Qamar Anwar of First4Lawyers looks ahead to the FCA taking over the regulation of CMCs
I have to start this article by paying tribute to Kevin Rousell, head of claims management regulation, who so sadly passed away recently.
Rousell took on a difficult job, under considerable pressure, to deliver the regulation of claims management companies (CMCs), and it is a testament to his hard work that what the Financial Conduct Authority (FCA) will shortly take over is in such good shape. More than that, he was a good, fair man with a subversive sense of humour who will be much missed.
We are now a little over two months until the FCA begins regulating CMCs. For sure, its powers mean it will be tougher than what exists now, with executive director Jonathan Davidson saying recently: “The new regime aims to drive up standards in a sector whose reputation has been tarnished by some companies engaging in high-pressure selling and by failing to provide clear information on the fees they charge.”
So no longer can CMCs expect different treatment—the FCA will apply the same kind of approach to us that it does to other business.
But FCA regulation cuts both ways, and it was encouraging to see the FCA also tell insurers and others that it expects firms dealing with claims “to treat CMCs in a professional manner”. It confirms, if it needed confirming, that properly run CMCs are a recognised, respected and integral part of the industry.
I see much of the regime—the detail of which was only confirmed in December—as positive. Requiring CMCs to seek separate permissions for each regulated sector for those CMCs that want to go beyond marketing and referring claims should ensure that people only operate in areas they understand. With the Civil Liability Act reforms likely to encourage some CMCs to get into claims handling, this is an especially good thing.
Upfront clarity on fees and services the CMC will offer is to be welcomed too—those in the financial services sector in particular also face having to highlight any free alternatives to using them, such as ombudsman schemes.
It is positive too that, in the fight to combat cold calling, CMCs that buy lead lists from third parties will have to carry out due diligence to ensure that they have been obtained legally and maintain records for inspection.
It wasn’t all good news, though, and we are disappointed the FCA rejected our argument that those operating in the personal injury sector should pay less towards the Financial Ombudsman Service than financial services CMCs because we generate just a very small proportion of complaints.
I appreciate that this might be administratively tricky, but that doesn’t mean it shouldn’t happen. The FCA said that low numbers of complaints were “not necessarily a good indication of a lower risk of consumer harm”—I hope that once the regulator sees that, in relation to personal injury, this is exactly what it means, it will revisit the issue.
So now we enter the brave new world. Well-run, ethical CMCs have nothing to worry about, although for the larger operators like us, regulation will cost more than it used to. But if it means driving bad practice out of the industry once and for all, and enhancing its reputation as a result, then that will be a price worth paying.