It has been exactly a year since the Financial Conduct Authority (FCA) took over regulating Claims Management Companies (CMCs) from the Ministry of Justice (MOJ) or more specifically the Claims Management Regulation Unit (CMRU). This change, for which many within the business of CMCs still remember must have been foreboding at the time.

The FCA gave every indication it aimed to be combative with CMCs upon taking over from the MOJ. The previous head of the FCA Andrew Bailey commented on CMCs back in 2018, he highlighted that: “poor conduct persists across the sector.”[i] The FCA had already developed a track record with of ‘regulating’ businesses out of existence with its approach to High-Cost-Short-Term Credit Lenders forcing many to shut down.

A year on, and are we seeing the same objective from the FCA towards CMCs? It is perhaps still early days to tell the FCA has started fining CMCs one of the first is Hall and Hanley Ltd.[ii] The fine was sufficient to force the business into liquidation but other than this example not many others have appeared since. Perhaps they are in the pipeline or the FCA has its attentions elsewhere recently targeting motor traders or distracted with the ongoing COVID19 epidemic.

Despite its focus currently elsewhere the FCA has not stopped in giving out warning messages to CMCs. It has recently released statements with the Information Commissioners Office (ICO) warning against insolvency practitioners selling data to CMCs eager to look into employment claims.[iii] Even in light of the epidemic the FCA has released advice on how to avoid scammers implying CMCs maybe doing the practice themselves which denotes much of the FCA’s opinion on them.[iv]

If the FCA are giving indications off like this, then it is likely CMCs will possibly be in for a tough time when the current global crisis abates. Yet, the stance and opinion of the FCA seems to run contrary to the Brady Review, the government led inquiry into claims management regulation published back in 2016. The review itself was a recommendation which ultimately led to the FCA taking over from the CMRU; being the review that ultimately gave the FCA the authority over CMCs it is surprising that the FCA act contrary to its findings.

To give one example, the review says as early as page 5:

The overwhelming majority of stakeholders, including the banking and insurance industries which have been hardest hit by CMC misconduct, argued that there is a legitimate need for CMCs and that the Government should not seek to regulate them out of existence.[v]

The FCA seem to disregard this piece of advice. As many within the CMC industry should be familiar with the CMCOB (the FCA handbook for CMCs) has many, arguably, anti-business rules that CMCs must follow. These include ordering CMCs to state on financial promotions such as websites that potential clients could pursue claims for free with the Financial Ombudsman Service (if it is a financial claim) rather than using their firm. These rules are quite controversial as the CMC is being forced to send out communications which dissuade consumers from engaging with the firm on its own advertisements. The FCA rationalise this as raising awareness for the consumer, but it is not hard to imagine other motives at play.

Some customers do indeed prefer going with and paying for CMCs to help gain their claim. They arguably allow greater avenues for redress as the legal system can indeed be intimidating for any consumer wishing to seek compensation. The FCA however, is not showing any sign of recognising this within the year CMCs have been its responsibility.

The Brady Review did point out vast areas for improvement for the CMC industry, the review was done precisely because of heightened consumer annoyance with the amount of nuisance calls they would receive from CMCs. These practices have since stopped for the majority of cases and the FCA and ICO have gone about ensuring these marketing techniques are no longer viable. Despite the objective improvements the FCA has done to the CMC industry, it does seem it intends to go further and beyond what the Brady Review recommends, to the extent that it’ll ‘forget’ the document that made all of it possible.

 

Harvey Lewis.

[i] https://www.fca.org.uk/news/press-releases/fca-sets-out-plans-regulation-claims-management-companies

[ii] https://www.fca.org.uk/publication/final-notices/hall-hanley-limited-2020.pdf

[iii] https://www.fca.org.uk/news/statements/fca-ico-and-fscs-publish-joint-statement-insolvency-practitioners-and-authorised-firms

[iv] https://www.fca.org.uk/news/news-stories/avoid-coronavirus-scams

[v]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/508160/PU1918_claims_management_regulation_review_final.pdf