The shift of claims management company (CMC) regulation to the Financial Conduct Authority (FCA) has led to a further shake-out of the sector, new figures have indicated.
The FCA took over from the Ministry of Justice’s Claims Management Regulator (CMR) as of yesterday and reported that 973 CMCs have registered for temporary permission to continue operating while they go through the full FCA authorisation process.
The CMR’s annual report last summer said that the number of CMCs had fallen from 3,213 in 2011 to 1,238 in 2018.
The lower number seeking FCA authorisation may reflect the higher cost of the regulation. Setting up and delivering CMC regulation is set to cost the FCA around £17m up to and including 2020/21, which it will recover from the regulated community.
Each CMC requires separate permissions depending on the specific activities and sectors that they wish to operate in.
CMCs that simply ‘seek out, refer and identify claims’, in any or all of the regulated areas, only need one permission.
However, if they want to advise, investigate and represent, then they 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 requires 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, and ask the customer if they know of other methods to pursue their claim, such as legal expense cover.
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.
In addition, CMCs have to record and retain customer telephone calls for a year after their final contact with a customer, with the aim of reducing the chances of high-pressure sales techniques and supporting “robust resolution of customer complaints”.
The Claims Management Ombudsman, part of FOS, has taken over handling complaints about CMCs from the Legal Ombudsman.
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said: “Many CMCs play an important role in helping to secure compensation for customers, including for those who otherwise might not make a claim.
“The new regime has consumer protection and CMC professionalism at its heart. It will mean that customers will be protected from claims management cowboys and get a better deal.”