Claims Management to move to FCA regulation from April 2019 – so what will this mean for firms who a
The FCA has recently launched consultation CP15/18 which sets out their proposed regulatory structure for Claims Management Companies (CMCs). The announcement also confirmed that jurisdiction for complaints would move from the LeO to the Financial Ombudsman Service (FOS); although one wonders how they will cope with an increased number of complaints when they are already a stretched service.
The Consultation proposes extensive regulation for CMCs, including some of the current CMR rules, but also introducing new rules and making all parts of the current FCA handbook applicable as well.
The FCA will regulate 6 activities by introducing 7 new permissions (1 permission for lead generation activities and 6 sectoral permissions covering the activities of advising a claimant, investigating a claim and representing a claimant). Scotland will also be included in the proposed regulatory regime and claims made under s75 of the Consumer Credit Act 1974 are also within scope.
So, what are the main proposals?
Before a CMC agrees a contract with a customer they will be required to give a short summary document containing an illustration or estimate of the fees charged, an overview of the services the CMC will provide, and the tasks the customer will need to do themselves. Where a statutory ombudsman scheme exists, the summary must confirm that the customer does not need to use a CMC to pursue the claim and may present the claim themselves for free.
CMCs must offer a mandatory 14 day cooling off period and this must be detailed in the initial documentation.
Where the customer has been introduced by a third-party, the customer must be given information about any fees the CMC has paid to that third-party.
CMCs will be required to provide regular claim updates to the customer, even where there has been no progress. Specifically, where the CMC knows the likely value of a claim then an estimated fee update should be provided.
The CMR Client Specific Rule 10 will be carried over to the new rules, requiring CMCs to investigate whether there are other ways the customer can make their claim.
CMR Client Specific Rule 14 will also be carried over with a slight amendment – CMCs will need to take reasonable steps to ensure that the customer understands the contract they are agreeing to (including vulnerable customers).
CMCs will need to provide customers with a clear explanation of fees and charges whenever a payment is requested. There will need to be appropriate policies and procedures for dealing with customers in arrears, including specific policies for vulnerable customers.
‘No win no fee’ type adverts will have to include details on the fees which will be charged or how fees are calculated and whether there is a statutory free scheme available to the customer. All calls to customers will need to be recorded and kept for a minimum of 12 months (even those that result in no further contact with the customer). CMCs will need to keep a record of electronic communications as well. The financial promotion rules in PERG 8 will apply.
CMCs who purchase leads from third parties must carry out due diligence to determine whether the lead generator is authorised and has appropriate systems and processes in place to ensure compliance with data protection, privacy and electronic communications legislation.
Other FCA rules which will apply –
The Senior Managers and Certification Regimes that currently apply to all banks, buildings societies, credit unions and the largest investment firms will be extended to all regulated firms including CMCs.
The Individual Conduct Rules, the basic standards of behaviour that people working in financial services are expected to meet, will apply to almost all staff in firms and is not limited to those individuals who are subject to the Senior Managers Regime and Certification Regimes.
PRIN, COND, SYSC, DISP, GEN and the standards on how firms treat whistleblowers will all apply.
CASS will apply to firms who handle client money.
CMCs will be subject to the prudential resources requirement and specific wind down procedures.
The usual FCA enforcement procedures in EG and DEPP will apply equally to CMCs.
The FCA will create a new handbook section called the ‘Claims Management: Conduct of Business Sourcebook’ to sit alongside the existing sections.
Further consultations are expected later in the year, but this document is a clear indication a lot of preparation will be needed over the next 10 months to ensure CMCs are up to speed with the requirements.
Any firms with an existing CMR authorisation in April 2019 will be issued with a temporary FCA permission and a landing slot to submit an application for full authorisation. There is no news yet on what the application process will look like.
The consultation is open until 3rd August and can be viewed at –
If you think your firm could be affected by the new rules or if you have any further questions, Teal Compliance can help. Contact us a email@example.com. An initial conversation is always free.