A freedom of information request by the Gazette has revealed that only 3% of the value of financial penalties has been paid since the Claims Management Regulator (CMR) secured new powers almost two years ago.
Since December 2014, the CMR, which is managed by the Ministry of Justice, has been able to fine authorised companies up to 20% of their annual turnover. Former justice minister Lord Faulks said the new powers meant companies that broke the law would ‘pay the price’.
But despite levying more than £2.2m against seven individual claims management companies, just £60,000 has been paid. Three of the penalised firms continue to operate, while two others have surrendered their licence and two have had their licence revoked.
Of the companies that surrendered their authorisation, Rock Law Limited has gone into liquidation, with the MoJ named as one of the unsecured creditors owed money by the firm.
Companies House records show Rock Law still owing its full fine – £567,423 – as well as more than £400,000 to HM Revenue & Customs.
These two organisations can expect to recoup around £15,000 between them.
Another company which had its licence revoked, Complete Claims Solutions, was fined £91,845 in October 2015 but still owes £90,000 to the CMR. The company’s statement of affairs, published as part of its liquidation, states nothing more will be repaid to outstanding creditors.
The struggle to collect financial penalties raises questions about how effective the regulatory regime has been, with some industry insiders fearing those who are penalised could close their firm and return with a ‘phoenix’ organisation under a different banner.
An MoJ spokesperson said five of the companies fined have appealed, which has slowed down the collection process.
‘We have tough sanctions for firms that break the rules and if any wrongdoing is discovered, we will take the necessary action,’ she added.
The Financial Conduct Authority is set to take over regulation of claims management companies from 2018.