CMCs face cash-call after regulator suffers major budget shortfall

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By Legal Futures

15 February 2011


Cash call: regulator making up 24% shortfall

A shortfall in the funding of claims management company (CMC) regulation – due to escalating enforcement action and a contraction in the size of the industry – has led to a cash call this month on the 3,000-plus businesses in England and Wales.

Their 2010/11 regulatory fees have been retrospectively hiked to make up for the £580,000 shortfall – representing 24% of the original budget unpaid – while the 2011/12 fees have been increased further.

The scheme is meant to be self-financing, and the regulator is aiming to raise £2.5m for the coming year.

The claims management market can be relatively volatile; in the first quarter of 2010, around 260 businesses (nearly 8% of the total) surrendered their authorisation after key court decisions which adversely affected those operating in the financial products and services sector. A further 250 left over the next four months, with more expected after further court decisions in the autumn. The number of new business applying for authorisation also slowed last year.

Since April 2010, 66 business have been suspended or cancelled – compared to 44 in the whole of the previous 12 months – with “hundreds of other actions to suspend or cancel businesses’ authorisations having been commenced”, according to the regulator.

Only 11 CMCs responded to a Ministry of Justice consultation on the new fees regime, and all were opposed, “which was to be expected”, said the ministry’s response. “We do not believe that there are any points arising in the small number of responses to the consultation which require changes to the fees approach consulted on,” it added.

The 2010/11 shortfall is being collected alongside next year’s fees.

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We all know that nothing in life is certain. As the actor, director and philosopher Clint Eastwood once said: “If you want a guarantee, buy a toaster.” He also said he’d tried being reasonable and didn’t like it. They should teach this kind of philosophy in law school. One thing in life is reasonably certain though. If you’re a law firm worth your salt, at some point you will be approached by another entity (most probably a work introducer) with a whizzy idea to ‘partner’ with you to ‘help you accelerate your growth’. In commercial speak this means, ‘we’d like to keep feeding you work but we’d also like to share in your profits’. The arrangement may be pitched to you as a joint venture – a win-win no less.

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