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FCA slams claims management companies for making up cases under fictitious names

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  • 06/06/2019
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FCA slams claims management companies for making up cases under fictitious names
The Financial Conduct Authority (FCA) has warned claims management companies (CMCs) to clean up their act after it found an increase in problem cases, including those made-up under fictitious names or without customer consent.

 

The regulator is cracking down on the industry through its Dear CEO letter, highlighting a range of concerns with honesty and integrity of operations a key theme throughout.

Earlier this year the Financial Services Compensation Scheme (FSCS) revealed it has been bombarded by a substantial number of mortgage advice mis-selling claims from one CMC with little or no evidence.

The FSCS told Mortgage Solutions it had been in an “ongoing dialogue” with CMCs about how they submitted claims and it intended to become more publicly proactive when it could see such issues arising, in particular using social media.

 

False customer claims

The letter from FCA director of supervision – retail and authorisations Jonathan Davidson highlighted there has recently been an increase in the volume of cases where:

  • CMCs are acting for their customers without getting their appropriate consent or completed letters of authority,
  • CMCs are submitting letters of authority and claims in fictitious customer names,
  • there is no relationship between the customer and the financial service provider receiving the claim, and CMCs’ financial promotions do not comply with our rules.

It added that those issues raised in it were not a complete list of its concerns and warned CMCs to take notice or it would be forced to take action.

The FCA took over regulation of the claims management sector in April and any firm not authorised by it must stop handling claims.

To be authorised by the FCA, the businesses must demonstrate they meet minimum standards to operate.

 

Do not pursue fraudulent cases

The FCA emphasised that CMCs must not act for customers unless they have consent, which should be documented by a signed letter of authority and that they must comply with all relevant data protection legislation.

“You must also act honestly, fairly and professionally in the best interests of your customer,” it said.

“You must also conduct your business with integrity and with due skill, care and diligence.”

On the subject of making claims, the letter again reminded CMCs that they should not pursue cases if firms know or suspect they maybe “fraudulent, frivolous or vexatious”.

“Claims must have a good base and firms should investigate the existence and merits of each element of a potential claim,” it said.

“You must ensure that you can comply with our requirements on the steps you take before you act for a customer or submit a claim.

“You must not make or pursue a claim if you know or have reasonable grounds to suspect the claim does not have a good arguable base or is fraudulent, frivolous or vexatious.”

 

Fair, clear, not misleading

The regulator warned that marketing and promotional activities must be fair, clear and not misleading, and that some CMCs are not meeting the FCA’s requirements.

It noted a range of issues which it has seen on websites and other financial promotions, including:

  • stating that the CMC offers their service on a ‘No win no fee basis’, but failing to set out the fees that the firm charges,
  • appearing to give consumers the impression they would get a better outcome using the firm, where an ombudsman or compensation scheme is available,
  • fail to state that the customer could make a claim to an ombudsman or compensation scheme, such as the Financial Ombudsman Service, without using the services of the firm, and without paying a fee.

“We have the legal power to ban financial promotions or adverts – including websites – that do not meet our requirements. We can also publish and make public any action that we take using this power,” the FCA said.

 

Do not ignore

Finally, the regulator warned CMCs not to ignore the letter as it could impose requirements on the firm or even refuse to authorise it altogether.

“We will look at a range of evidence when we make these assessments,” it warned.

“For example, high levels of Financial Ombudsman Service uphold rates for complaints against your firm or low levels of uphold rates for complaints you have submitted for your customers may indicate your firm is not complying with our rules.”

 

 

 

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