Qamar Anwar of First4Lawyers on FCA regulation of CMCs and what more can be done to even the playing field
The Financial Conduct Authority’s (FCA) consultation on how the regulator proposes to regulate claims management companies (CMCs) closed recently. Here at First4Lawyers, we were keen to respond. As we have written previously, we have long believed that much of the poor customer service and bad press to date has occurred to those consumers using the services of CMCs operating in the payment protection insurance (PPI) sector, and with a deadline for PPI claims coming into effect less than five months after regulation of CMCs transfers to the FCA, we feel that this action is probably being taken too late to have a positive impact for consumers.
Crucially, we are looking for the FCA to provide clarification to this sector around the regulation of insurance companies in relation to claims management activities. We have long held that general insurers, specifically motor insurers, should be subjected to the same regulatory burden and be required to obtain separate authorisation to carry out CMC activities.
As we are all aware, it is standard practice among motor insurers to offer accident management services to innocent third parties that are involved in accidents with their own policyholders. This cannot possibly be considered to be insurance mediation as this service is offered to the innocent third party who is not a client or policyholder of the ‘at-fault’ motor insurer. There is, therefore, no policy of insurance or contract in place between the insurer and the at-fault party so the offering and provision of vehicle repair and personal injury services are clearly captured as a regulated claims management activity for which the insurer should be subject to separate regulation and fees.
It is not plausible to think that this practice will be allowed to continue under what is to be new, more stringent regulations, and we trust that the final rules will address and deal with this matter. Surely all motor insurers providing intervention services will fall under the same CMC regulatory regime and be required to share the same regulatory costs as all others offering claims management services?
What hasn’t fallen under the scope of this consultation is data mining and cold calling. As the FCA looks to set up a better regulated industry, we’d be interested in any action the regulator proposes to take to clean up these areas. The reality is that regardless of any ban that comes into effect through promised new legislation, the practice of cold calling will be almost impossible to prevent. It is already common practice for those firms whose business model is based on cold calling, spam emails and text messaging to base those operations offshore and therefore outside of the FCA’s jurisdiction. This will simply become the norm for these businesses and the FCA, or indeed any other regulator, will be powerless to stop the practice as more and more firms set up call-centres around the world to circumvent the law.
We feel strongly that the focus has to be on preventing the data being made available in the first instance. For that to happen, the FCA needs to work more collaboratively with the Solicitors Regulation Authority to enforce existing rules around law firms confirming that leads have been acquired legitimately rather than paying lip service to their own regulatory obligations.
Tighter control and regulation of data, specifically that owned by the motor insurance industry, can be the only way to effectively win the battle and remove cold calling from the public domain. We therefore call upon the FCA, as the common regulator of both the insurance and CMC sectors, to take action to investigate and put a stop to these data sharing practices which can cause harm to consumers.
Only last week it was revealed that the cost of this transition to the FCA will be in the region of £17 million. Fresh from having read the FCA consultation paper on fees, depending on where the final Financial Ombudsman levy is set, the proposals contained in the consultation paper would see our regulatory fees increase for 2019/20 by somewhere between 64% and 92%. How can that be right for a business that has a proven record of trading ethically for 10 years?