Although a handful of claims management directors have been disqualified as a result of compliance failings at their firms, the current Ministry of Justice regulatory regime does not allow for enforcement action to be taken against directors and senior management of claims management companies (CMCs). It is possible for the company itself to be fined, or banned from undertaking claims management activity, but there have been concerns expressed that some directors are simply starting new companies if their CMC gets banned.

That will all change once the Financial Conduct Authority (FCA) takes over as claims management regulator on April 1 2019. The FCA has made it clear from the outset that CMC management and staff will be included in its Senior Managers & Certification Regime (SM&CR) – a regime that holds directors and senior managers responsible for compliance failings within their areas of responsibility, and allows the FCA to fine or ban them in such instances.

However, SM&CR will only come into force in December 2019, i.e. eight months after the regulatory switchover.

The FCA has now issued a consultation paper setting out its plans to extend the SM&CR to CMCs. The regulator says it wants to change a number of things within the claims management sector:

  • Misconduct which is harming customers – this poor conduct includes harassment and aggressive sales tactics
  • Further customer detriment caused by poor service and delays
  • CMCs with poor governance arrangements whose staff do not understand the regulatory regime to which they are subject
  • The issue of individuals starting up new CMCs, as described above

The SM&CR has three principal elements:

  • The Senior Managers Regime
  • The Certification Regime
  • The Conduct Rules

Under the Senior Managers Regime, every CMC (except for sole traders) will need to have at least one person designated as a Senior Manager. Senior Managers must be approved by the FCA as being ‘fit and proper’ before they commence their role. Class 1 CMCs – those with annual turnover of £1 million or above – will also need to appoint an additional Senior Manager to the Compliance Oversight Function.

All Senior Manager ‘fit and proper’ applications to the FCA will need to include a Statement of Responsibilities. This document should clearly sets out the Senior Manager’s role and what they are responsible for.

Once approved by the FCA initially, it will then be up to the authorised CMC to carry out an annual assessment to confirm that the Senior Manager remains fit and proper to carry out their role.

The Certification Regime applies to any employee whose role might involve a risk of significant harm to the firm or any of its customers. Examples might include anyone with management and supervisory responsibilities, or the individual responsible for safeguarding client money. These individuals will not need to be authorised by the FCA, but the CMC must carry out their own ‘fit and proper’ assessment of these individuals when they are recruited, and on an annual basis thereafter.

The consultation proposals make it clear that a ‘fit and proper’ assessment should include:

  • An assessment of the individual’s: honesty, integrity and reputation; competence and capability; and financial soundness
  • Regulatory references from previous employers
  • For Senior Managers, a criminal record check

The Conduct Rules will apply to every employee of a CMC. These require everyone within the company to:

  • Act with integrity
  • Act with due care, skill and diligence
  • Be open and cooperative with regulators
  • Pay due regard to customer interests and treat them fairly
  • Observe proper standards of market conduct

Additional Conduct Rules for Senior Managers will require them to:

  • Take reasonable steps to ensure that the business of the firm for which they are responsible is controlled effectively
  • Take reasonable steps to ensure that the business of the firm for which they are responsible complies with the relevant requirements and standards of the regulatory system
  • Take reasonable steps to ensure that any delegation of their responsibilities is to an appropriate person and that they oversee the discharge of the delegated responsibility effectively
  • Disclose appropriately any information of which the FCA, or Prudential Regulation Authority, would reasonably expect notice

Authorised firms should notify the FCA whenever they take disciplinary action against an individual for a breach of the Conduct Rules.

The FCA invites responses to the consultation, which closes on December 6 2018.


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