horwich farrelly

Bringing Claims’ Management Companies into line

December, 20, 2018

Hot on the heels of the Privacy and Electronic Communications (Amendment) Regulations 2018 which came into force on 17 December, the Financial Conduct Authority (FCA) has published a new set of rules and fees that will apply to all claims management companies (CMCs) when it takes over their regulation in April 2019. The rules will apply not only to England and Wales but also to Scotland. This will hopefully reduce the number of CMCs that have migrated across the border in the hope of escaping this level of regulation.

The aim of these rules is to ensure that: ‘’CMCs are trusted providers of high quality, good value services that help customers pursue legitimate claims for redress, and benefit the public interest.” They include provisions that will strengthen redress and ensure that CMCs work to a common set of standards, with a focus on high standards of conduct. This is expressly a response to concerns that in the past some companies have engaged in high pressure selling and failed to provide clear information on the fees they charged. A starting point is that all CMCs will, at the outset, be required to prove that they comply with threshold conditions and thereafter they must conduct business strictly in accordance with the new rules. This includes being satisfied that any lead generator from which work is referred is also compliant.

All CMCs will be required to record and retain customer telephone calls for a year after their final contact with a customer. This is intended to capture communications from the first contact call through to the conclusion of the claim, or the conclusion of the handling of any complaint, whichever is the later.

CMCs will be able to apply for temporary permission to operate from January 2019. This will allow them to continue operating until they are fully FCA-authorised during one of two waves running from April until the end of July.

CMCs that are set up or serving customers in England, Wales and Scotland must apply for the permissions which cover their activities in the relevant sector. There will be one permission for lead-generation activities covering all the sectors, and six sectoral permissions that cover the activities of advising a claimant, investigating a claim and representing a claimant. Of immediate relevance to insurers will be the sector relating to claims for damages for personal injuries or death, including advising, investigating or representing in relation to a personal injury claim. The full definition of this category comprehensively covers each and every possible aspect of a claim for personal injury.

There has also been some beefing-up of the rules from those initially proposed, including:

  • Lead generators must spell out in their promotional material what is meant by the term ‘no win, no fee’, as well as being transparent in relation to all aspects of charging.
  • There are pre-contract disclosures requirements including that CMCs clarify whether their fee is based on the gross or net amount of the compensation award; clarifying that CMCs must ask the customer if they know of other methods to pursue their claim, such as legal expense cover; requiring that CMCs get a customer’s consent before charging costs that were not disclosed upfront; requiring the CMC to ask the respondent and customer if they are aware of an outstanding liability which any compensation could be off-set against; requiring CMCs to ask the customer whether the customer is bankrupt or in an Individual Voluntary Arrangement (IVA) or similar arrangement.
  • There are changes to ongoing disclosure requirements including expanding the FCA’s guidance to include further examples of what constitutes a ‘material development’ that must be notified to the customer; requiring CMCs to notify and obtain consent from their customers for any significant steps they intend to take to progress the claim where more than six months has passed since they last notified and obtained consent from the customer.
  • There are changes to the FCA reporting requirements including asking an extra question to collect figures for client money held for more than 5 days, apart from when a cheque or other payable order has been made, but not banked.

Coupled with the restrictions on cold-calling, these rules should make it far harder for CMCs to operate other than in a customer’s best interests. However, as we have commented before, all of this is going to be dependent on the Information Commissioner’s Office, the FSA and where relevant the Law Society/Solicitors Regulation Authority adequately policing claims management activity.

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