From 1 April 2019, regulation of claims management companies (CMCs), which act as the middle man between consumers and companies, will switch from the Claims Management Regulator to the FCA. Regulation will extend to Scotland, where firms are currently unregulated.
A FCA review in 2015 found CMCs often helped to secure compensation for people who may not have made a claim. But it revealed customers were often confused about how much they would pay and what level of redress they would receive.
It also found evidence of aggressive or misleading sales tactics.
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.”
The FCA proposals:
- CMCs to provide potential customers with a short summary document including an illustration of fees charged and the services which will be provided before a contact is signed
- CMCs will need to tell customers about free alternative services, such as ombudsman schemes, in their marketing and pre-contract disclosures
- For any CMCs buying ‘lead lists’ from third parties, they will need to carry out ‘due diligence’ to ensure potential contacts have been obtained legally
- They will need to keep records and keep calls with customers for at least 12 months
The FCA will also consult on whether CMCs need to hold capital linked to the type of business they undertake, and is looking at ways for money held on behalf of clients to be better protected.
The proposals are aimed at CMCs already established or serving customers, but the FCA added that new firms will need to decide whether to begin their authorisation process through the Claims Management Regulator or wait to submit an application to the FCA after April 2019.