Concerns over claims management firms raised by Financial Conduct Authority
The City regulator has raised concerns about some claims management companies (CMCs).
The Financial Conduct Authority (FCA) said these firms might not have the right systems so customers know the difference difference between regulated and unregulated activity. Some of them have charged much higher fees for unregulated claims.
The FCA has published a review into CMCs doing unregulated claims activity. They are worried that customers might think all the services CMCs offer are regulated by the FCA. This could mislead customers about how much protection they have and make unregulated activities seem more credible.
CMCs, which help people make a claim for a fee, came under the FCA's regulation from April 2019. These firms handle various claims for compensation or other benefits. If they provide services for claims about financial services and products; personal injury; employment matters like unfair dismissal; criminal injury; housing disrepair; and certain industrial injuries benefits, they must be authorised by the FCA.
However, some types of claims services are not within the scope of the FCA's regulation. The FCA said it sent detailed information requests to 26 CMCs offering unregulated claims services for things like tax, timeshare, diesel emissions and flight delay claims.
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The FCA has been investigating businesses that make most of their money from unregulated claims. Sometimes, they even went to check out the company's offices. The FCA found that some companies hardly did any of the regulated work they were supposed to do.
After intervention by the FCA some businesses decided to cancel their permission to work, and about 70% stopped doing unregulated claims.
On its website, the FCA said: "When complying with our rules, CMCs can deliver wider benefits to society including by helping raise awareness of the opportunity to claim and acting as an additional check and balance on the redress system. Our vision is for CMCs to be trusted providers of high quality, good value services that help people pursue legitimate claims for redress."
Since July last year, there's a new rule called the consumer duty. It says companies must talk to customers in a way they understand. This helps customers make smart choices quickly and with the right information. This rule means companies have to be fair and give people the information they need to arrive at the right decision.
Sheldon Mills, who is the executive director of consumers and competition at the FCA, said: "Since taking over the regulation of CMCs, we have been working assertively to raise standards, so CMCs are considered trusted providers of high quality, good value services that help people pursue legitimate claims for redress."
"We are disappointed to find that some firms have inadequate systems and controls in place to differentiate between regulated and unregulated claims activity and some are charging significantly higher for unregulated claims. Although we don't have regulatory oversight of the unregulated activities, we consider that firms will want to satisfy themselves on whether this is appropriate."
"We expect all firms in this market to take account of the findings we've published today and make any necessary changes. We will take tough action if we find firms aren't complying."
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