The government have made a stand and said that as of April 1st the Financial Conduct Authority (FCA) will become the new regulator for Claims Management Companies (CMCs).

A new era is underway regarding the regulation for CMCs and the FCA will be focusing on 3 main areas to ensure that customers are receiving the high quality service and trust that they deserve.

Areas where the FCA are looking to improve how CMCs work, include;

  • The customers: The FCA want clients to be confident in choosing a claims management company who has a good value for money service and serves their needs.
  • Claims management companies. The FCA have asked for CMCs to secure redress and comply with their rules and regulations that have been put in place as well as meeting their standards.
  • Regulatory. The FCA want to be regulating with high standards of conduct that are going to improve their customers in the sector.

Claims Management Companies in England, Scotland and Wales will now have to be authorised by the FCA so they can continue to operate legally. Scotland has never had regulations to follow before, so huge changes are to come for them.

There are certain standards that companies will have to comply with under the new FCA regulations.  In December 2018, the final ‘conduct of business rules’ were published.  Many of the rules that are being put into place are the same as the Claims Management Regulators rules.  However, there are some that are amendments to these sets of rules and new ones have been added.  Any firm abiding by the FCA regulations will need to make sure they fully understand how these rules will be affecting their business.

Before being regulated by the FCA, firms will have to request temporary permission, they have until the 31st of March to apply if they still wish to trade from April 1st.

Claims management companies will have to confirm which roles and activities they will be carrying on with and in which sectors they will be doing it. For example, lead generations and representing in financial services or housing disrepair.  By doing this the FCA can see if a CMC has to submit an application for their full authorisation.

The minute a claims management company registers for their temporary permissions they will immediately have to start complying with the FCA standards. Once the temporary permission has been accepted the FCA will then decide to regulate or not. If firms do not comply with the FCA standards it is most likely that they will open an enforcement investigation and imply a enforcement sanction. There are possibilities that the FCA will limit what the firms are allowed to do, including stop handling claims and clients monies.

The FCA is funded by the firms they regulate and claims management companies can be asked to pay for their services in different ways; by application fees, which is a one off fee when they apply, or by periodic fees, which is an annual charge.

Application fees are applied when firms are to be authorised by the FCA, they must pay a fee towards the processing of their application. Periodic fees are to be paid for the yearly cost of the firms regulations. These fees are calculated on revenue, so the more money the company earns the higher their fee is.

Claims management companies will also have to pay fees for the use of the Ombudsman services.

For those firms who are already authorised by the FCA there will be applications for a variation of permission, which will add the claims management as a permission. Only 50% of the application will need to be paid, as they have already been established in satisfying the FCA standards.

As stated above, the FCA have implemented both new and different rules that need to be read, understood and abided by from the CMC.

Each claims management company, like others, have a management body, such as; a director, sub directors, and so on. These people will have to be assessed by the FCA on their skills, their experience and their suitability during the application process. The FCA have introduced what they call “new standards of professionalism” and will hold individuals accountable for their actions.

After the authorisation of a firm, the FCA will have to make sure that the claims companies are complying with the rules and meeting standards. To be able to do this there will be firm visits and desk based analysis for individual companies. Depending on the outcome of the visits the FCA can decide whether there is a supervision problem within the work space, where they can supervise themselves over time, or if they need to open an enforcement investigation and enforce sanctions for misconduct.

There may be times where the FCA has to request information from firms, where they will publish a report and then explain want they want out of them. These requests can also lead to enforcement actions.

Something that we can agree is a great aspect of the FCA is, they will guide a firm by helping them see how they need to meet their standards, and how they must apply some changes in the way that they run their business. For firms who have been run for many years by the claims management regulator, this could lead to dramatic change.

If there are any questions you have regarding a claims management company that you are working with, Timeshare advice may be able to help.