The CEO or equivalent of every UK claims management company (CMC) should now have received the ‘Dear CEO’ letter from the Financial Conduct Authority (FCA) which was issued on June 4.
The essential theme of the letter is ‘delivering good consumer outcomes’ – a mantra which the FCA is mentioning more often in policy statements, guidance papers, consultation papers, speeches etc.
The letter highlights four principal areas of concern:
• Some CMCs are acting on behalf of customers without getting their appropriate consent, such as asking them to complete letters of authority. Here the FCA reminds firms that to act without explicit written permission is a contravention of data protection law
• CMCs are submitting letters of authority and claims in fictitious customer names
• Some CMCs are submitting other forms of bogus claims, such as where is no relationship between the customer and the firm that is the subject of the claim
• Many CMC financial promotions do not comply with FCA rules in this area
The FCA says it will consider the extent to which firms are complying with the rules in these four areas when it assesses their applications for full authorisation. Almost all CMCs will still be operating under temporary permission at present, but in the longer term it will be necessary for them to obtain full authorisation from their new regulator should they wish to continue trading. In summary then, any firm which fails to satisfy FCA requirements in one or more of these four areas will need to exit the market.
For many CMCs, the deadline for submitting applications for full authorisation was May 31, and for the rest, their July 31 deadline is fast approaching, so anyone in any doubt as to how to satisfy FCA requirements in these four areas is advised to seek advice from their compliance consultant as a matter of urgency.
CMCs are warned that they must not pursue a claim if they have reasonable grounds to suspect that the claim is without merit, or is fraudulent, frivolous or vexatious. When making representations firms must:
• Substantiate the basis of the claim
• Provide information that is specific to the claim
• Not use false, misleading or exaggerated statements
Some of the issues the FCA has seen with CMCs’ promotions include:
• Stating that the service is ‘No win no fee’, but then failing to set out the fees that the firm charges
• Not making it clear which firm has issued the promotion, or not making it clear that the named firm is a CMC
• Suggesting that using the firm’s services could improve the consumer’s chances of a successful claim
• Not making it clear that claims can be made to the Financial Ombudsman Service without using the services of the firm and without paying a fee
• Still stating that the firm is regulated by the Claims Management Regulator and/or the Ministry of Justice, when the switch to FCA regulation happened more than two months ago
The FCA adds that it has the power to ban non-compliant financial promotions, including websites
The letter also clarifies just how wide the legal definition of regulated claims management activities is. A CMC needs authorisation from the FCA to carry out any of the following activities:
• Seeking out, referrals and identification of claims or potential claims and advice – even carrying out a ‘free PPI check’ falls under the scope of regulation
• Investigation or representation in relation to a financial services or financial product claim
Two final points made in the letter are:
• CMCs must demonstrate that they have adequate staffing, expertise, systems and controls to cope with any increase in customer numbers
• Firms must keep comprehensive records of services and transactions, and of anything else that is necessary to demonstrate their compliance with FCA requirements
All CEOs of CMCs are expected to share the letter with their board of directors, or equivalent, and to consider what action they may need to take to improve practices and procedures within their firms.
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