From April 1, the UK’s claims management companies (CMCs) will be subject to a new regulatory environment. Some aspects of Financial Conduct Authority (FCA) regulation will be similar to the way the Ministry of Justice (MoJ) has regulated claims companies, and some aspects will be different. However, even where the nature of the regulator’s supervision will be similar, CMCs should note that the FCA will have much greater resources than the MoJ.
The following are all tools the FCA could use to supervise CMCs:
- Regular programme of supervision – Despite its additional resources, CMCs should not expect a full-scale annual audit visit – it doesn’t quite have that level of resources, and it does supervise around 80,000 firms. However, the usual rule of thumb is that the larger a firm is, and the higher the risk its business activities are deemed to pose, the more likely they are to attract the regulator’s attention. Sometimes, rather than visiting a firm, the FCA will simply ask the firm to complete a questionnaire, which may for example test their understanding of certain regulatory concepts
- Issues-based supervision – The FCA may decide to supervise a particular firm more closely if it becomes aware of issues of concern, or other bodies highlight their concerns to the regulator. An example might be if a firm suddenly received a large number of complaints
- Thematic reviews – A thematic review involves the FCA examining a sample of firms from a particular business sector regarding their practices in one specific area. It is almost certain that there will be some form of thematic review of the claims management sector at an early stage, for example it might look at whether CMCs are meeting disclosure rules on client fees. Once the review is complete, the FCA publishes its findings and all firms, whether or not they were included in the review, are expected to read and consider the report and make any necessary changes to their own practices
- Data analysis – All regulated firms are required to submit data returns to the FCA at regular intervals. Sometimes the regulator will ask for additional data from firms, and all such requests must be complied with under FCA Principle 11. If anything in a firm’s data gives the FCA cause for concern, it may choose to investigate the firm further
- Compliance guidance – Sometimes the FCA will issue guidance to firms on specific issue (s), and the regulator naturally expects firms to act on this. This guidance can also take the form of a Dear CEO letter, where the FCA writes to the CEO or equivalent of all firms in a particular sector, highlighting their concerns over a specific issue. Sometimes the Dear CEO letter will ask the CEO to make the necessary changes to their company procedures to address the FCA’s concerns, and sometimes the letter will ask the CEO to reply to the regulator to give details of how their firm will ensure compliance with FCA requirements
Regardless of how the issues were identified, the FCA can then take enforcement action against any firm failing to comply with its rules and/or principles.
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