From April 1, things will change significantly for claims management companies (CMCs). From this date they will be subject to the stricter regulation of the Financial Conduct Authority (FCA) rather than the Ministry of Justice regime they have been used to. CMCs in Scotland will also be regulated for the first time.
From April 1, the way complaints about CMCs are handled by external bodies will also change. At present, a customer dissatisfied about the way their CMC has handled a complaint can refer it to the Legal Ombudsman (LeO). However, from April, this will change to the Financial Ombudsman Service (FOS) in common with other FCA-regulated firms.
CMCs that handle financial services claims will already be familiar with how the FOS operates, as they will have made representations to that organisation when firms have declined client’s complaints.
In some ways the way the FOS works is similar, in that the Legal Ombudsman currently adjudicates on whether the CMC has acted in a fair and reasonable manner, and if it has not, the LeO makes legally binding instructions for the CMC to pay compensation.
However, whilst the maximum LeO award currently stands at just £30,000, the FOS can instruct firms to pay redress of up to £150,000, and it is consulting on raising this limit to £350,000.
As with all firms subject to the FOS’s jurisdiction, they will be required to pay an annual levy to fund the Service. CMCs that have more than 25 complaints about them referred to FOS in any one financial year will also need to pay a case fee of £550 for each of the 26th and subsequent cases.
When sending complaint final response letters on or before March 31, the letter sent by the CMC still needs to refer to the client’s right to refer the matter to the LeO, although it may also be desirable to state that the client should refer their complaint to the LeO prior to April 1, and to the FOS if their complaint is made after April 1.
In final response letters sent on or after April 1, clients need to be signposted to the FOS, and the LeO should not be mentioned in the letter.
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