FCA issues warning to claims management companies


FCA: Two-year plan

Many claims management companies (CMCs) have shown “a poor understanding of, and sometimes attitude to, their regulatory obligations”, the Financial Conduct Authority (FCA) said this week.

Amid a continuing fall in the number of CMCs, the regulator warned that some, set up by those involved in misconduct at another firm, were profiting again by bringing claims against those firms.

It pledged also to focus its work on CMCs handling complex, high-value financial claims and the impact of next year’s whiplash reforms on personal injury CMCs.

The FCA took over regulation of CMCs from the Ministry of Justice, as well as complaints handling from the Legal Ombudsman, in April 2019.

Since then, it has received 924 applications for authorisation as a CMC. Of these 28 were void, six refused, 135 withdrawn and 615 approved, with 139 still being processed.

This is because many applications were of poor quality and the FCA has had to ask for more information, with CMCs either not responding or taking a long time to respond.

The number of CMCs has fallen from a high of 3,213 in 2011. There were 1,238 the year before the FCA took over.

This week, the FCA issued a ‘Dear CEO’ letter to the sector setting out areas of concern and priorities until the end of its current CMC supervision strategy in July 2022.

It listed several issues that continue to crop up in the assessments of CMCs’ applications: misleading, unclear and unfair advertising; poor disclosure of pre-contractual information about fees and/or the availability of free alternatives to make a claim; unclear fee structures; poor service standards, including poor-quality advice, inadequate processes and procedures, and sub-standard representation; and firms looking to use existing data to recycle and re-market claims, giving rise to nuisance calls.

The FCA also explained that some CMCs were failing to undertake sufficient checks and collect relevant information before presenting claims to third parties, “resulting in submission of spurious claims, slower processing and poor outcomes”.

The regulator detailed its concern that some CMCs have been established by, or have close associations with, people who have been involved in misconduct at previous businesses.

“Such misconduct can result in the right for a consumer to make a claim against those individuals or the firm for which they work or have worked at.

“The individuals may therefore profit from the same client twice, once from the transaction at their previous job, and secondly via their involvement and links with the CMC taking on the resulting claims. This is despite their previous poor advice.

“The consumer might have used another CMC or alternative routes to complain had they been made aware of the association in advance. We are taking steps to refuse such firms’ applications, or otherwise preventing such CMCs from profiting in this way.”

In general, the FCA went on, “many CMCs have demonstrated a poor understanding of, and sometimes attitude to, their regulatory obligations”. This could ultimately lead to them being closed down or refused authorisation.

The letter identified three areas where it will focus its CMC strategy over the next two years.

First was CMCs moving into complex, high-value financial claims following the PPI deadline passing.

“We will focus on the governance, culture, systems and controls of firms related to client acquisition and lead generation, and also on financial promotions, disclosure, due diligence on potential claims, and the quality of service being provided to clients.

“Importantly, we will have a strong focus on compliance with our client money rules, given the substantial sums often involved in these kinds of claims, and the consequent high levels of harm that can arise if client money is not adequately protected.”

Related will be ensuring the orderly wind-down of PPI firms: “We identified dozens of firms during the application process that had no viable business model beyond the run-off of their existing PPI cases.”

In personal injury, the other main area of CMC activity, the FCA pledged to carry out “proactive work on the impact of legislative reform on whiplash-related claims in the personal injury sector”.

It went on: “In particular, we will seek to understand how affected CMCs adapt and take steps to ensure any changes to their business models do not result in harm to consumers.”

The FCA is also looking at how best to meet the duty imposed on it by the Financial Guidance and Claims Act 2018 to make rules that protect consumers from excessive charges for financial services and product claims.




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