The Financial Conduct Authority (FCA) has published draft rules outlining how it will regulate claims management companies (CMCs) when regulation passes to the body on April 1 2019.
Following a review of CMC regulation commissioned in 2015, the government announced that the FCA would take over regulation of CMCs, including those in Scotland which are currently unregulated.
The FCA’s proposals will require CMCs to provide a potential customer with a short summary document containing important information such as an illustration of fees charged and an overview of the services the CMC will provide. This document will need to be provided before any contract is agreed.
CMCs, which are popularly known for the work they carry out regarding PPI complaints, will also need to highlight any free alternatives to using the CMC, such as ombudsmen schemes, in marketing material and pre-contract disclosures.
The regulator said that CMCs that buy “lead lists” from third parties will be required to carry out due diligence to ensure that the leads have been obtained legally and firms will have to keep records of this. The FCA is also proposing that CMCs will have to record and keep all calls with customers for at least 12 months.
Other requirements on firms will include a requirement for firms to hold capital linked to the type of business they undertake and further new requirements to protect any money firms hold on behalf of clients.
The FCA has also set out its approach to authorising both existing and new CMCs. Firms will need to notify their intention to register for temporary permission and pay the relevant fee to the FCA before April 1 2019. Firms will then need to go through the FCA’s authorisation process.
New firms will need to decide whether to begin their authorisation process with the Claims Management Regulator or wait and submit an application to the FCA after April 2019.
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 (June 5) are integral to achieving that aim.”