April 1 saw a number of changes in the world of financial regulation, and a significant number of firms could be affected by one or more of these.
Firstly, it was the day on which the Financial Conduct Authority (FCA) took over as regulator of claims management companies (CMCs), taking over from the Ministry of Justice in England and Wales, and bringing CMCs in Scotland into a formal regulatory regime for the first time.
This date also marked the start of the two-month application window, during which all CMCs that handle financial claims, or that were not previously regulated by the Ministry of Justice, must submit their application to the FCA for full authorisation.
April 1 was also the day that the Financial Ombudsman Service (FOS) assumed the role previously played by the Legal Ombudsman regarding claims management complaints. Any customer of a CMC who disagrees with how their claims company handles a complaint can refer the matter to the FOS.
Other changes at the FOS mean that it can now receive complaints from small businesses, which it defines as those with an annual turnover of less than £6.5 million; and that also have either a balance sheet total of less than £5 million or employ fewer than 50 staff. However, if the event which the complaint concerns occurred before April 1, these small businesses will not have recourse to the FOS, and in these circumstances the Service can still only adjudicate on complaints from individual consumers and from micro-enterprises, which are those with a turnover or annual balance sheet that does not exceed €2 million, and which employ fewer than 10 people.
The third and final change at the FOS is that the maximum award limit has been raised from £150,000 to £350,000. This move went ahead as scheduled despite a last-ditch intervention by the Personal Investment Management & Financial Advice Association (PIMFA). The Association raised its concerns some weeks ago about the effect that such a large increase could have on firms’ ability to obtain professional indemnity (PI) insurance at an affordable price, then in the final days of March PIMFA made a formal request to the FCA for the implementation date to be delayed. Instead all it received in reply was a vaguely worded statement, where a spokeswoman for the regulator said:
“We consulted thoroughly before deciding on the new rules and firms have had sufficient time to discuss cover with insurers. If firms do need to obtain different PII cover and need a short time to obtain this then we will consider their individual circumstances.”
On April 1, the FCA then issued a formal instruction, saying that any firm that did not have compliant PI insurance in place had five days to inform the regulator. Firms should do this via their dedicated FCA supervisor, if they have one, otherwise they should call the FCA firm contact centre.
Another group of FCA-regulated firms facing a major change are those operating in the rent-to-own sector. These firms are now subject to a price cap, where total credit charges cannot be more than the cost of the product, and the cost of products must be ‘benchmarked’ against the prices charged by three other retailers.
Finally, this month has also seen some changes to the compensation limits used by the Financial Services Compensation Scheme. Where a firm is declared in default on or after April 1, the compensation limits for customers of pensions, investments, home finance and debt management firms will be £85,000, up from the previous figure of £50,000. The compensation limit for long term care insurance, which was also £50,000, is now 100% of the value of the claim.
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