New disclosure requirements and an obligation to record telephone calls are amongst the new rules claims management companies (CMCs) will face from April next year when the Financial Conduct Authority (FCA) takes over as their regulator.
All of the significant changes proposed in the summer 2018 consultation paper are included in the new rules.
The requirement to provide a pre-contract summary document remains, and this document 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
The obligation for CMCs to keep customers informed as to the progress of their claim will encompass a requirement to provide updated estimates of potential fees, where appropriate.
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 company 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.
Another very significant change will be the need for companies to record all calls with customers and keep the recordings for a minimum of 12 months after the end of their dealings with each customer. They must also maintain records of text message and email communications.
Where CMCs purchase leads from third parties, they will need to carry out sufficient due diligence to ensure both that the lead generator is authorised and that it has appropriate systems and processes in place to ensure compliance with relevant data protection, privacy and electronic communications legislation. CMCs will need to keep a record of these checks.
Some additional changes that were not proposed in the consultation, but which will be in the new rulebook, include:
- An obligation to clarify whether a fee is based on the gross or net compensation figure
- A requirement to ask customers whether they are in an Individual Voluntary Arrangement, or similar; and to make them aware that any compensation award could be used to settle debts under an insolvency arrangement
- The need to obtain explicit consent to charge any fees that were not disclosed upfront
It is also worth noting that, in addition to complying with the detailed rules, all CMCs will be subject to the 11 Principles for Business that apply to all firms the FCA regulates. These include Principle 6 – the requirement to treat customers fairly, Principle 7 – the need to provide information to customers that is clear, fair and not misleading, and Principle 11 – the obligation to fully co-operate with regulators.
Although existing CMCs will initially operate under the FCA’s temporary permission regime come April 1, there is no indication from the FCA that there will be any sort of grace period, and the regulator will expect CMCs to be fully compliant with these new rules on the switchover date.
CMCs therefore have a little over three months to prepare for FCA regulation. Any company not prepared to meet the more onerous regulatory requirements will need to leave the industry.
CMCs will need to register for temporary permission with the FCA between January 1 and March 31 2019. They will then need to apply for full authorisation:
- Between April 1 and May 31 if they are a CMC that handles financial claims, or are a CMC that was not previously regulated by the Ministry of Justice
- Between June 1 and July 31 for all other companies
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said:
“We’re ready to take over regulation on 1 April 2019. The new regime aims to drive up standards in a sector whose reputation has been tarnished by some companies engaging in high pressure selling and by failing to provide clear information on the fees they charge.
“The new rules will ensure firms are transparent about their estimated fees before the customer signs on the dotted line and notify customers of free statutory ombudsmen or compensation schemes. It’s vital that customers have the information they need to make informed decisions. We will take action against those that break the rules.”
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