The Government aims to tighten regulation for claims management companies.

The Financial Guidance & Claims bill is, at the time of writing, nearing the end of its journey through parliament. It will (once it is passed) create a one stop financial guidance service and transfer claims management company supervision to the Financial Conduct Authority (FCA).

It will give the Treasury powers to define claims management services as both a Regulated Activity and a Controlled Activity, the latter regulating communications and promotions.

And it will also extend FCA regulation of claims management companies to Scotland, where such companies are currently unregulated.

Once the bill becomes law, secondary legislation will be required to further define its scope, so HMRC has now published a consultation on secondary legislation in relation to claims management services.

Whilst this secondary legislation mostly replicates the current regulatory scope within the framework of the Financial Services and Markets Act (FSMA), the Government is proposing to make one significant change, moving from a single permission covering all regulated conduct across any combination of activities and sectors, to each claims management company requiring separate permissions depending on the specific activities and sectors that they wish to operate in.

The Government believes that requiring a separate permission for each distinct sector in which claims management companies operate will make it possible for the FCA to take into account different activities and types of work across each sector. It is envisaged that this will ensure consumers are adequately protected, as claims management companies will need to have the appropriate skills, knowledge and expertise for the claims they are managing.

The proposed permissions are:

  • seeking out, referring and identifying claims; and
  • advising, investigating and representing in relation to:
    • personal injury;
    • financial services and products;
    • employment;
    • criminal injuries;
    • industrial injuries disablement benefit; and
    • housing disrepair.

Claims management companies will need to be able to demonstrate to the FCA that they have suitable competency for each sector in which they wish to carry on business. They will not need to be assessed for competency or suitability in sectors which are unrelated to their business model.

Current exemptions to the claims management regulatory regime –  for certain persons and organisations, such as charities and legal practitioners – will be broadly retained, with a number of small changes, for example in relation to the description of insurance brokers and small scale introducers.

The Government’s policy intention is that claims made under section 75 of the Consumer Credit Act 1974 (relating to the liability of a credit company for breaches by a supplier) are within the scope of the FCA’s claims management regime and it will consider whether it’s necessary to add this to the draft regulations.

The Government has requested responses to this consultation by 1 June 2018.

It remains to be seen how far any of this will go in ratifying the 2016 Budget assertion that “The government is clamping down on the rogue claims management companies (CMCs) that provide bad service and bombard customers with nuisance calls.”