18Feb

Claims management companies (CMCs) can expect the fees they pay to their regulator, the Ministry of Justice (MoJ), to increase for the 12 months starting 1 April 2013. The MoJ conducted a consultation on this topic in November and December 2012, and now needs to increase fees in order to maintain effective regulation of the claims management industry.

The fee changes are as a result of:

  • the ban on referral fees in the personal injury sector
  • the ban on offering inducements to make a claim
  • a reduction in the number of CMCs, which may occur as a result of the above two restrictions
  • the need to carry out greater scrutiny of applicants
  • the need to fund the Legal Ombudsman Scheme as regards assessing complaints made against CMCs
  • the need to tackle bad practices, especially in CMCs engaged in financial services activities
  • the need to monitor whether the referral fee ban is being adhered to
  • a possible rise in the number of unauthorised CMCs, and the resulting need to take action against them
  • Government reforms to the costs of civil litigation

The proposals will see CMCs engaged in financial services activities paying three different fees:

Application fee – the standard application fee will rise from £950 to £1,400.

Annual regulation fee – the level of this fee will be assessed against each CMC’s annual turnover, but will now be capped at £40,000 for all firms, instead of the current caps of £17,500 where there is no contractual relationship with clients and £30,000 where there is a contractual relationship. The annual regulation fee will comprise an amount for regulation costs and a separate amount for the costs of the Legal Ombudsman. The regulation part of the fee will be only £200 for firms with a turnover of below £5,000, but for those with turnover between £75,000 and £132,653 it will be £650. Above £132,653 the fee will be 0.49% of turnover up to £1 million, 0.332% of turnover between £1 million and £5 million and 0.24% of turnover above £5 million, subject to the cap. The complaints handling part of the fee will be £300 for firms with a turnover of below £5,000, rising to £1,100 for those with turnover between £75,000 and £224,490. Above £224,490 the fee will be 0.49% of turnover up to £1 million, 0.332% of turnover between £1 million and £5 million and 0.24% of turnover above £5 million, subject to the cap.

Uplift fee – this will only be payable by CMCs in financial services, due to the additional costs of regulating these types of companies. The uplift fee will be 0.125% of turnover, subject to a cap of £25,000.

The MoJ hopes that these changes will lead to constructive changes in the claims management marketplace, and will reduce the number of CMCs only trading for a short period.