On 1 April 2019, the FCA published a number of forms and guidance notes for firms to register as Claims Management Firms.
The forms are:
The publication of the new forms coincides with the FCA's assumption of responsibility for the regulation of CMCs, which took effect on 1 April 2019.
Claims management for the IFA and MGI broker
From what IFAC have read and understand many IFAs and MGI brokers do NOT need additional permission to help clients complain in their ordinary business.
IFAC believe this is aimed at is “claims to gain” type firms…..
The actual permissions available to IFAs are nothing if not complex – a common theme with regulation in the year 2019
These are the seven different permissions available
CMCs that are authorised by FCA must follow FCA rules.
CMCs must not:
Points for consideration prior to authorisation
Do you want to represent customers in front of a tribunal?
Do you want to deal with vulnerable consumers? (potentially anyone, and certainly anyone over the age of 70) if yes, please show the set relevant procedures.
Pre-contract information needs checking for compliance prior to submission to FCA. This includes, but is not limited to, the terms and conditions of the contract, details of any referral fee paid to a third party for the introduction of the claim and an outline of the CMC’s complaints procedure.
Draft Customer agreements need to be in place.
CMCs will have to record all calls with customers and keep the recordings for a minimum of 12 months, including where a lead isn’t generated, if there was no further contact with a customer. If a customer makes a complaint in the 12 months following. See CMCOB 2.3 in FCA rulebook
These are seven the different permissions available but FCA will want you to justify every one, with worked up business plan and numbers.
Don't expect an easy ride! You'll need professional oversight from a firm like IFAC.
All CMCs will be subject to FCA rules on financial promotions. These include rules to make sure materials are clear, fair and not misleading. It is almost certain that a CMC will need to find a process to check promotions prior to using them. IFAC provide that oversight for over 500 regulated firms as part of their membership package.
CMCs must make reasonable enquiries into alternative options available to the customer to pursue the claim, such as via legal expenses insurance.
CMCs must be able to show that the customer understands the contract they are agreeing to. To get the client’s agreement is not sufficient. Nor is it good enough if you are 100% convinced that the client understands the contract. You need to be able to show this to a regulator. That is ten times more difficult.
CMCs on fees paid to third parties that need to be disclosed. All fees disclosed under the existing regime will still need to be disclosed under the new regime.
FCA classified CMCs into 2 groups based upon their annual reported turnover in the year ending on their Account Referencing Date (ARD):
CMCs subject to the client money rules must appoint an auditor to produce a report on client assets.
CMC’s must hold a minimum level of eligible capital to meet the prudential resources
requirement, which is the higher of: £10,000 for Class 1 CMCs and £5,000 for Class 2 CMCs, from 1 August 2019. If the CMC holds client money they will need to hold an additional £20,000 in eligible capital.
The cost is a minimum of £550 per annum, (turnover up to a £1m) plus £600 to apply.
IFAC would charge most CMCs £400 per month to operate as their compliance manager, sponsor an application to the regulator, and to audit the regulated firm.
IFAs might note that many activities relating to claims management are covered by their existing permissions. This is a more precise set of exemptions below
Brokers who refer (for a fee or commission) uninsured personal injury losses to a solicitor or to a claims management business are not covered by the exemptions above.
SPECIALIST IN CLAIMS MANAGMENT