The regulator’s proposals will require CMCs to provide a potential customer with a short summary document containing “important information” such as an illustration of fees charged and an overview of the services the CMC will provide.
This document will need to be provided before any contract is agreed.
Claims Management Companies, sometimes referred to as ‘ambulance chasers’ in industry jargon, have mainly targeted PPI claims in recent years but there is evidence they are widening their net to include SIPPs and other financial products.
Among the draft rules are proposals to force CMCs to highlight any free alternatives to using the CMC, such as ombudsmen schemes, in marketing material and pre-contract disclosures.
Following a review of CMC regulation commissioned in 2015, the Government announced that the FCA would take over regulation of CMCs. Regulation will also be extended to Scotland, where firms are currently unregulated.
The Financial Guidance and Claims Act 2018 enabled the transfer of regulation of CMCs to the FCA from the existing Claims Management Regulator and extends regulation to Scotland.
The FCA has revealed details today of how it proposes to authorise and supervise firms and the steps it will take should CMCs breach FCA rules.
Andrew Bailey, chief executive of the FCA 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.”
CMCs that buy so-called ‘lead lists’ from third parties will be required to carry out due diligence to ensure that the leads have been obtained legally and to keep records of this.
The FCA is also proposing that CMCs will have to record and keep all calls with customers for at least 12 months.
Other requirements on firms will include a requirement for firms to hold capital linked to the type of business they undertake and further new requirements to protect any money firms hold on behalf of clients.
The FCA has also set out its approach to authorising both existing and new CMCs.
Firms will need to notify 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’s authorisation process.
New firms will need to decide whether to begin their authorisation process with the Claims Management Regulator or wait and submit an application to the FCA after April 2019.