The Financial Conduct Authority (FCA) plans to ban Claims Management Companies (CMCs) from managing Financial Services Compensation Scheme (FSCS) claims where they have a relevant connection to the claim.
Claims management phoenixing occurs when individuals from financial services firms go out of business, but later reappear in connection with CMCs and charge consumers for seeking compensation against their former firm’s poor conduct by bringing claims to the FSCS.
By stopping CMCs from managing FSCS claims with which they have a relevant connection, the watchdog said this will ensure CMCs are not seeking to profit from past misconduct of individuals connected with the CMC.
The regulator said it wants to ensure that firms have customers’ best interests at heart and are not incentivised to treat customers poorly. The FCA wants firms to take responsibility and put things right for their customers when things go wrong.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Consumers should be able to choose to use a CMC to help them claim compensation from the FSCS. But paying someone to provide help who is connected with the firm that caused the consumer’s loss is wrong, particularly where the firm had a responsibility before winding up to help its customers to obtain compensation.
“Our proposals are designed to put an end to this practice and to increase consumer trust and confidence in financial services firms, CMCs and the redress system.”
The consultation is open for comment until 21 June 2021.