Claims’ Management Companies (“CMCs”) offer legal claims and complaint management services to members of the public. Historically, CMCs work to bring large numbers of complaints against financial services companies and recent areas of focus have been PPI and interest rate hedging mis-selling complaints. Whilst some CMCs are reputable, others try to rally business through unsolicited calls/texts and charge high fees, often backed by a policy of “after the event” insurance, for handling complaints that would otherwise be free for counsumers to progress via the Financial Ombudsman Service (“FOS“) .
An independent review into the regulation of CMCs was undertaken and the Government accepted the recommendations outlined as a result of that review. Importantly, responsibility for regulating CMCs will be transferred to the Financial Conduct Authority (“FCA”). There has been recent progress in this area, as the Financial Guidance and Claims Bill (“FG&C Bill”) was announced in the Queen’s Speech on 21 June 2017. The FG&C Bill is currently at the Committee Stage in the House of Lords. One of the aims of the FG&C Bill is to transfer regulatory responsibility for CMCs to the FCA.
The relevant clauses in the FG&C Bill will:
- make amendments (by way of secondary legislation) to the Financial Services and Markets Act 2000 (“FSMA”) to enable the FCA to regulate the activity of CMCs as a “regulated activity” under FSMA;
- give the FCA the power to impose a cap on the fees that CMCs can charge for their services;
- Include a power for the Ministry of Justice (as current regulator of CMCs) to put into place a transfer scheme for (i) the assets/liabilities of the Claims Management Regulation Unit and (ii) staff, to the FCA; and
- In addition, provide for the transfer of responsibility for dealing with consumer complaints about CMCs from the Legal Ombudsman to the FOS.
The changes that are due to be implemented under the FG&C Bill are likely to greatly improve the position of consumers, who should no longer be targeted by unsolicited campaigns (because CMCs will be subject to the FCA’s rules on marketing) or be charged steep fees to pursue a financial services complaint due to the proposed fee cap. For financial institutions, the wave of speculative claims might also decrease. Broadly speaking, regulation of CMCs by the FCA will see a shift away from CMCs focussing on their own profit, towards fulfilling their intended purpose as firms who help consumers to resolve meritorious complaints in a cost effective manner.
However, it is worth noting that the FCA is seemingly not likely to rush the implementation of the new regime and it will take time for the secondary legislation that will supplement FSMA (as referred to in the first bullet point above) to be finalised. Until such time as both of these steps are concluded, CMCs may continue to operate in their present form. This is unfortunate, in light of the recent FCA announcement that the final deadline for making a new PPI complaint will be 29 August 2019, which we discussed in further detail in a blog post in May. This may well mean that consumers experience significant numbers of approaches from CMCs regarding possible historic PPI policies and claims, as CMCs rush to bring all possible claims ahead of Augsut 2019 deadline.