People connected with companies that breach financial services rules will be prevented from setting up claims management companies to seek compensation for their own poor conduct under new rules proposed today. The Financial Conduct Authority said its proposals would stop the practice of ‘claims management phoenixing’.
Regulators say individuals from financial services firms that go out of business are reappearing in connection with CMCs and charging consumers for seeking compensation against the former firm.
The FCA has taken action against certain individuals in the past two years. In one case the managing director of a financial advice firm provided inadequate service to consumers and was banned from acting as a company director - only for his wife to set up a CMC and claim from than £5m from the firm. The FCA refused the authorisation of the CMC as it did not meet compliance standards, but now wants rules to stop claims management phoenixing across the market.
Sheldon Mills, executive director of consumers and competition as the FCA, said: ‘Consumers should be able to choose to use a CMC to help them claim compensation from the FSCS. But paying someone to provide help who is connected with the firm that caused the consumer’s loss is wrong, particularly where the firm had a responsibility before winding up to help its customers to obtain compensation.
‘Our proposals are designed to put an end to this practice and to increase consumer trust and confidence in financial services firms, CMCs and the redress system.‘
The FCA became responsible for the regulation of claims management companies in 2019. Since then, the FCA has dealt with 979 applications for authorisation: 656 firms have been approved, while 24 have been refused or rejected.
In addition, 168 applications have been withdrawn with around 75% of these withdrawals occurring following FCA scrutiny, which showed the firms were unlikely to be ready, willing and organised.
Consultation on the new proposals is open until 21 June.