Claims management to be regulated by FCA
Written by Charlie Palmer on 10/08/2018
HM Treasury consults on secondary regulations relating to claims management regulation. HM Treasury has published last month a consultation on draft secondary regulations relating to claims management regulation. The consultation seeks comments on draft regulations that will enable the transfer of claims management regulation to the FCA, with a focus on the scope of that regulation. It also extends FCA regulation of CMCs to Scotland. It closes to comments on 1 June 2018. 


Regulated activities
The government proposes to largely retain the scope of claims management regulation, which is currently set out in the Compensation Act 2006, with one significant change. The current regime relates to activities for six sectors, with a single permission covering all regulated conduct across any combination of activities and sectors. 

Under the new regime, the government proposes that there should be seven different regulated activities.   This will certainly help firms like IFAC who make a living from interpreting the bewildering descriptions relating to consumer credit to firms doing mortgages, and it looks like the FCA will have Seven streams of Claims management activities, with, perhaps any combination of the seven – making a total possible combination of 49 different types of claims management licence.  Never underestimate the FCA’s ability to complicate the simple.

Each CMC will require separate permissions depending on the specific activities and sectors that they wish to operate in. Depending on firms' specific business models, some CMCs may require just one permission, while other CMCs may require several permissions. The proposed permissions are:

Seeking out, referring or identifying claims, or potential claims.
Advising, investigating or representing in relation to personal injury claims.
Advising, investigating or representing in relation to financial service and product claims.
Advising, investigating or representing in relation to employment claims.
Advising, investigating or representing in relation to criminal injury claims.
Advising, investigating or representing in relation to industrial injury disablement benefit claims.
Advising, investigating or representing in relation to housing disrepair claims.

Claims made under section 75 of the Consumer Credit Act 1974 are within the scope of the FCA's claims management regime.  Section 75 is something that all financial advisers should be aware of.  This part of the act makes all parties to a transaction equally liable – hence you can sue Visa for failings of your travel agent when you get left behind in the Benidorm film-set by an airline that’s gone bust.  So you now have the added excitement of complaining to FOS as well as to ABTA.

Temporary permissions regime
A temporary permissions regime will be in place for 15 months from the date of transfer to the FCA. All firms with a valid CMC licence under the current regime will be eligible to register for the regime. While operating under temporary permissions, firms will be able to operate in the same way that they operate a single permission, as they do currently under the current regulator, but will be required to abide by all relevant FCA rules.

Firms that wish to obtain a temporary permission will need to notify the FCA of their intention to do so by the day before transfer to the FCA, as well as paying the necessary fees. Firms that fail to do this will no longer be able to operate legally once the transfer has happened, although they could submit an application as a new market entrant after that date.

Firms will be given different application periods and a firm's application for full authorisation by the FCA must be made by the deadline of its application period. The FCA will set out when and how firms apply for full authorisation and will publish full details of the application window in due course.
For firms carrying on a new regulated activity, the government is proposing that they should still be eligible to register for the temporary permissions regime to ensure they do not have to cease trading.

Comment
There are currently 3,000 claims management companies in the UK.  Most operating in the IFA environment are actually IFAs or former IFAs or generating leads for IFAs.  Unsurprisingly, they don’t like to admit as much!  But this legislation is tricky for IFAs.  Often when taking over a new account it is hard to deny that a claim for misselling is, in effect, a free review service offered by FOS.  They will investigate the past for no cost and provide you the customer with an intendent report, which may even mandate compensation.  If IFAs assist with this service by way of their profession, then they are effectively managing claims and need regulation for this activity.  So the 3,000 number could explode!  The FCA’s remit and responsibilities continues to expand!

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