Regulators have imposed new advertising rules on claims management companies (CMCs) after finding ‘widespread’ poor practice in the industry.

Firms regulated by the Financial Conduct Authority will have to identify themselves as a CMC in all promotions, and prominently state if a claim can alternatively be made to an ombudsman or compensation scheme without requiring their input.

The FCA will also require CMC to include ‘prominent’ information about upfront fees and termination fees the customer may have to pay.

Since taking over regulation of the sector in April, the FCA has reviewed more than 200 advertisements in various media and concluded that many companies are failing to help consumers make an informed choice.

Some gave the impression that consumers would get a better outcome if they used the CMC, while others used terms like ‘no win no fee’ but gave scant information about what people would actually pay.

The FCA has already written to companies to remind them of its financial promotion rules, and has used formal banning powers where a CMC appeared to be using a celebrity endorsement without the individual’s permission.

In a statement issued last week, the regulator said that firms flouting rules on promotions would be ‘unlikely’ to meet the threshold conditions for continuing authorisation.

Jonathan Davidson, executive director at the FCA, said many CMCs play a ‘significant role’ in helping consumers to secure compensation, but those using misleading, unclear and unfair advertising practices to get business was ‘completely unacceptable’.

He added: ‘We won’t hesitate to take action where we consider that customers are being misled or otherwise treated unfairly by poor advertising. Firms should also understand that we will take their compliance with our rules on financial promotions into account when considering applications for full authorisation.’

The FCA’s takeover of CMC regulation from the Ministry of Justice has been credited with creating a tougher regime for around 900 firms operating in the claims sector. In December, the authority said CMCs could expect to face disciplinary action if they did not achieve new standards expected of them.