28Oct

The Government has provided an update on the secondary legislation process that will enable the Financial Conduct Authority (FCA) to commence regulating the claims management sector from April 1 2019. The primary legislation enabling the regulatory switchover passed into law in May 2018.

For the first time, claims management companies (CMCs) in Scotland will be subject to statutory regulation – the previous Ministry of Justice (MoJ) regime covered only England and Wales. CMCs in Northern Ireland will remain outside FCA regulation, unless they represent clients based in England, Scotland or Wales.

At present, CMCs need to be authorised if they provide services in relation to claims in the following sectors:

  • Personal injury
  • Financial products and services
  • Employment
  • Criminal injuries compensation
  • Industrial injuries disablement benefit
  • Housing disrepair

The following claims services are all subject to regulation under the existing regime:

  • Advertising and marketing
  • Giving advice on claims
  • Referring and introducing potential claimants to another party
  • Investigating the merits of a claim
  • Representing in any way a client who is making a claim

The new legislation will not significantly extend the scope of regulation – the activities for which authorisation will be required will be much the same, it will be just the regulatory regime and the rules and requirements to which CMCs are subject that will be stricter.

One change however will see the creation of seven separate permissions, and each CMC will need to apply for the permission or permissions relevant to their business activity. These proposed permissions are:

  • Seeking out, referring and identifying claims in any sector
  • Advising, investigating and/or representing in relation to:
  • Personal injury
  • Financial services and products
  • Employment
  • Criminal injuries
  • Industrial injuries disablement benefit
  • Housing disrepair

CMCs must demonstrate to the FCA, when making their application for authorisation, that they have the competence to hold the relevant permissions. Before applying for full authorisation, the first step for any CMC wishing to continue to trade after April 1 is to apply for temporary permission. Although at this stage applicant companies will not be asked to demonstrate their competence in depth, the FCA will still expect them to comply with all of its rules with effect from April 1, and to pay the required authorisation fees. The temporary permissions regime is open to CMCs based in Scotland, as well as to all of those in England and Wales who are regulated by the MoJ come March 31.

Each CMC that obtains temporary permission will then be given a designated time period during which they must submit their application for full authorisation. It is at this stage that CMCs, and individual members of their senior management, will need to demonstrate that they are competent and are fit and proper to carry out their roles.

The Government proposes that legal practitioners, most charities, trade unions and student unions remain exempt from FCA regulation – they are exempt from MoJ regulation at present.

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