Insurers and others dealing with claims management companies (CMCs) must provide the same service that they would if they were dealing directly with the customer, the Financial Conduct Authority (FCA) has warned as it laid out the final shape of its new regulatory regime for CMCs.
“We expect firms dealing with claims to treat CMCs in a professional manner,” it said in its response to the consultation on the regime published earlier this year.
The FCA takes over from the Claims Management Regulator on 1 April 2019, and from 1 January CMCs will be able to apply for a ‘temporary permission’ to operate.
This will allow them to continue operating until they are fully FCA authorised later in the year.
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said: “We’re ready to take over regulation on 1 April 2019. The new regime aims to drive up standards in a sector whose reputation has been tarnished by some companies engaging in high-pressure selling and by failing to provide clear information on the fees they charge.
“The new rules will ensure firms are transparent about their estimated fees before the customer signs on the dotted line, and notify customers of free statutory ombudsmen or compensation schemes.
“It’s vital that customers have the information they need to make informed decisions. We will take action against those that break the rules.
“In addition, all firms have to record and retain customer telephone calls for a year after their final contact with a customer.”
Each CMC will require separate permissions depending on the specific activities and sectors that they wish to operate in.
CMCs that simply want to ‘seek out, refer and identify claims’, in any or all of the regulated areas, will only need one permission.
However, if they want to advise, investigate and represent, then they will need specific permissions for any of the six regulated areas: personal injury, financial services and products, employment, criminal injuries, industrial injuries disablement benefit, and housing disrepair.
The FCA will require CMCs, before any contract is agreed, to provide a potential customer with a short summary document containing important information, such as an illustration of fees charged and an overview of the services the CMC will provide.
CMCs will also need to highlight any free alternatives to using the CMC, such as ombudsmen schemes, in marketing material and pre-contract disclosures.
CMCs that buy so-called ‘lead lists’ from third parties will be required to carry out due diligence to ensure that the leads have been obtained legally and to keep records of this.
The FCA received 87 responses to the consultation, while 200 firms registered to attend its regional roadshows.
Among the tweaks it has made to the regime as a result are clarifying that CMCs must ask the customer if they know of other methods to pursue their claim, such as legal expense cover, and requiring that CMCs obtain a customer’s consent before charging costs that were not disclosed upfront.
On its fees, the FCA is introducing a lower minimum annual fee of £500 for smaller firms with turnover up to £50,000 instead of the single minimum fee it had proposed of £1,000 for firms with turnover up to £100,000.
However, it rejected the call by CMCs operating in the personal injury sector that they should pay less towards the Financial Ombudsman Service than financial services CMCs because they generate far fewer complaints – some 95% of complaints currently relate to financial services CMCs.
The FCA said: “We do not think that it would be appropriate to create separate industry blocks or tariffs for CMCs that generate fewer complaints.
“Low numbers of referrals are not necessarily a good indication of a lower risk of consumer harm. For example, an ombudsman scheme may receive a lower number of referrals if a business has not provided appropriate information to customers on how they can escalate their complaint, or if it is dealing with certain types of consumer who are less sophisticated and less likely to escalate their complaint.
“Developing different industry blocks or tariffs based on numbers of complaints would be costly and difficult to implement and may require revision throughout the financial year.”