FCA Regulation To Clean Up Claims Firms

Many companies that deal with financial compensation claims on behalf of consumers and receive a payment for their service, may cease trading due to new regulations.

It has been estimated that up to 80% of claims management firms (CMCs) could close as their regulation has now been assigned to the Financial Conduct Authority (FCA).

CMCs will now have to register with the FCA and abide to FCA strict conduct of business rules.

There is good and bad with CMCs:

• It is believed that around £34 billion was paid out in compensation for mis-sold PPI by banks and that could only be half of the eligible claims.
• It was reported that in November customers had been told by their bank that they never had a PPI policy, only to find out later once CMCs had got involved that the customer did get mis-sold PPI and received a pay-out.

Equally, for many CMCs:

• Generate a large amount of nuisance calls and emails
• Encouraging fraudulent and inflated claims
• Many CMCs charge fees, are not clear about their fees and do not make consumers aware that they could complain direct for free and have the claim independently adjudicated, if needed, by the Financial Ombudsman Service

CMCs now need to apply to the FCA for temporary authorisation, then in the next coming weeks will have to follow the full FCA authorisation procedure, very similar to ones that saw many debt management companies cease trading.  The FCA has reported over 900 CMCs have already applied for the temporary permission to continue to operate.

The following rules apply in England, Scotland and Wales:

• Firms will not encourage customers to make fraudulent claims.
• Customers are given clear upfront details of their fees.
• A summary of the firms services the customer will be receiving before signing up.

Comment

Some CMCs do help consumers with mis-sold financial products and there is clearly a need but equally both consumers and the finance industry itself need to be protected from claims management cowboys.  That said, as Chartered Financial Planners that have studied long and hard to achieve degree level education and qualifications in financial services (on top our usual education routes), we are tired of CMCs and indeed ombudsman adjudicators having little or no financial services knowledge or qualifications.  How can the unqualified judge the qualified?