On 1 April, the Financial Conduct Authority took over regulation of claims management companies (CMCs).
If you work in claims management, what does this mean? What will the impact be, and what does your firm need to do to ensure you’re compliant?
FCA regulation of the claims management industry
Claims management firms that wanted to continue operating once the FCA took over regulation had to register for temporary permission by 31 March this year, to enable them to continue operating while they go through the FCA authorisation process. Over 900 firms applied for this permission.
The FCA hopes that its regulation will ‘boost consumer protection and the professionalism of the sector by driving up standards in the industry’ and encourage CMCs to be ‘trusted providers of high quality, good value services’.
Its requirements are designed to ‘benefit consumers by ensuring that CMCs give people the information they need to make informed decisions’.
What do firms need to do to comply?
Announcing the start of its regulation, the FCA reiterated its ‘range of tools and powers’ that can be used if firms do not comply with its rules.
In the words of the regulator:
‘This may involve requiring a firm to change its business practices (eg ensuring its communications with consumers are clear, fair and not misleading), imposing a financial penalty or refusing to authorise a firm if there is serious misconduct.’
The new requirements under FCA authorisation include:
- due diligence on lead generation and rules to prevent firms encouraging customers to make fraudulent, frivolous or vexatious claims or claims which have no good basis
- providing clear, upfront information to customers about the fees they charge and the services they will provide
- giving customers a summary document about the services they will provide before the customer signs a contract
- telling customers about free alternatives such as the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS), including in advertising
- recording and retaining customer telephone calls for a year after their final contact with a customer will reduce the chances of high-pressure sales techniques and support robust resolution of customer complaints
What does compliance mean in practice?
If you’re a CMC that now falls under FCA governance, how can you ensure you meet the regulator’s expectations?
- Build a governance-oriented culture. Many of the FCA’s requirements will be met if you operate with a strong ethical focus.
- Make sure your communications are up to scratch. The FCA’s financial promotion rules include strict requirements on Treating Customers Fairly.
- Make sure your marketing and customer are ‘fair, clear and not misleading’.
- If the world of regulated financial promotions is new to you, read up on what constitutes a financial promotion.
- Getting Compliance team approval for promotions is something newly-regulated firms have to get to grips with.
- Make sure regulatory compliance is mandated in your processes.
A new world of regulation for CMCs
You can read the FCA’s announcement on CMC regulation in full here.
The world of regulated financial services can be full of jargon and technical terminology.
If you’re new to the world of FCA regulation and want a quick introduction, please contact us.