The Financial Conduct Authority (FCA) has produced a series of video guides to assist claims management companies (CMCs) with the switch to their new regulatory environment.

The principal video is a 33-minute long webinar entitled ‘CMCs, are you ready for FCA regulation?’. In this video, Garry Hunter, who the FCA has appointed as its Head of Claims Management Regulation; Rob Muskett, from the FCA Policy Division; and Mike Baker, from the regulator’s Claims Management Transition Team discuss some of the key issues.

Mr Muskett highlighted that CMCs do not just need to comply with the detailed rules in its Policy Statement. They also need to follow the FCA’s High Level Standards, which include:

  • The Threshold Conditions – the basic conditions to be authorised
  • The Principles – 11 general principles that all authorised firms must follow, including the requirement to treat customers fairly and provide them with information that is ‘clear, fair and not misleading’
  • The Systems & Controls – covering issues such as how a firm manages its affairs and handles conflicts of interest
  • The General Provisions – these include a ban on firms saying the FCA has endorsed the firm, and rules on how firms need to describe their regulatory status
  • The Supervision requirements – which include an obligation to inform the FCA of significant changes in their business, a requirement to complete data returns and an obligation to inform the FCA if they become aware of firms operating without authorisation
  • The Prudential standards – including a need to hold a defined level of capital resources (£10,000 if the firm’s annual turnover is in excess of £1 million, and £5,000 if it is less than £1 million, plus an additional £20,000 if the firm holds client money); and the need for personal injury CMCs to hold professional indemnity insurance
  • The Complaints Handling Rules – explaining how long firms have to investigate complaints, and when they must write to the complainant

Reference was made in the webinar to the one-page pre-contract summary document CMCs must provide to customers, and this must include:

  • An illustration or estimate of the fees to be charged
  • An overview of the services the CMC will provide on a customer’s behalf, and the tasks customers will need to undertake themselves under the arrangement with the CMC
  • A statement to the effect that the customer is not required to use the CMC’s services, and that the same claim can be presented free of charge were the customer not to use the company’s services
  • Other significant new rules mentioned by the panel include:
  • Where a customer could pursue a do-it-yourself claim for free, this also needs to be highlighted on any marketing material issued by a CMC that relates to ‘no win no fee’ services. If a firm is claiming to offer ‘no win no fee’ services, then marketing material must also give a prominent indication of the fees the CMC will charge, or how they would be calculated
  • Recordings of all calls with customers must be kept for a minimum of 12 months after the end of the firm’s dealings with each customer. They must also maintain records of text message and email communications. In reply to a specific question from a firm during the webinar, the FCA clarified that this also applies to calls where the caller withholds their number

Mr Muskett also referred to the requirement to update customers every six months as to the progress of the claim, or immediately if significant developments occur. If the costs change during the course of a claim, the customer must also be informed of this.

Many CMCs use lead generators and Mr Muskett warned that companies must conduct due diligence on any lead generator they intend to use and satisfy themselves that these third parties obtain their leads in accordance with relevant rules and data protection legislation. A record must be kept of the source of all leads.

Mr Baker reminded all existing CMCs that intend to continue operating under the FCA regime to apply for temporary permission by March 31. When they obtain temporary permission, they will be informed when their full authorisation application period is, which will either be April 1 to May 31 or June 1 to July 31. However, firms are advised to start preparing the documentation they will need for their application now.

He also confirmed the authorisation fees CMCs will need to pay to obtain full authorisation. CMCs with annual turnover of up to £1 million will pay an initial application fee of £1,200, while those with turnover of more than this amount will pay £10,000. Companies will then need to pay additional annual fees, but these were not covered in the webinar.

Finally, the panel highlighted that the application process is different for firms already regulated by the FCA for other activities who wish to carry out claims management activity. These firms should apply for their claims permission via a Variation of Permission.

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