FCA is consulting on draft rules for regulating claims management companies (CMCs) when it acquires regulatory responsibility for them on 1 April 2019.
FCA is focussing on 3 key aspects:
- empowering customers to be confident they have chosen a value-for-money service that is appropriate for their needs;
- ensuring CMCs get redress for their customers in a way that complies with FCA’s rules and ensuring CMCs are properly authorised so they meet a common set of standards; and
- regulation to promote high standards of conduct and that will improve public confidence in the sector.
While FCA is creating its own rules, it plans to carry over many of the existing regulations, particularly those on information disclosure to customers and rules on marketing. For example, CMCs will need to give customers a short summary of important information before agreeing a contract with them, and explaining circumstances in which the customer can pursue the claim themselves, free. FCA will also mandate regular updates from CMCs to customers.
On marketing, CMCs must prominently show the basis on which they will charge, including if it is in a no-win, no-fee scenario.
To combat mis-selling allegations CMCs will have to keep recordings of phone and electronic communications.
Later, FCA will introduce prudential regulatory requirements for the sector. The requirements would relate to the type of business they do, their income, expenditure and whether they hold client money. Those that do hold client money will need to segregate it from their own money and hold it on trust.
The consultation also covers miscellaneous other issues, including:
- requiring CMCs that buy lead lists to do sufficient due diligence to determine whether the lead generator is authorised and has systems and controls in place to comply with data protection legislation;
- the basis on which CMCs will be subject to FCA’s complaints handling rules – and whether the voluntary jurisdiction of FOS will extend to them.
There will be changes to many parts of FCA’s Handbook, including new definitions of “controlled claims management activity” following the necessary legislative changes, a new chapter in CASS, new reporting requirements and a new sourcebook, the Claims Management: Conduct of Business Sourcebook, which will also include the new prudential requirements.
Consultation closes on 3 August.