The Claims Management Regulator at the Ministry of Justice (MoJ) has issued bans and fines to a number of claims management companies (CMCs) that have breached its rules. However, the current regulator does not have the power to fine or ban any of the individuals who controlled these companies. A few CMC directors have been disqualified by the Insolvency Service, but otherwise no action has been taken against individuals who were, after all, largely responsible for the misconduct at their companies. The current system means it is possible for a company to put themselves into voluntary liquidation to avoid paying a fine, and for the directors of a banned company to simply start up again in a different guise.
All that will change on April 1 when the Financial Conduct Authority (FCA) takes over as the regulator of the claims industry. Under the Senior Managers Regime, to be introduced in December 2019, 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 and must then be re-approved by their firm on an annual basis. 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.
It should also be noted that the FCA will not have to wait for the introduction of the Senior Managers Regime in order to hold a director or manager of a CMC to account – it already has the power to take enforcement action against individuals if they are deemed to be personally responsible for rule breaches at their companies.
Under FCA regulation, Conduct Rules for Senior Managers of CMCs 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 would reasonably expect notice
If they fail to meet these standards, the FCA can fine them, or ban them from holding a management position in any regulated firm or take the ultimate step of banning them from working in any capacity in a regulated firm.
2018 saw the FCA impose some large fines on individual members of a regulated firm. Their enforcement action included:
- A £20,000 penalty to a non-executive director who failed to disclose a conflict of interest
- A £60,000 fine and a ban from holding senior management roles for a director whose firm failed to give adequate personal recommendations to customers in relation to pension transfers, and failed to manage and disclose material conflicts of interest to its customers
- A fine of £468,600 and a ban from holding any position with responsibility for client money for a director who did not ensure his firm protected client money adequately
- A fine of £29,300 and a ban from holding any role in financial services for a director who misled the FCA as to his qualifications and experience
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