The Financial Conduct Authority became responsible for regulating the claims management industry on 1 April, with more than 900 firms registering for temporary permissions until they gain full authorisation.
Financial mis-selling has seen a rise in the number of firms specialising in helping victims seek redress. But concerns about misconduct sparked a government review that led to a change in oversight.
Claims Management Companies (CMCs) were previously regulated by the Claims Management Regulator, which is part of the Ministry of Justice.
Through the change, the FCA aims to boost consumer protection and the professionalism of the sector by driving up standards in the industry.
The watchdog said that it “wants CMCs to be trusted providers of high quality, good value services that help consumers pursue legitimate claims for redress”.
Despite falling under the FCA, the Financial Services Compensation Scheme confirmed to International Adviser that CMCs will not contribute to its levy.
The FCA requirements 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 FSCS, including in advertising; and,
- 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.
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said: “Today brings a new regime and rules for regulating the claims management industry.
“Many CMCs play an important role in helping to secure compensation for customers, including for those who otherwise might not make a claim.
“The new regime has consumer protection and CMC professionalism at its heart. It will mean that customers will be protected from claims management cowboys and get a better deal.”