Financial regulators have insisted they expect claims management companies to be transparent with customers as they enter life under a new regulator.
The Financial Conduct Authority today assumes responsibility for CMCs, taking over from the Ministry of Justice, and is expected to bring a greater level of scrutiny to the much-criticised sector.
More than 900 CMCs have registered for ‘temporary permission’ to continue operating while they go through the FCA authorisation process.
New requirements include due diligence on lead generation and rules to prevent firms encouraging customers to make fraudulent or vexatious claims. CMCs must provide clear, upfront information to customers about the fees they charge and services provided, and they must tell customers about free alternatives such as the Financial Ombudsman Service in their advertising.
Customer telephone calls must be recorded and retained for a year after the final contact with that customer, to monitor any high-pressure selling.
Jonathan Davidson, executive director of supervision at the FCA, said the regulator regards CMCs as playing an important role in helping people secure compensation, but that they must obey the rules. ‘The new regime has consumer protection and CMC professionalism at its heart,’ he said. ‘It will mean that customers will be protected from claims management cowboys and get a better deal.’
Sanctioning powers remain the same under the new regime, including the power to refuse to authorise a CMC if there is serious misconduct.
From today, the Claims Management Ombudsman, a Financial Ombudsman service, will also take on responsibility for resolving complaints about CMCs. This has been inherited from the Legal Ombudsman and should help to alleviate pressures on that organisation.
The changes were prompted by concerns about misconduct by CMCs which brought about a government review and the subsequent Brady report.