The number of authorised claims management companies (CMCs) has plunged by almost 40% since the Financial Conduct Authority (FCA) took over the task of regulating them last April, it has emerged.
According the latest figures from the FCA, seen by Legal Futures, 741 CMCs are currently authorised or hold temporary permissions. This compares with over 1,200 CMCs authorised by the Ministry of Justice (MoJ) before the change of regulator in April 2019.
The FCA said that 973 CMCs applied to it last spring for temporary permission to continue offering claims management services while going through the authorisation process.
Out of those, 232 decided to withdraw their application or failed to apply for full authorisation. The falling numbers could well mean increased regulatory costs for those still operating.
The number of CMCs regulated by the old Claims Management Regulator fell from 3,213 in 2011 to 1,238 in 2018.
Earlier this month the FCA refused to authorise a CMC for the first time.
According to the final notice published by the FCA, FS Claims, based in Leeds, applied in April last year to seek out, refer and identify claims relating to personal injury, financial services, housing disrepair, criminal injury and employment, and advise on financial services claims.
Under the FCA regime, CMCs that just refer claims in any or all of the six regulated areas – the other one is industrial injuries disablement benefit – only need one permission.
But if they want to “advise, investigate and represent”, then they need specific permissions for each of the areas they want to operate in.
Among the issues raised by the FCA were lack of assurance on the security of client money and the statement that FS Claims would conduct 100% of sales on the internet, without it giving “any examples of the material it intended to use, or explained how it would ensure that the material is fair, clear and not misleading”.
Details of the sole director of FS Claims “did not include a date of birth” and “provided no indication of any recent experience of running a claims management company”.
The FCA said FS Claims “failed to respond to four separate requests for the provision of information considered by the authority to be necessary to enable the authority to determine the application” over a six-week period.
The regulator issued a warning notice in November 2019, followed by a decision notice the following month when FS Claims failed to reply. When the four-week period for the CMC to appeal to the Upper Tribunal had expired, the FCA issued a final notice of its refusal to authorise.
The FCA said it had also agreed four “voluntary requirements” with CMCs, agreed an undertaking with a firm and issued a banning order relating to a firm’s financial promotions.
The FCA successfully defended a fine of £91,000 imposed on a CMC by the Claims Management Regulator at the Upper Tribunal in November last year.
Hall and Hanley, which focuses on claims for mis-sold payment protection insurance (PPI), was fined for data breaches and unauthorised copying of client signatures.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “The failure by Hall and Hanley to take previous advice and warnings from the former claims management regulator and the firm’s repeated use of consumer data and customer signatures without their consent are clear examples of a firm falling short of the standards we expect.”
The FCA said that, following a review of 16 of the CMC’s client files, in half of them the CMR found that clients’ signatures on claim documentation (including letters of authority) had been copied without authorisation
Meanwhile, in a joint statement with the Information Commissioner’s Office (ICO) and the Financial Services Compensation Scheme (FSCS) earlier this month, the FCA said some firms and insolvency practitioners regulated by it were trying to unlawfully sell clients’ personal data to CMCs.
“This can happen either before or after a firm has gone into administration and where it is likely claims for compensation will be made to FSCS.
“The terms, conditions and clauses within a standard contract are highly unlikely to constitute sufficient legal consent for personal data to be shared with CMCs to market their services, and may not be lawful.”
By passing on personal data, companies may be failing to meet their obligations under the Data Protection Act 2018 and the GDPR. Any subsequent direct marketing calls, texts or emails from CMCs could breach the Privacy and Electronic Communications Regulations 2003.
Consumers were advised that when an FCA-authorised firm enters administration, they should contact the FSCS directly and the insolvency practitioner (IP) should contact them to explain what the administration means.
“Making a claim to FSCS is free, and in cases where the IP has contacted the customer directly, we do not consider that CMCs are likely to provide significant benefit.”