The Financial Conduct Authority (FCA) has conducted its first major review of claims management promotions since taking over as regulator of that sector on April 1 this year. The regulator says it has found evidence of “widespread poor-practice” and says that “claims management companies (CMCs) must do more to ensure their promotions do not mislead potential customers.”
The FCA first highlighted issues with claims management promotions in a Dear CEO letter of June 4 2019. All CEOs of CMCs are expected to share the letter with their board of directors, or equivalent, and to consider what action they may need to take to improve practices and procedures within their firms.
The issues the FCA has observed in CMC promotions include:
- The promotion is not identifiable as being from a claims management company
- The promotion does not state that customers could make a claim to a statutory ombudsman or statutory compensation scheme, such as the Financial Ombudsman Service, without using the services of the firm and without paying a fee
- The promotion states or implies that customers will get a better outcome if they use the services of the CMC as opposed to pursuing a do-it-yourself claim
- The promotion uses the term ‘no win no fee’ but does not set out the fees that the customer must pay
- The only case studies mentioned in the promotion are those where the compensation provided to customers was very high, even though the average amount received by claimants was considerably lower
- The promotion hides important information in small font or in a position where it is difficult to see clearly
The FCA has warned firms with some of the worst failings that their authorisation could be at risk, noting that many CMCs still hold only temporary permission and that their applications for full authorisation are still being considered. Here the FCA says:
“If the FCA concludes that firms have used very poor promotions, it is unlikely that they meet the Threshold Conditions for continuing authorisation. When the FCA reaches this determination, it will also set out what actions the firm needs to take and by when to avoid having to close down.”
Some CMCs have been forced to withdraw or amend their promotions, and the FCA says it has banned a number of promotions where the firm was using a celebrity endorsement without the individual’s permission.
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said:
“Many CMCs play a significant role in helping consumers to secure compensation. But CMCs using misleading, unclear and unfair advertising practices to get business is completely unacceptable. We won’t hesitate to take action where we consider that customers are being misled or otherwise treated unfairly by poor advertising.
“Firms should also understand that we will take their compliance with our rules on financial promotions into account when considering applications for full authorisation.”
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.