The Financial Conduct Authority (FCA) has set out the more stringent regime it intends to apply to claims management companies (CMCs) when it takes over their regulation on 1 April 2019.
A consultation on its new rules , published yesterday, said that “when working well, CMCs can provide useful services for customers”, but it also identified several “harms” to consumers.
These included customers losing money because the CMC was unclear about how much they would pay and the services they would receive, as well as poor service and general public nuisance through “aggressive or misleading marketing or sales tactics”.
The FCA’s proposals 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.
Where CMCs have an ongoing relationship with their customers, they will need to provide them with regular updates about the status of their claims. Specifically, when CMCs know the likely value of a claim they must provide the customer with an updated estimate of any potential fees.
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 is also proposing that CMCs will have to record and keep all calls with customers for at least 12 months.
Other requirements on firms will include a requirement for firms to hold capital linked to the type of business they undertake and further new requirements to protect any money firms hold on behalf of clients.
Existing CMCs will need to notify their intention to register for ‘temporary permission’ from the FCA, and pay the relevant fee, before 1 April 2019; full authorisation will follow.
FCA chief executive Andrew Bailey said: “A well-functioning claims management sector can help to provide justice and redress to people who have suffered harm. But the market doesn’t always work as it should and poor conduct persists across the sector.
“We want CMCs to be trusted providers of high-quality, good value services that can truly help consumers. A key element of our approach to regulation will be ensuring that consumers are both protected and treated fairly. The proposals we have outlined today are integral to achieving that aim.”