How Claims Management Companies Need to Apply for FCA Authorisation & Implications of SM&CR
The regulation of Claims Management Companies (CMCs) within England, Scotland and Wales is due to change in 2019, with the Financial Conduct Authority taking over regulation from the Claims Management Regulator on 1 April 2019. The Financial Guidance and Claims Act, which became law in May 2018, amends the Financial Services and Markets Act and transfers regulation from the Claims Management Regulator (which was part of the Ministry of Justice) to the FCA, and the complaints handling function from the Legal Ombudsman to the Financial Ombudsman Service.
After 1 April 2019 all CMCs will need to apply for re-authorisation with the FCA. Currently authorised CMCs who want to continue to provide claims management services after April 2019 will need to complete the following two step process:
Register with the FCA for temporary permission between 1 January and 31 March 2019, via Connect.
Apply for full FCA authorisation.
This process also applies to CMCs that are not currently regulated, such as firms in Scotland. Temporary permission will allow firms to continue to act as a CMC while they apply for full authorisation.
CMCs that do not send a completed registration form by 31 March 2019 will not be able to operate as a CMC after that date.
There will be two application periods for applying for full FCA authorisation; each CMC will be allocated to one of these application periods and will either need to submit their application for authorisation during that period, or cease carrying out regulated activities.
New CMCs entering the market following 1 April 2019
New CMCs entering the market following 1 April 2019 will need to apply for authorisation – they will not be entitled to temporary permission in the same way as existing CMCs. They will not be limited to an application period, but cannot perform regulated activities until they have received authorisation. Firms that want to start providing regulated claims management activity can choose to either apply to the Claims Management Regulator now and transfer to the FCA, or apply directly to the FCA for full authorisation from 1 April 2019.
Preparing for the application process
Any firm applying for authorisation – whether currently operating as a CMC or new to the market – need to ensure that they are fully prepared for the application process. Firms must fully complete application questions, which require prior preparation of a lot of information, and the sourcing and provision of a number of supporting documents, including a regulatory business plan, compliance monitoring programme, organisational structure charts, and accounts information. In addition, a number of documents should be prepared and ready for inspection if called for by the FCA, including full business continuity procedures, agreements or terms of reference with any third-party providing compliance or other services, and outsourcing arrangements for disaster recovery. Any firm unsure of any aspect of the application process should seek expert advice.
The implications of the incoming Senior Managers and Certification Regime
Claims Management Firms should be aware of the full implications of FCA authorisation, including which sections of the Handbook will apply to them. The FCA is rolling out the Senior Managers and Certification Regime, which replaces the Approved Persons Regime (APR), to certain firms from 2018 (with a commencement data of 10 December 2018 for insurers and a commencement date of 9 December 2019 for solo-regulated firms). With CMCs due to be regulated by the FCA from 1 April 2019, the FCA has proposed that they will not begin authorising individuals in CMCs until the SM&CR commences for solo regulated firms on 9 December 2019, so that CMCs are not required to implement the APR for the short period of time between authorisation after April 2019 and SMCR commencement in December 2019. This allows CMCs time, between April 2019 and 9 December 2019, to understand what will be required of them under the SM&CR. CMCs should note that, regardless, the FCA retain the power to prohibit individuals who are not fit and proper from the industry.
Any firm still under Temporary Permission in late 2019 would not be required to apply the SM&CR; the FCA state they do not think it would be appropriate in such cases to require firms to implement the regime when there is a possibility they may be refused authorisation. Firms under Temporary Permission should note that some of the general rules and guidance on references (set out in SYSC) will still apply.
Currently, the FCA assume that CMCs will have 12 months from the commencement date (or, for CMCs who have yet to receive full authorisation at the time of commencement, 12 months from the date of authorisation) to complete fitness and propriety assessments and train staff in the Conduct Rules. If this is confirmed, firms will need to:
comply with the Senior Managers Regime from the date of commencement, or from the date of authorisation, if this is later
identify anyone performing Certification Functions as soon as the SM&CR comes into force, or from the date of authorisation, if this is later
have assessed anyone performing a Certification Function as fit and proper within 12 months of the date of commencement, or within 12 months from the date of re-authorisation, if this is later
train all other applicable staff in the Conduct Rules within 12 months of the SM&CR coming into force, or within one year of the firm being re-authorised, if this is later.
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