Too many claims management companies are passing on meritless cases to law firms because they fail to make sufficient checks, the regulator has said in a warning to the sector. In a letter to chief executives, the Financial Conduct Authority said CMCs should take more steps to investigate the merits of each element of a potential claim before pursuing it.
Failure to collect relevant information before presenting claims to third parties has led to the submission of 'spurious claims, slower processing and poor outcomes'.
The regulator also said it will carry out ‘proactive work’ on the impact of whiplash reforms due to come in from next April. ‘In particular, we will seek to understand how affected CMCs adapt and take steps to ensure any changes to their business models do not result in harm to consumers.’
The letter provides an insight into the FCA’s main concerns regarding the claims management sector, which it assumed responsibility for regulating in April 2019.
Many CMCs have demonstrated a ‘poor understanding of, and sometimes attitude to, their regulatory obligations’, the letter states. ‘We expect CMCs to have a good understanding and regard to the requirements applying to them, take a pro-active approach to regulatory compliance and deal with the FCA in an open and co-operative way.
‘If they fail to do so, we will consider whether they continue to meet our threshold conditions and comply with our rules. Any failure to do so may result in us using our supervisory or enforcement power.’
The FCA identifies that some CMCs have been established by, or have close ties to, individuals previously involved in misconduct. There are cases, it is reported, where someone who was involved in the mis-selling of financial products is now profiting a second time from helping making claims against the firm where they worked. The FCA says it will refuse applications from CMCs where there is a conflict of interest.
Other problems identified include misleading, unclear and unfair advertising, unclear fee structures, poor disclosure of pre-contractual information, and poor service standards.