The government is to raise fees for claims management regulation as it prepares for an exodus of companies from the market.

The Ministry of Justice, which regulates claims management companies (CMCs), plans to raise application fees in 2013/14 by 47% and remove the current cap on annual fees.

The increases are designed to plug a funding hole expected ahead of the banning of referral fees for personal injury from April 2013. The ban is expected to significantly reduce the number of CMCs operating in the sector.

In a consultation document released yesterday, the MoJ said resources were still needed to ensure consumer protection and to police a potential increase in ‘unauthorised trading’.

It added: ‘We need to mitigate now against any contraction of the personal injury sector whilst ensuring that full regulatory costs are recovered and regulation remains adequately resourced.’

The proposals include:

  • Increasing the application fee from £950 to £1,400
  • Removing the annual fee cap of £30,000 for companies with contractual relationship with clients
  • A fee uplift for CMCs in the financial products and services sector.

Companies with a turnover more than £132,653 will pay 0.49% of their turnover in annual fees. For those turning over more than £1m the percentage reduces to 0.332% and companies with turnover above £5m will pay out 0.24%. Fixed fees reduce incrementally for companies with a turnover less than £132,653, with the smallest firms paying a £200 fee.

The document says that attention has recently been focused on malpractice within the financial products and services sector, with 90% of all consumer complaints now related to that area. Authorised CMCs in this sector will be charged an extra 0.125% of their annual turnover, with the uplift capped at £25,000.

The government has also made provision for plans to widen the Legal Ombudsman’s jurisdiction to include complaints about CMCs.

The MoJ said it was unable to confirm when the ombudsman will take on this role, but it will be after next April.

The ombudsman’s office has estimated it will cost £3m to widen its scope to cover recruitment, training, marketing and IT costs. Annual fees for complaint-handling will again be calculated based on turnover and will be capped at £40,000 for each company.

The consultation is open until 18 December, with the new fees coming into force from 1 April 2013.