The Financial Conduct Authority (FCA) has warned ‘below par’ claims management companies (CMCs) must improve their standards if they want to continue to operate in the industry once it takes over regulation in April 2019.
This is when all CMCs set up or serving customers in England, Scotland and Wales will have to be authorised by the FCA to continue operating legally.
To be authorised by the FCA they must demonstrate they meet minimum standards to operate and any firm that is not authorised will have to stop handling claims.
Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA, said: “The new regime aims to drive up standards in a sector whose reputation has been tarnished by some companies engaging in high pressure selling and by failing to provide clear information on the fees they charge.
“The new rules will ensure firms are transparent about their estimated fees before the customer signs on the dotted line, and notify customers of free statutory ombudsmen or compensation schemes. It’s vital that customers have the information they need to make informed decisions. We will take action against those that break the rules.”
In its latest report entitled “Claims management: how we will regulate claims management companies”, the FCA has outlined how it aims to ensure that CMCs are trusted providers of high quality, good value services that help customers pursue legitimate claims for redress, and benefit the public interest.
The document focuses on three main areas including wanting customers to be empowered and confident in choosing a value-for-money service, which is appropriate for their needs. It also wants CMCs to help customers get redress in a way that complies with FCA rules and meets a common set of standards.
Lastly, the document also outlines how the FCA wants to regulate in a way that prioritises high standards of conduct, protects consumers and improves public confidence in claims management services.
In addition, the new rules state that all firms have to record and retain customer telephone calls for a year after their final contact with a customer.
This month, CMCs began applying for a ‘temporary permission’ to operate. This will allow them to continue operating until they are fully FCA-authorised during one of two waves running from April until the end of July.
Commenting on the new rules, Martin Bamford, chartered financial planner and managing director for Surrey-based Informed Choice, said: “Regulation of CMCs by the FCA from April is a positive move for consumers and should herald the end of the sharp practices we have seen from some firms. The call recording and storage rule is especially important, as it will give consumers and regulators access to the real picture of any promises made by CMCs.
“The majority of retail consumers do not need to use the services of CMCs and pay their excessive commissions, as the retail financial services complaints system is designed to be consumer friendly. I don’t believe FCA regulation will signal the end of the CMC sector, but it will dramatically reform remaining firms.”
Aamina Zafar is one of the UK’s leading financial journalists. She has previously worked as a senior reporter at FT’s Financial Adviser. The award-winning journalist writes regularly on the IFA community, mortgages, pensions and financial regulation.
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