

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.




Over 2 billion nuisance calls made in 2017

Using data from communications watchdog Ofcom, insurer Aviva has said that UK consumers were bombarded with 2.2 billion nuisance marketing communications – both calls and texts – in 2017. This is equivalent to around six million calls per day, or 4,200 every minute.

Two of the three most common reasons for these calls relate to the claims management sector – these were the marketing of personal injury and payment protection insurance claims services. However, pension cold calling also claimed a place in the top three.

30% of nuisance calls were made to those aged 65 or over, even though this age group comprises just 18% of the UK population.

The Financial Guidance and Claims Bill, which proposes the creation of a single financial guidance body to replace the Money Advice Service and Pension Wise, will give this body the power to consider the merits of a complete ban on pension cold calling.

Rob Townend, UK claims director at Aviva, said of the statistics collected by his firm:

“Enough is enough. Nuisance calls are a national epidemic which must be stopped.

“Whether it is a call chasing an injury you may or may not have sustained in an accident, or a pension scammer attempting to con unsuspecting individuals out of their hard-earned retirement savings, there is no place in our society for them.”

He also called on the Government to ban not just pension cold calls, but also cold calls relating to insurance where the claims company has no previous relationship with the consumer, by adding:

“If the Government is serious about protecting all members of our society, including the most vulnerable, then it should take decisive action and ban them.”

Under the Privacy and Electronic Communications Regulations, companies may be liable for fines if they make live marketing calls to individuals registered with the Telephone Preference Service, or they send unsolicited texts or emails or make automated marketing calls to consumers who have not explicitly consented to receiving them.

From May this year, when the General Data Protection Regulation is introduced, the maximum fine that can be imposed for data protection breaches will increase significantly to the greater of 4% of annual turnover or €20 million.

A number of firms have been fined, even under existing legislation, by the data protection regulator, the Information Commissioner’s Office, for making nuisance marketing calls and/or sending nuisance emails and texts. The Claims Management Regulator has also fined and banned a number of claims companies for engaging in this practice, and several individuals have been disqualified from acting as directors because of the actions of their companies in this area.

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.


CMC boss fined for inventing road accident

A claims management company director has been fined after being convicted of data protection breaches. Bristol Magistrates Court heard that Miles Savory, a director of Bristol-based Accident Claims Handlers Ltd, invented a vehicle accident simply because he wished to trace the owner of a number plate that he wanted to buy.

Mr Savory wanted to buy a particular private registration plate – W1 DOW – but was unaware of who the owner was. He therefore decided to write to the Driver and Vehicle Licensing Agency (DVLA), saying that as the vehicle with that registration had been involved in an accident in Bristol on January 15 2017, he needed to know the identity of the driver.

Once the DVLA had disclosed the information, Mr Savory wrote to the owner of the vehicle, Stephen Bastow, offering to buy his number plate. Mr Bastow then sensed something was amiss, and contacted the DVLA, who then reported the matter to the Information Commissioner’s Office (ICO) after their own internal investigation.

Mr Bastow lives in Huddersfield and claimed never to have visited Bristol, and police Automatic Number Plate Recognition cameras confirmed that his vehicle was not in the Bristol area at the time Mr Savory said that the crash had occurred.

Asaf Khan, the prosecutor, told the court:

“The DVLA received a letter from Stephen Bastow, dated March 30, stating he had received a letter from Mr Miles Savory to see if he would sell his private registration plate, W1 DOW.

“Mr Bastow asked how Mr Savory had obtained his home address as his vehicle had not been involved in an accident. On receipt of his letter, [the DVLA found] an application for the details of the vehicle had been made by Mr Savory on behalf of Accident Claims.

“The DVLA made enquiries and discovered the information provided was not correct. The information was passed to the ICO to be investigated.”

Defence solicitor Daniel Woodman said his client had acted “foolishly and thoughtlessly”, and added that he was “a man of impeccable character having never troubled the courts before.”

Mr Savory was fined £335 and was also required to pay £364.08 costs and a victim surcharge of £33, after admitting a breach of section 55 of the Data Protection Act 1998 by unlawfully obtaining personal data.

ICO Head of Enforcement Steve Eckersley said:

“This was an unusual case in many ways, but one which demonstrates the lengths some people will go to in order to get hold of personal information.

“Unlawfully obtaining people’s personal data is a criminal offence and the ICO will not hesitate to take action through the courts to uphold the law and protect people’s rights.”

If there are any lessons to be learned from this case, it is firstly that everyone needs to display the highest standards of honesty and integrity throughout their business activities. Secondly, business professionals must keep their personal and business lives separate.

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.


