Over 900 Claims Management Companies (CMC’s) have registered for their regulation to be transferred over to from the Claims Management Regulator to the Financial Conduct authority (FCA). This comes after the Ministry of Justice decided to change regulators for CMC’s back in 2016.
In what has been seen by many as an unusual move, CMC’s have been allowed to “grandfather” their move to the FCA. That means that they have not been required to complete the FCA’s usual due diligence requirements before their move across to the FCA, which would apply to firms of Financial Advisers for example. Instead CMC’s will have to go through the authorisation process later, over a period of time. This seems like an odd move to many observers, given the general reputation of the Claims Management sector for direct marketing and high charges.
It will be interesting to see how the FCA manages CMC’s. For example, the FCA is currently looking at Contingent Charging in the pension transfer market, concerned that it might be a factor which influences advice. In the Claims Management market almost 100% of charging structures are contingent, with fees as high as 30% + VAT of any compensation awarded. It’s hard to see how the FCA could consider this to be a reasonable charging model for CMC’s, when it’s well documented that CMC’s have a reputation for bringing frivolous claims with no merit, simply to “chance their arm”.
In the Road Traffic Accident market, motor insurers managed to persuade the government many years ago that this wasn’t a fair charging model and succeeded in introducing fixed fees for CMC’s, hopefully the FCA will consider introducing this type of charging model across the board, to protect consumers and reduce charges. We will see.
First quick update on the FCA’s regulation of CMC’s. Having looked at over 200 adverts by CMC’s the FCA has been dismayed to find many of them to be misleading! Some of the most common issues included:
- Companies not identifying themselves as a CMC
- Using small font sizes to hide the details
- Not disclosing their fees
- Failing to advise clients that they could go to the Ombudsman for free
- Giving the impression that using a CMC would get the client a bettr outcome
No real surprises there then. The real surprise was the FCA “grandfathering” over 900 CMC’s into regulation rather than making them apply (and comply) with the new regulations before being authorised. (updated 13/9/19)