The Claims Management Regulator at the Ministry of Justice (MoJ) has recently been given the power to impose fines on claims management companies (CMCs) that it regulates. Now the MoJ has launched a consultation into how it should exercise this power.

The circumstances in which the MoJ will be allowed to fine companies are:

  • A breach of its Conduct of Authorised Persons Rules or another code of practice
  • In response to information identified during an investigation into a complaint
  • A failure to maintain suitable professional indemnity insurance
  • A failure to disclose necessary information or provide necessary documentation
  • Obstructing the MoJ in its efforts to investigate a company

When proposing to fine a company, the consultation paper suggests that the MoJ will follow a four-stage process similar to that currently used when they take enforcement action against CMCs:

  1. An MoJ investigation identifies evidence of misconduct
  2. A written notice is sent to the company, which will include the proposed amount of the fine, the date by which it should be paid, the reasons why the MoJ feels it is right to impose a fine and details of the evidence used in reaching this conclusion
  3. The company is allowed to make a written submission in response to the written notice
  4. The MoJ confirms its final decision on the matter, confirming the amount to be paid and the date by which payment is due

Companies with a turnover of less than £500,000 should expect fines of between £500 and £100,000; while other companies should expect fines to be anywhere between 0.1% and 20% of turnover from MoJ authorised activities. The exact level of fine will depend on the seriousness of the misconduct, and key to assessing this will be the level of detriment caused to customers or other parties. The company’s level of co-operation with the MoJ during the investigation and the extent of its efforts to remedy the breach identified may be a ‘mitigating factor’ which the MoJ can use to reduce the level of the fine.

The proposals also include preventing companies from surrendering their authorisation once an investigation process has commenced in order to prevent enforcement action being taken.

The consultation document, and the online survey regarding its proposals, can be found at https://consult.justice.gov.uk/digital-communications/claims-management-regulation/consult_view. Responses must be made before April 28 2014.

The MoJ wants answers to questions regarding nine elements of its proposals:

  • The method by which an assessment of the seriousness of a breach will be made
  • The intention to impose different calculation methods for fines depending on whether turnover is more or less than £500,000
  • The intended level of fines for those with turnover below £500,000
  • The intended level of fines for those with turnover equal to or greater than £500,000
  • The method by which the MoJ intends to make its ‘final assessment’, i.e. step 4 in the process explained above
  • The MoJ’s intention to use a system similar to its existing enforcement procedure (the four steps outlined above)
  • The proposed changes to the ‘surrender of authorisation procedure’
  • The impact that fines could have on companies
  • The potential equality impacts of the proposals

 The MoJ has not so far been able to impose fines on CMCs, but it did withdraw the permission to trade of over 200 companies in 2013.