The Financial Conduct Authority (FCA) has launched a consultation on the fees it intends to charge claims management companies (CMCs) when it takes over their regulation in 2019.
Application fees will be set at £1,200 for CMCs with turnover of up to £1 million and £10,000 for those above that threshold, according to the FCA’s proposals.
The FCA also wants to set periodic fees according to a CMC’s share of the market.
CMCs with up to £100,000 in turnover will pay the minimum of £1,000. Those with with turnover above that threshold will pay £1,000 plus the variable rate per £1,000 on the balance of their income.
The FCA is also proposing, unusually, to require CMCs to pay their full periodic fee for 2019/20 after they register for temporary permission to operate, which will take place between 1 January and 31 March 2019.
The regulator cited the many upcoming reforms to the claims management environment, including the deadline of 29 August 2019 for the submission of claims relating to payment protection insurance (PPI), as the reason for requiring the first annual periodic fee up front, explaining that some CMCs may need to “adjust their business models to continue providing claims management services for consumers, and some firms may exit the market entirely”.
“There is a strong risk that recovery of the project costs might fall disproportionately heavily on those firms that successfully apply for authorisation and become fee payers from 2020/21 onwards,” the FCA explained in its consultation document. “It would be unfair for firms which take advantage of the regulatory gateway, but which leave within the first year, to pass their share of the project costs to those firms which continue to be authorised by us.”
Andy Kay, director of operations at First4Lawyers, criticised the FCA for this approach. He said: “We have already voiced concerns about the FCA’s ‘one size fits all’ approach to regulating CMCs. This is yet another example of the government not listening to reason and getting it wrong again, and calls into question why they are introducing FCA regulation so late in the day.”
“By their own statement they recognise that the vast majority of CMCs will likely exit the market during 2019 at which point it will be left to those that remain to foot the bill for a regulatory service that was more appropriate to the PPI market than the personal injury market.”
He added: “What’s more the insurance sector, who promote and manage claims services to and on behalf of innocent third parties which, by definition, falls outside of normal insurance mediation activities, seemingly won’t face any fees nor will they face the same regulation. Amidst all the noise from insurers about the activities of CMCs and claimant lawyers, it is often forgotten that they do more claims management than most. We have long held the view 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.”
“The government and FCA need to demonstrate that they understand how the claims management sector works and introduce a funding system that is fair for all, rather than a regime which will disproportionately hit successful, but law abiding, ethical businesses.”
The FCA will take over the regulation of CMCs from 1 April next year. In June, the regulator put a series of proposals up for consultation that will significantly enhance the rules that they must follow. Regulation will extend to Scotland, where firms are currently unregulated.