New Misconduct Fines for CMCs

MOJ gains power to fine CMCs

December 29 2014 was another key date in the rapidly developing area of claims management regulation. From this date, the Claims Management Regulator at the Ministry of Justice (MOJ) has been able to impose fines on claims management companies (CMCs) who are guilty of misconduct.

For the largest firms, fines could be as large as 20% of their turnover for serious offences.

These fines can be imposed for any breaches of the MOJ’s Conduct of Authorised Persons Rules that occurred in full or in part after December 29. Monetary penalties can also be imposed if a company fails to provide requested information to the MOJ, or obstructs the regulator’s investigations in any way.

When fining a company, the MOJ will first consider the ‘nature’ of the breach, and will allocate a rating of between 1 and 3 for this. The highest score is likely to be awarded if the company was uncooperative during the investigation, the breach occurred due to systemic failures at the company, or the breaches were unduly negligent or reckless.

The MOJ will then consider the ‘seriousness’ of the breach, i.e. the level of detriment caused to customers or other parties, and will allocate a rating of 2, 4 or 6 based on just how serious the effects of the breach were.

The scores for nature and seriousness of the breach will then be added together, and fines imposed as follows:

Breach ScoreFine if turnover is below £500,000 in last 12 months (£)Fine if turnover is £500,000 or more in last 12 months (as a % of turnover)
30 – 3,0000 – 0.6
43,000 – 12,5000.6 – 2.5
512,500 – 25,0002.5 – 5
625,000 – 40,0005 – 8
740,000 – 50,0008 – 10
850,000 – 75,00010 – 15
950,000-75,00015 – 20

The MOJ retains the power to suspend or ban a CMC where it believes that their misconduct is so serious that a fine would not be sufficient punishment.

Justice Minister Lord Faulks said:

“People should not have to have their time wasted by the unscrupulous practices of some claims firms out to make themselves a profit at others’ expense.We are making sure they will have to pay the price themselves if they engage in this kind of behaviour.”

Kevin Rousell, head of the Claims Management Regulation unit at the MOJ, said:

“These penalties are a key measure to tackle the companies whose bad practice plagues the reputation of the claims management industry and causes serious inconvenience to the public. Reducing malpractice will also help to improve the reputation of those firms who do adhere to the rules and provide a good service to consumers. We already take tough action against companies which break the rules, including shutting them down when necessary, but now we can make them pay them financially too.”

The regulatory landscape for CMCs is constantly changing. During 2014, new rules were introduced, which included: 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.

From January 2015, complaints about CMCs can be referred to the Legal Ombudsman, which can order companies to pay compensation to customers of up to £30,000.

The number of investigation staff employed by the MOJ has doubled in recent years, making it much more likely that wrongdoing will be identified.

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.