CMC owners face an end to ‘phoenixing’

FCA: Proposals will strengthen integrity of market

An end to owners of claims management companies (CMCs) closing down one firm without fulfilling their obligations or paying their debts and opening another – known as ‘phoenixing’ – is on the cards under new proposals from the Financial Conduct Authority (FCA).

The FCA is taking over the regulation of CMCs from next April and today it issued a consultation on how its senior managers and certification regime (SM&CR) will apply.

Senior managers will be subject to a criminal records check and have to provide references from all previous employers in the previous six years, among other requirements.

“There is evidence of misconduct among some firms in the CMC sector, which is harming customers,” the consultation said.

“There is evidence that some CMCs have poor governance arrangements and do not have competent staff who understand the regulation the CMC is subject to.

“For these firms, it is more difficult for them to provide an appropriate service to their customers because the systems and controls required to effectively support this are not in place.”

The current regime does not involve key managers being authorised before they start their role.

The consultation said: “This means that individuals who are not fit and proper to lead a CMC may close down one CMC and move to another, without fulfilling their obligations to customers.

“If a director does this, eg by taking over an existing authorised CMC, it is known as ‘phoenixing’. The [Claims Management Regulator] reported 30 possible examples of phoenixing between 2015 and 2016.

“The SM&CR aims to reduce harm to consumers and strengthen the integrity of the claims management market, by creating a system that enables regulators, and encourages firms, to hold individuals to account.”

Under the proposals, a small number of senior roles within CMCs will be designated senior management functions and people doing these jobs will need to be approved by the FCA annually.

Senior managers will have a ‘duty of responsibility’, meaning that, if something goes wrong in an area that they are responsible for, the FCA will consider whether they took ‘reasonable steps’ to stop this from happening.

The FCA said the “key harms” the SM&CR aimed to stop happening were distress caused by poor service and delays, customers locked in to services that are unsuitable or priced unfairly, and harassment and aggressive sales practices.

CMCs will need a senior manager and the larger ones (meaning a turnover of £1m+) will also have a compliance oversight manager.

Further, each firm will have to certify that anyone who could have a significant impact on customers or the firm is fit and proper to do their job.

There will also be conduct rules that apply to almost all employees.


Leave a Comment

By clicking Submit you consent to Legal Futures storing your personal data and confirm you have read our Privacy Policy and section 5 of our Terms & Conditions which deals with user-generated content. All comments will be moderated before posting.

Required fields are marked *
Email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.


A new route to practice rights for chartered legal executives

Following approval from the Legal Services Board in May 2022, CILEx Regulation has launched an alternative route for chartered legal executives to obtain independent practice rights.

NFTs, the courts and the role of injunctions

In May, news broke that a non-fungible token was the subject of a successful injunction made by the Singapore High Court. The NFT in question is part of the very valuable Bored Ape Yacht Club series.

Matthew Pascall

Low-value commercial cases – an achievable challenge for ATE insurers

There are many good claims brought for damages that are likely to be significantly less than twice the cost of bringing the claim. These cases present a real challenge for insurers.

Loading animation