Government seeks ‘tougher’ regulation of claims firms by SRA

The government is putting pressure on regulators to stamp down on rogue practices within the claims sector, as there continues to be discourse about ‘no win, no fee’ arrangements.

Justice minister Sarah Sackman has confirmed she recently met with the Solicitors Regulation Authority and Financial Conduct Authority to address risks to consumers in the high-volume consumer claims market.

Sackman said she had impressed on both organisations the need for ‘tougher, more consistent regulation’ of conditional fee arrangements and offered support to address issues in the sector.

Responding to a written parliamentary question, Sackman said: ‘The government is aware of concerns that misleading “no win, no fee” advertising can expose consumers to unexpected financial risk, including through unclear information about fees, deductions, and related funding or insurance arrangements.

‘Whether entering into a “no win, no fee” arrangement through a legal services provider or claims management company (CMC), consumers should receive clear and timely information about what they are agreeing to.’

Sackman explained that the SRA is undertaking a range of work in this area, including ongoing investigations, a thematic review and discussion paper, requiring mandatory compliance declarations from firms operating in the high-volume consumer claims sector, consumer research, and guidance and warning notices for law firms. The SRA will also shortly be reminding firms of their current obligations by publishing a warning notice relating to “no win, no fee” claims.

The SRA and FCA issued joint warnings to law firms and CMCs over poor practices in motor finance commission claims, followed the Supreme Court judgment last summer. These companies were told they must inform clients of the existence of a redress scheme created to compensate consumers, and must make potential clients aware of the fees they might have to pay if they terminate a retainer.

The SRA has repeatedly stressed its concern about the potential harm for consumers who are making claims mis-selling of financial products and services, data breaches, diesel emissions, flight delays, housing disrepair or cavity wall insulation.

Last year it carried out a survey of 129 firms requiring them to provide information on the type and volume of claims they handled, whether they had referral arrangements in place and what litigation funding they received. This was followed up with a mandatory declaration that firms had to make confirming they were compliant with their obligations.