FCA consults on proposals to regulate claims management firms

The Financial Conduct Authority (FCA) has issued a joint consultation paper – Claims management: how we propose to regulate claims management companies (CP18/15) (the Consultation) with the Financial Ombudsman Service (FOS) setting out draft proposals on how the FCA intends to authorise and regulate claims management companies  (CMCs).

This Consultation will be of interest to:

  • CMC’s operating in England, Scotland and Wales.
  • Organisations that are not CMCs but have the potential to be affected by them

Scope of changes

  • The regulation of CMCs will transfer to the FCA on 1 April 2019 for those CMCs that are established in, or provide services to customers, in England Wales and Scotland.
  • CMCs that are currently authorised by the Claims Management Regulator (CMR), or that are currently unregulated but fall within the FCAs new regime, and that want to carry on business after 1 April 2019, will require a temporary permission from the FCA. Notifications must be sent to the FCA between 1 January and 31 March 2019 together with the relevant fee. Applications for full authorisation are to be submitted after 1 April 2019 in one of two windows. CMCs will be advised which window is applicable to them.
  • Six new regulated activities across six claims sectors transposed into seven permissions. One permission will cover lead generation in all sectors, with the remaining six being sectoral permissions.
  • Conduct standards to be set out in a new Handbook sourcebook called claims Management Conduct of business sourcebook (CMCOB) stipulating such things as mandatory fourteen day cooling off periods, recording calls and ensuring advertising is clear and not misleading.
  • A further review and possible change to the fees cap on CMCs.
  • A prohibition on cold (nuisance) calls without customer consent.
  • Extension of the SM&CR regime to CMCs following further consultation.

Dispute resolution and enforcement

The FOS will be responsible for resolving disputes concerning CMCs and the Consultation proposes extending the voluntary and compulsory jurisdiction of the FOS, bringing CMCs into the compulsory jurisdiction. Those CMCs outside the regulatory regime will have access to the voluntary jurisdiction. The complaints handling standards contained in DISP will also extend to CMCs.

CMCs will be subject to the requirements of the Enforcement Guide and the Decisions and Procedure and Penalties Manual. Unlike the CMR, the FCA has powers to compel disclosure of information and firms should update their record retention policies and procedures.

Next steps

CMCs will need to review their current permissions and apply for temporary authorisation by 31 March 2019. New entrants to the CMC market thinking of making an application to the CMR in early 2019 may wish to wait and make their application for full authorisation to the FCA after 1 April 2019.

CMCs will be subject to more stringent supervision, to include:

  • enhanced prudential and reporting requirements
  • pre and post-sale disclosures
  • segregation of client money, and
  • due diligence requirements on third party lead generators.

Existing CMCs will need to demonstrate that they have the necessary competence to operate in its chosen sector. In addition to CMCOB and the threshold conditions set out in COND, CMCs will be subject to certain requirements of GEN, SYSC, SUP and CASS.

Therefore, CMCs should review their current internal systems and controls, procedures and policies to ensure they comply with the new requirements, performing gap analysis as appropriate.

 

Cat Dankos
Cat Dankos
Regulatory Consultant
Email
+44 20 7466 7494

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Filed under Announcements, FCA, Herbert Smith Freehills, Regulatory Reform, Sector Updates by Herbert Smith Freehills, UK

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