ICO warns firms there will be no GDPR grace period

The Information Commissioner has warned firms to expect her organisation to enforce the General Data Protection Regulation (GDPR) immediately, once the new legislation comes into force on May 25 this year.

Elizabeth Denham, who heads the UK data protection regulator, the Information Commissioner’s Office (ICO), commented:

“There will be no ‘grace’ period – there has been two years to prepare and we will be regulating from this date.”

She also said that the GDPR implementation date was not akin to January 1 2000 and the preparations to avoid ‘Millennium Bug’ problems. On that occasion, of course, all contingency planning could cease once we knew that the new century had dawned without any significant issues. Instead, she advised firms “to continue to identify and address emerging privacy and security risks in the weeks, months and years beyond May 2018.”

Ms Denham went on to say that, unlike the Millennium Bug, everyone should know exactly what the GDPR involves. The ICO chief added:

“There were a lot of predictions in the run up to the millennium about what would happen to computer systems when the clock struck midnight. Would banks collapse, power grids fail and chaos ensue?

“But with the GDPR – we all know what’s coming. It’s a known known. Much of the GDPR builds on the existing Data Protection Act 1998. There’s also guidance and a lot of help out there, including our Guide to the GDPR, as well as other help from us, from Article 29, from industry associations and data protection experts.

“In summary, the GDPR is not the Millennium Bug – there’s no wondering if the new legislation will happen, it will. But with that certainty comes an opportunity for good data protection practice to pervade your organisation. This will benefit not just your customers but your organisation as well as it reaps the reputational rewards, allowing it to thrive in the new privacy landscape.”

Despite the warnings elsewhere in her blog, the Commissioner suggested that the ICO will take into account the extent to which firms co-operate with regulatory investigations when deciding what penalties to impose. Ms Denham commented:

“Those who self-report, who engage with us to resolve issues and who can demonstrate effective accountability arrangements can expect this to be taken into account when we consider any regulatory action.”

She went on to list five things firms should be doing ahead of the implementation date:

  • Ensuring that there was a commitment to the aims and spirit of GDPR from the firm’s board and senior management
  • Reviewing what personal data the firm holds, where it came from and who they share it with
  • Implementing various ‘accountability measures’, including: appointing a data protection officer if necessary, considering what the firm’s lawful bases for processing data are, reviewing privacy notices, designing and testing their data breach incident procedures and considering what new projects could require a Data Protection Impact Assessment
  • Training staff as to what GDPR means for their role
  • Reviewing the arrangements in place for ensuring security of the data held

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.


Treasury clarifies P2P deposit taking rules

The Treasury has clarified that firms who borrow via a peer-to-peer (P2P) platform will not need to obtain a banking licence to do so, unless of course banking is actually the firm’s core business activity.

The Treasury described the announcement as “a boost of confidence” for the P2P sector, and added:

“The legislation will ensure that the industry can continue to thrive and innovate while still benefiting from the UK’s high quality regulatory standards.”

With many firms seeking to finance growth via P2P lending, the concern had been that these firms would be classed as deposit takers once they accepted P2P funding, and would therefore require a banking licence. If this had been the case, costs would have increased significantly for both P2P firms and borrowers. The sustainability of some P2P business models could have been called into question, raising the possibility of P2P firms going out of business, or at least needing to dramatically reduce the amounts they could lend.

The Treasury added that the P2P sector provided more than £1.2 billion of funding to UK businesses in 2016, equivalent to 15% of all new bank lending to small businesses.

Stephen Barclay MP, the Economic Secretary to the Treasury, said:

“Peer-to-peer lending has brought about real benefits, not only for the UK’s small and medium sized business community, but our economy at large. This vital clarification will mean that businesses can continue to access the finance they need to grow and expand, helping us to build an economy that is fit for the future.”

P2P firms should however expect to remain under close regulatory scrutiny, and should keep a close eye on any communications from the regulator, the Financial Conduct Authority (FCA), which may introduce new rules for the sector during 2018.

P2P advisers are already required under existing FCA rules to display the same level of competence and qualifications as those advisers who give investment advice. Firms must also have systems and controls in place for monitoring P2P advice, which should be equivalent to the controls a firm might have in place for other investment advice.

Additionally, firms giving P2P advice must hold the same level of capital resources as any other investment advice firm. Like investment advisers, they can only be remunerated via fees and not through commission. The financial promotions rules for P2P advisers are now also the same as for investment advisers.

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.


FSCS announces supplementary levy on advisers due to volume of SIPP claims

The UK’s financial advisers will collectively need to pay an additional £24 million to the Financial Services Compensation Scheme (FSCS), after the organisation reported that it was still receiving large numbers of claims relating to self-invested personal pensions (SIPPs).

