Claims Management Companies and Upcoming FCA Regulation
Following the Brady Review, commissioned in 2015 to examine the nature of issues in the claims management market, the government has announced that the Financial Conduct Authority will take over regulation of claims management companies. The review highlighted a number of potential harms to customers, which the FCA’s proposals aim to mitigate, including poor or inappropriate service, possible financial loss due to a lack of clarity around fees and services offered, and that customers may pay higher prices in other markets due to spurious or fraudulent claims. There are currently around 1700 claims management companies in the UK; FCA regulation of these firms will begin on 1 April 2019, and will extend to Scotland where firms are currently unregulated.
Alongside draft rules published on 5 June the FCA’s Chief Executive, Andrew Bailey, stated the proposals will help to ensure that consumers are protected and treated fairly. Feedback from consultation is now being considered by the FCA, who will publish their feedback and final rules in a policy statement, towards the end of 2018.
The proposals set out new requirements for claims management firms, including the provision of a short summary document containing important information before any contract is agreed with a customer, highlighting free alternatives to CMCs, such as relevant ombudsmen schemes, the recording and storing of recorded calls with customers for a period of 12 months, and the protection of money firms hold on behalf of clients. In addition, firms will be expected to provide certain types of customers with regular updates about the status of their claims, including when the firm discovers the likely value of a claim. Where estimates of potential fees change, firms will be expected to inform customers in good time. These rules will be set out in a new Handbook sourcebook called ‘Claims Management: Conduct of Business sourcebook’ (CMCOB).
Claims management firms wishing to continue operating after April 2019 will need to ensure that they meet, and continue to meet, the FCA’s high-level standards for all FCA-regulated firms, in addition to the specific rules for CMCs. High level standards include the FCA’s Principles for Businesses (PRIN), Threshold Conditions (COND), General Provisions (GEN), and standards for how firms should treat whistleblowers. The FCA propose to apply most of the rules and guidance set out in Senior Management Arrangements, Systems and Controls (SYSC) to CMCs, including SYSC 4-6, SYSC 8-19 and SYSC 18.
Firms that are currently authorised by the Claims Management Regulator will not automatically be transferred to the FCA. These companies will need to notify the FCA of their intention to register for Temporary Permission, and pay the relevant fee to the FCA before 1 April 2019. Firms will then need to go through the FCA authorisation process.
Companies based in Scotland which are not authorised by the CMR but will fall under the FCAs remit (i.e. CMCs that could have been regulated by CMR, had Part 2 of the Compensation Act extended to Scotland, and CMCs who handle claims related to section 75 if the Consumer Credit Act 1974) will also need to register for Temporary Permission and pay the fee before 1 April 2019.
New firms that are thinking of applying to the Claims Management Regulator in the first months of 2019 will need to decide whether to begin their authorisation process with the CMR, or wait and submit an application to the FCA after April 2019. Firms that apply to the CMR and are granted prior to 1 April 2019 will be entitled to obtain temporary permissions with the FCA, and will need to register and pay the fee. If the application has not been determined by 1 April 2019, the application will be treated as though submitted to the FCA, but the firm will need to ensure a further form and top up fee is submitted to the FCA. The FCA will issue the forms in due course.
If your firm needs support to prepare and apply for FCA Authorisation, please see our Resource Downloads page for a FREE guide or Contact Us to find out how RB Compliance Consultancy could support your firm throughout the process.