The Financial Conduct Authority (FCA) has proposed new tougher rules today for the regulation of claims management companies (CMCs).
The FCA, which is taking over as the regulator of CMCs on a 1 April 2019, has proposed new rules for the sector which aim to give consumers more protection.
These include requiring the CMC to provide potential customers with a summary document containing information such as fees charged and services offered, highlight free alternatives to using the CMC and to keep records of all calls made to customers for at least 12 months.
Chief executive of the FCA 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.”
Other changes proposed include requiring firms to hold capital linked to the type of business they undertake and a requirement to protect money they hold on behalf of clients.
CMCs that buy ‘lead lists’ from third parties will have to carry out due diligence to ensure that the leads have been acquired legally.
Currently claims management companies are regulated by the Claims Management Regulator, which is part of the Ministry of Justice.
Alison McHaffie, a regulatory partner with law firm CMS said: “Although the FCA refers to the potential justice that these firms can bring people, it is clear that a much more rigorous regime is to be imposed – which many will regard as long overdue.
“The introduction of new standards, particularly in relation to disclosure of fees and the availability of ombudsman schemes, and effective enforcement of these rules should be a deterrent to poor conduct and restore public confidence. CMCs themselves will also now be subject to the FCA complaints handling rules and may find themselves at the sharp end of Financial Services Ombudsman’s decisions as a result.”