FSCS chief executive Mark Neale commented:

“The supplementary levy arises from continuing growth in the volume of Sipp-related claims falling on life and pension advisers.”

For the advisory firms who have never sold a SIPP, the supplementary levy may seem especially harsh, but all these firms can really hope for is that the FSCS funding model is changed in due course.

The FSCS provides protection for investors when a firm is declared in default, and due to its financial situation is therefore unable to meet claims made against it.

Those firms that do offer advice on SIPPs need to exercise extreme care, as this is a high-risk product, and an area in which a number of claims management companies are active. The Financial Ombudsman Service has been upholding the majority of the SIPP complaints it has received in recent years.

Firms thus need to be confident that a SIPP is the best option for the client before recommending them. They must also note that they are responsible for ensuring that the underlying investments the SIPP contributions will be invested in are suitable for the client’s circumstances and risk profile.

Financial Conduct Authority (FCA) guidance says that when considering pension switches, firms must always ask themselves ‘will the existing plan meet the client’s objectives?’ If the answer to this is Yes, then it becomes very difficult to justify a recommendation to switch, whether to a SIPP or any other form of pension arrangement.

SIPPs are complex products which often carry high charges. They also allow investment in areas not available via a standard personal pension, such as: individual company shares, commercial property, investment trusts, traded endowments, derivatives and precious metals.

A client should not be recommended to switch to a pension arrangement with higher charges without good reason, and a SIPP should not be recommended if the individual requires a simple investment mix that would have been available via a conventional personal pension.

In April 2017, Keith Popplewell was disqualified from acting as a director for a period of nine years, as a direct result of his firm failing to give suitable advice on transfers into SIPPs.

Individuals who have been subject to FCA enforcement action over SIPP mis-selling include Alistair Rae Burns, Chief Executive at TailorMade Independent Limited (TMI), who was prohibited from carrying out any significant influence or senior management roles, and was fined £233,600. TMI director Robert Shaw was also banned from holding senior management functions, and was fined £165,900.

The FSCS has also announced proposals to increase the investment protection to £85,000 per client, from the £50,000 of cover offered at present. This would bring investments in line with the protection offered on bank balances.

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.


Treasury says it expects EU passporting to continue during Brexit transition period, but longer-term picture is less certain

Financial services are very important to the UK economy. At present, the UK, as a member of the European Union (EU), participates in that organisation’s ‘passporting’ scheme. This scheme allows any firm authorised in a European Economic Area (EEA) member state to trade across the EEA without the need to obtain separate authorisation from the national regulator in each state. The EEA is a grouping that comprises the 28 EU member states, plus Norway, Iceland and Liechtenstein, and together these 31 nations comprise the European ‘single market’.

When the UK leaves the EU, which is scheduled to occur on March 29 2019, the country’s financial institutions will lose their passporting rights. The UK Government appears to have ruled out EEA membership post-Brexit, and has instead indicated that the country will attempt to negotiate its own trade deals with the remaining EU countries, and with other nations around the world.

HM Treasury has now issued a statement on this subject. The statement describes the prospect of the UK exiting the EU without any form of trade deal as “unlikely”, and it remains the case that trade talks between the EU and the UK should commence early in 2018, but the concern is that the EU has never previously negotiated a trade deal with another state where financial services are included in the deal.

David Davis MP, who is leading Brexit negotiations for the UK Government in his role as Secretary of State for Exiting the European Union, has indicated that he sees a trade deal that includes open access to financial markets as hugely important, promising to protect the “mobility of workers and professionals across the continent.”

Mr Davis added:

“Whether this means a bank temporarily moving a worker to an office in Germany, or a lawyer visiting a client in Paris, we believe it is in the interests of both sides to see this continue.”

However, Michel Barnier, the chief Brexit negotiator for the EU, appeared to unequivocally rule out such a deal. M. Barnier commented:

“There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist.”

He went on to say that this was because of “the red lines that the British have chosen themselves,” and summarised his position by saying “in leaving the single market, they lose the financial services passport.”

However, all sides appear to agree that there will be some sort of transition period, during which the UK maintains access to European markets for a period of around two years after the official date of Brexit. This period would then hopefully allow firms to put alternative measures in place to ensure they can continue to operate across the continent.

The Treasury’s statement says that “the government will, if necessary, bring forward legislation which will enable EEA firms and funds operating in the UK to obtain a “temporary permission” to continue their activities in the UK for a limited period after withdrawal.”

It also remains to be seen what the chief executives of major European financial institutions think of M. Barnier’s position, which would leave them without easy access to the key City of London market.

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.

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