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Claims Management Companies clampdown: More tough rules and powers to fine

  • United Kingdom
  • Financial institutions - Briefings and articles

10-01-2014

CMC clampdown:  More tough rules and powers to fine

The Ministry of Justice (“MoJ”) recently announced that both it, and the Government, are coming down hard again on rogue claims management companies (“CMCs”). 

New powers from the Government to issues fines, alongside new rules from the Claims Management Regulation (“CMR”) Unit (part of the MoJ), demonstrate that these bodies are continuing to get tough on irresponsible practices by CMCs.  The responsibility for handling complaints about CMCs will also be transferred out of the CMR Unit and over to the Legal Ombudsman, freeing CMR Unit resources.  

Financial Services (Banking Reform) Bill

The CMR Unit will be given new powers to issue fines to CMCs under the Financial Services (Banking Reform) Bill (currently progressing through Parliament and expected to come into force next year).  Fines will be issued for providing misleading advertising and information; providing a poor quality service; using information gathered by unsolicited calls and texts; and generally failing to follow industry rules.

The CMR Unit already has the power to remove licences to trade and shut down CMCs for good.  “Issuing fines will be an important new weapon for us” said Kevin Rousell (head of the CMR Unit), adding “it is our absolute priority to protect customers and we are making certain that firms are following the rules.”

The Bill will also transfer the responsibility for handling complaints against CMCs over to the Legal Ombudsman.  This should allow the CMR Unit to concentrate more on regulating and controlling poor quality and bad practice by CMCs, and overall will provide consumers with better redress for poor service.    

CMR Rules

 The new rules published by the CMR Unit, will mean that CMCs:

  1.  must audit their own data and confirm how the information they use has been gathered; 
  2. are under a duty to ensure that their claims have a realistic chance of success; and
  3. must ensure that their claims and allegations are backed up by full evidence.

Point 1 should help prevent unsolicited texts/calls and illegal marketing, and points 2 and 3 should reduce unsubstantiated claims with which banks are still inundated.  These new powers and rules should help reduce such irresponsible practices, allowing banks to pay genuine claims quickly, reducing unnecessary costs and unnecessary delays for genuine customers.    

Regulated claims firms will also see an uplift in their payable fees.  This will fund an increase in the CMR Unit’s enforcement staff, allowing the unit to grow and support the crackdown on rogue CMCs. 

The Government is to also ensure that the CMR Unit is run independently, commissioning a comprehensive review of its governance arrangements, as well as appointing additional independent regulatory experts in non-management roles within the CMR Unit.  

All these changes demonstrate the desire to enforce and uphold the FCA’s three operational objectives: to secure an appropriate degree of protection for consumers; protect and enhance the integrity of the UK financial system; and promote effective competition in the interests of consumers.