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Regulatory update: The FCA’s ‘Dear CEO’ letter to Claims Management Companies

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Background

On the 4th June 2019, the FCA published a ‘Dear CEO’ letter, aimed at the heads of UK Claims Management Companies (CMCs – a sector which recently came under the FCA’s regulatory scope), making clear the high expectations it has of the sector and its noted disappointment in continued poor practice.

The FCA states that it has recently seen an “increase in problem cases” and “wants to ensure customers’ interests are protected.” Some of the issues identified include:

  • CMCs acting for their customers without getting their appropriate consent or completed letters of authority
  • CMCs submitting letters of authority and claims in fictitious customer names
  • No evidenced relationship between the customer and the financial service provider receiving the claim
  • CMCs’ financial promotions not complying with the FCA’s rules

The FCA has reiterated the fact that the regulation of CMCs covers a much broader range of activities than firms seem to currently appreciate. It is possible that firms are seeking to push the boundaries of regulation and are testing the regulator’s patience as a result. The tone of this letter leaves no room for doubt: CMCs must understand how and where they are regulated and amend their operational processes accordingly.

The 'Dear CEO' letter details the areas that come under FCA regulations, including "seeking out, referrals and identification of claims or potential claims and advice ... in in relation to a financial services or financial product claim.”

Considerations for firms

An area where CMCs seem to be pushing the boundaries a bit too far is in carrying out free PPI checks. It appears that a number of firms are failing to comply with the rules set out in the Claims Management: Conduct of Business sourcebook (CMCOB).

The regulator also calls on firms not to pursue or make claims if they know, or “have reasonable grounds to suspect”, such claims may be “fraudulent, frivolous or vexatious”. Firms need to double and triple check that they can prove the merits of each and every element of a potential claim before pursuing it, as chasing it without doing so will result in lost time, frustration and poor outcomes for all stakeholders involved.

Firms in this sector are also expected to be operationally resilient, with the staff, expertise, systems and controls needed to fully service customers. Firms that fail to prove they have appropriate non-financial resources may be refused authorisation as they have not met so-called "threshold conditions".

Financial promotions are another trouble area called out by the regulator, as they are likely to be the first “point of contact” that customers have with any firm. What is often overlooked in these discussions is the fact that even passive promotions, such as existing websites and social media activity can be financial promotions and are, thus, required to abide by the regulations set out by the FCA.

The letter outlines a number of failings in regards to regulated promotional activity that could and should be corrected through a concerted change to the firm’s marketing effort. Some of the most prominent issues around promotions include CMCs offering services on a “no win, no fee” basis without setting out the fees they charge, failing to identify themselves as CMCs and giving customers the impression that they would receive better outcomes through their services than through statutory schemes. Perhaps one of the simplest, and thus most concerning, failings identified is that some CMCs are still referring to the Claims Management Regulator as the regulator of the sector. This is no longer the case.

Next Steps

Since the 1st April, the FCA has been the regulator of the claims management industry across England, Scotland and Wales. Firms entering this space will need to apply for appropriate authorisation and comply with the regulation as laid out in PS 18 / 23.

It must be remembered that different activities may require different authorisations or permissions. Firms should seek confirmation from the FCA on their responsibilities in this regard.

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