Financial Guidance and Claims Act - proposed regulation turns up the heat

When it comes to whiplash claim reform, the Civil Liability Bill has received the lion's share of media attention as it undergoes parliamentary pinball. By comparison, its relation the Financial Guidance and Claims Act slid quietly into legislation last month. Amongst other matters this deals with regulation of Claims Management Companies (CMCs) following the government’s identification of “evidence of malpractice” in the industry through the Brady Review. Its actual manifestation will follow in the coming months through related statutory changes and drafting of regulations. 

In the natural world of commercial enterprise the regulatory hound is eternally chasing the entrepreneurial fox. Under the Act oversight of CMCs in England, Wales and Scotland passes from the Ministry of Justice to the Financial Conduct Authority (FCA), with a proposed date of 1st April 2019. It has been suggested that the FCA may be better resourced, however its remit is already vast, including prudential regulation of non-PRA regulated firms as well as conduct regulation. The Financial Ombudsman Service will adjudicate on claims management complaints.

In terms of scope the Financial Guidance and Claims Act doesn’t extend to other limbs of claim management, such as Credit Hire or Medical Reporting Organisations, which seems to be a missed opportunity. While unsolicited cold calling (i.e. making phone calls without prior and express consent) is to be prohibited, this falls short of a complete ban and is moreover unlikely to deter that portion of the industry located outside the EU.

Of course, all steps are welcome in tightening standards in relation to unethical or unprofessional CMCs and, notwithstanding the challenge of its capacity to cover the field, the FCA is highly experienced in conduct regulation and has additional tools at its disposal for enforcement and sanction.

While all the focus has been on the Civil Liability Bill it seems that the FCA has been rather busy. This month it launched a 264 page consultation (CP18/15) on draft standards to be applied to CMCs, predominantly from 1st April 2019. It is seeking to prevent or reduce a range of harms to customers, including financial loss due to lack of clarity over services and fees, inappropriate services due to unauthorised activity and nuisance to society as a result of sales tactics. Under the proposals, existing CMCs would need to reapply for re-authorisation from that date, and new CMCs would also require authorisation under the new framework.

Those defendant businesses who are themselves already subject to FCA oversight will be pleased to see that the FCA is proposing to apply its Principles for Businesses, Threshold Conditions and Senior Manager Arrangements, Systems & Controls to CMCs. A further consultation will take place on the Senior Managers & Certification Regime. In addition it is proposed to create a new section to the Handbook - Claims Management: Conduct of Business sourcebook (CMCOB) - including amongst other matters prudential resource requirements, detailed information reporting and complaints procedures. And why not ?

The principles-based nature of today's conduct regulation and supervision of the above would certainly raise the standard for professionalism in this area. CMCs are going to find the temperature much hotter.

Peter Smith is currently on sabbatical studying for International Compliance Association qualification