Following a review of claims management regulation in 2016, the government announced that the FCA would take over the regulation of claims management companies (CMCs) from the Claims Management Regulator. The FCA will become the regulator of CMCs which are established or serving customers in England, Wales and Scotland. The regulatory responsibility is due to pass to the FCA on 1 April 2019 and the FCA has published Consultation Paper CP 18/15 (CP 18/15) which sets out how the FCA intends to regulate CMCs. CP 18/15 can be found here.
- draft rules and the standards the FCA thinks CMCs should have to meet once they become FCA regulated;
- how the FCA will enforce its rules; and
- the process for CMCs to become FCA authorised.
The change has been prompted by concern about misconduct in the claims management sector.
Many of the existing Claims Management Regulator’s rules will be retained but the FCA will be making amendments and additions in a number of areas.
Proposed changes include the following:
- After 1 April 2019, all CMCs will need to be authorised by the FCA and meet the FCA’s Threshold Conditions. CMCs currently authorised by the Claims Management Regulator who want to carry on regulated claims management activity will need to complete a registration form informing the FCA they wish to continue to carry on regulated claims management activity and pay the relevant fee by 31 March 2019. The FCA will then issue the CMC with a “Temporary Permission". CMCs who are currently not regulated but will become FCA regulated will also need to apply for a Temporary Permission. CMCs will then need to apply for full authorisation. Further information can be found here.
- The Senior Managers & Certification Regime will apply to CMCs and the FCA will consult on this in a separate consultation paper1.
- Conduct of business rules will apply to CMCs. These rules will be included in a new FCA Handbook sourcebook called “Claims Management: Conduct of Business sourcebook" (CMCOB). Under the proposed rules2, CMCs will need to:
- act in the best interests of their customers including complying with the requirement to “act honestly, fairly and professionally";
- comply with general conduct of business rules including not presenting claims which the CMC knows or has reasonable grounds to suspect are fraudulent or without merit;
- provide a mandatory 14 day cooling off period;
- undertake sufficient due diligence on lead generators (the companies which provide the potential claimant details to the CMC) to ascertain that the lead generator is authorised and has appropriate systems and processes to ensure compliance with data protection and privacy electronic communications legislation;
- record calls with customers and retain the recordings for a minimum of 12 months;
- provide customers with key information on fees and alternative options; and
- ensure that advertising which uses “no win, no fee" or similar language includes information about the costs of the service and information about free alternatives (such as the Financial Ombudsman Service).
- Relevant sections of the Supervision manual (SUP) will apply to CMCs3.
- New prudential standards will apply to CMCs including requirements for CMCs to have sufficient financial resources to meet their liabilities4.
- There will be changes to rules regarding how CMCs hold client money and the FCA is proposing to apply the same client money rules to all CMCs5.
- Claims made under s75 of the Consumer Credit Act 1974 will be brought within the scope of FCA regulation6.
- CMCs will be brought within the compulsory jurisdiction of the Financial Ombudsman Service7.
The deadline for providing the FCA with feedback on the consultation is 3 August 2018. Following the consultation, the FCA will publish a Policy Statement in Q4 2018.