The Financial Conduct Authority (FCA), which will assume control of regulating claims management companies (CMCs) next April, has published a consultation outlining what could be expected of claims farmers.

Proposals include requiring CMCs to provide a potential customer with a short summary document containing information such as the fees being charged and the services a CMC aims to provide. This document will need to be provided before any contract is agreed.

The proposed regulatory regime heralds a tougher environment for CMCs: the current Claims Management Regulator requires that CMCs charge a ‘reasonable’ fee reflecting the work done. Law firms regulated by the SRA are likely to welcome any action which levels the playing field and imposes equivalent restrictions on CMCs.

Andrew Bailey, chief executive of the FCA, said a well-functioning claims management sector can help provide justice and redress to people who have suffered harm, but added that poor conduct persists.

‘We want CMCs to be trusted providers of high-quality, good-value services that can truly help consumers,’ said Bailey. ‘A key element of our approach to regulation will be ensuring that consumers are both protected and treated fairly.

’Proposed rules may require CMCs to highlight any free alternatives, such as ombudsman schemes, in marketing material and pre-contract disclosures. Due diligence will be needed on so-called ‘lead lists’ from third parties, and CMCs will have to record and keep all calls with customers for at least 12 months. New limits setting minimum cash reserves will be imposed on fi rms that hold capital, based on the type of business they undertake.

In terms of punishing non-compliance, the FCA intends to use fi ning and suspension powers to achieve ‘credible deterrence’ and show there are ‘meaningful consequences’ for breaching the rules.

The FCA says it is alive to the ease with which CMCs can re-emerge as new entities following liquidation or insolvency. New applicants for a licence must pass a fit-and-proper test, and they are unlikely to be authorised if they have any ongoing connections with people involved in serious previous misconduct.

The consultation ends on 3 August.