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Claims management companies: a new regulator

The BSA recently responded to the FCA’s consultation (CP18/15) published in preparation for the transfer of the regulation of claims management companies (CMCs) from the Ministry of Justice to the FCA from 1 April 2019.  

Our starting point is that, from the consumer perspective, it is important for CMCs to be regulated as strongly as currently regulated financial services firms, such as banks, building societies and insurance companies.  It is clear that consumers can suffer at the hands of a currently regulated firm and of a CMC if the business in question, whatever sector, is deficient in senior management culture and accountability, conduct standards, customer communications, prudential stability etc.  Therefore, regulatory equivalence is long overdue and we welcome the FCA’s proposals to address the matter.

The BSA supports all the FCA’s key proposals, notably that claims management companies should be subject to FCA rules and principles relating to –

  • high-level standards
  • threshold conditions
  • systems and controls
  • general provisions
  • conduct of business
  • lead third-party generators
  • call recording
  • marketing
  • pre-contract and ongoing disclosure
  • collection of fees
  • supervision and reporting
  • prudential standards and wind-down procedures
  • client money
  • dispute resolution, and
  • enforcement.

 

In particular, we strongly endorse the FCA’s proposal that new customers of CMCs should have a 14-day mandatory cooling-off period.In a joint consumer information note published in 2015, the Ministry of Justice, the Financial Ombudsman Service, the FCA and the FSCS stated that there was no need to use a CMC (to reclaim mis-sold PPI).A cooling off period would give customers a proper chance for reflection on whether they would be better pursuing a complaint without a CMC and potentially receive compensation free from deduction of CMC fees.

We also agree with the FCA that CMCs should be obliged to comply with proposed rules on using third-party lead generators.  We believe that this is another very important proposal.  The sale of individuals’ personal details, in breach of data protection law, is a scurrilous practice.

Just as currently regulated firms are required to provide customers with certain pre-contract information, CMCs should be subject to similar exacting standards.  The proposal of a mandatory one-page summary document, and the suggested contents, is sensible. 

We also strongly endorse the proposals regarding fee disclosure.  As the CP suggests, this would make it easier for potential customers to compare rates at different CMCs.  It would also encourage them to consider carefully whether they needed to use a CMC, given the availability of a free (to complainants) Ombudsman Service and sources of free advice and guidance.

Finally, we support the proposal that the Financial Ombudsman Service should deal with complaints against CMCs that the firm in question cannot resolve.  It makes sense for the same Ombudsman Scheme that adjudicates complaints about financial services firms to carry out the same role, and based on the same rules, in respect of CMCs.  This arrangement would help ensure consistency and fairness across the adjudication of all complaints.

 

Posted by Chris Lawrenson on 22 August 2018