Financial regulators overseeing the claims management market still have multiple concerns about how some companies are operating. 

In a letter to claims management companies this month, the Financial Conduct Authority said that while it had seen improvements in some areas, risks of harm to consumers remain.

The authority's consumer finance director Roma Pearson said that advertising can be ‘misleading, unclear and unfair’ and clients misled by poor-quality promotions. Examples were cited of poor or no disclosure on company websites, search engine advertising and social media posts about the status of the CMC, what fees it charges and complaints procedures. 

CMCs were also said to be using FCA authorisation to legitimise their non-regulated services, and are not being clear about which products and services are regulated.

The FCA is concerned about what it called the ‘inappropriate sourcing of customers’, where CMCs do not always conduct or document appropriate checks when buying customer data or leads, or do not ensure that a potential client has been sourced lawfully.

Financial Conduct Authority

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CMCs are then failing to investigate the merits of each element of a potential claim, and potentially failing to meet FCA requirements to ensure that claims are not false or misleading or an exaggeration, the letter warned. It said some companies still exhibit a ‘poor attitude to regulatory obligations’ where they do not take a proactive approach and do not deal with their regulator in an open and cooperative way.

Pearson told CMCs: ‘We expect you to take notice of the areas of concern and the expectations we have set out in this letter and discuss this at board level or other appropriate governing body, if appropriate, in order to consider whether you can make changes to reduce any harm or potential harm to consumers.

‘We will identify CMCs that appear to cause harm, work with our regulatory family and other external partners to identify issues, and take action against firms that are causing harm.’

She added that companies will be expected to show they are protecting clients and in particular not putting ‘their own profits and income above consumers’ interests and fair treatment’.

Since the FCA took on responsibility for the regulation of CMCs in 2019, 30% of businesses have left the sector because they were unable to meet the new standards. The regulator has introduced a fee cap on CMC charges and banned companies ‘phoenixing’ so that individuals responsible for failings cannot set up new entities.

In total, 60 firms have been banned or been issued with conditions on their authorisation.

A new consumer duty comes into force in July which will require firms to focus on supporting their customers in making good financial decisions (including those in vulnerable circumstances), to avoid causing foreseeable harm and to check whether customers are getting good outcomes.

 

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