In late November 2013, the Claims Management Regulator (CMR) at the Ministry of Justice unveiled proposed amendments to the Conduct of Authorised Persons rules for claims management companies (CMCs).

The main requirements proposed in the consultation paper include: a requirement to establish that claims have a realistic chance of success before submitting them; new obligations to provide evidence to back up claims; and the need to conduct thorough audits of data obtained, e.g. sources of marketing leads.

In the main, this will be achieved by massively expanding General Rule 2, which currently reads simply: ‘‘A business shall conduct itself responsibly”. Instead there will be six bullet point obligations under this main heading, which will include:

• “Take all reasonable steps to investigate the existence and merits of a potential claim before presenting it to a third party.”
• “Make representations to a third party that substantiate and evidence the basis of the claim, are specific to each claim and are not fraudulent, false, or misleading.”
• “Take all reasonable steps in relation to any arrangement with third parties to confirm that any referrals, leads or data have been obtained in accordance with the requirements of the legislation and Rules.”

The paper also provides a new definition of competence which key personnel within CMCs must meet, specifically that they have a “working knowledge of the legislation and rules relating to regulated claims management services.”

The new rules would apply to all CMCs, whether they handle matters related to financial services, personal injury or another activity.

The consultation paper acknowledges the main reasons behind the proposals by saying: “The new proposals are designed to better deal with the poor practices of some CMCs, which will assist consumers with valid claims in getting their claims dealt with promptly by eliminating the congestion caused in the systems of financial services providers and the Financial Ombudsman Service through poor or speculative claims.”

The Executive Summary goes on to make reference to research indicating that many CMCs are submitting payment protection insurance claims without taking reasonable steps to establish whether the customer ever purchased the product.

CMCs are invited to respond to the consultation by January 9 2014 at the latest.

These new rules will be just the latest in a series of changes to the regulatory landscape for CMCs. Earlier in November, it was announced that the CMR was to be given the power to fine companies for non-compliance. 2013 has also seen CMCs subject to new requirements regarding: the disclosure of their regulatory status, displaying terms and conditions on their websites, a ban on verbal contracts, the need to alert customers within 14 days if they are subject to regulatory enforcement action, a ban on issuing advertisements that offer cash inducements and a ban on receiving referral fees.