We recently looked at Claims Management Companies (CMCs) carrying out unregulated claims activity to assess if firms were using their FCA authorisation to legitimise services that are not regulated. We were concerned that consumers may mistakenly assume that all the services CMCs offer come within our regulation. This assumption can mislead consumers about the level of protection they have and give unregulated activities extra credibility.
What we did
In our last portfolio strategy letter[1] to CMCs, we explained we would carry out proactive work to assess and address consumer harm. We issued substantive information requests to 26 CMCs offering unregulated claims services for matters such as tax, timeshare, diesel emissions and flight delay claims. This sample of firms included all the FCA Authorised CMCs that were submitting tax claims. We used additional scrutiny where unregulated claims activity accounted for a significant portion of the business and, in some instances, we visited the business premises.
What we found
Some of our sample of firms had:
- Undertaken very little, or no regulated claims management activity. Some firms in our sample have applied to cancel their FCA permissions following our contact, and around 70% have stopped unregulated claims activity.
- Inadequate systems and controls in place to differentiate between regulated and unregulated claims activity.
- Charged significantly higher fees for unregulated claims activity. Although we don’t have regulatory oversight of these activities, we consider that firms will want to satisfy themselves on whether this is appropriate.
- Non-compliant financial promotions.
What we expect from firms
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.
We expect all firms to take account of our findings of this multi-firm work and make necessary changes.
If firms are not using their permissions
Firms must regularly review their regulatory permissions to ensure these are up to date, and apply to us to remove them if they are not needed. We expect firms to notify us of material changes and apply to make any necessary changes in a timely way. We have the power to cancel a firm’s Part 4A permission if it has not carried out regulated activity for at least 12 months.
Being clear about regulated and unregulated activity
Under GEN 4.5.3R, firms must not indicate or imply that they are authorised by the FCA for business they are not authorised for. Where CMCs offer unregulated claims services, we expect them to be clear with consumers about which of their products and services are regulated and which are not. Under CMCOB 2.1.1R, CMCs must act honestly, fairly and professionally in accordance with the best interests of its customer.
Meeting Consumer Duty rules
The Consumer Duty has rules about Consumer Understanding which go further than the ‘clear, fair and not misleading’ standard under our Principle 7. Under the Consumer Duty, firms must ensure that communications are likely to be understood by the consumers they are intended for, and that these communications equip consumers to make decisions that are effective, timely and properly informed. The Consumer Duty requires firms to act in good faith, and to give consumers the right information to make properly informed decisions.
CMCs should pay particular attention to how clear they have made it to consumers that the service they are agreeing to use is not regulated. This should include reviewing all communications with consumers, including financial promotions. CMCs should also review the terms and conditions of their unregulated claims services to ensure contractual documentation is clear and fair.
Excessive fees
In accordance with the Consumer Duty, CMCs must ensure that their products and services provide fair value with a reasonable relationship between the price consumers pay and the benefit they receive.
Where fees for the unregulated claims exceed those charged for the regulated claims services, we strongly urge CMCs to keep in mind the spirit of the Consumer Duty, and whether the services they are providing represent fair value for the consumer.