On 30th January 2025, the FCA issued a Portfolio letter to the CEOs of all Claims Management Companies (CMCs) outlining the new strategy for supervising firm.
As a reminder, the transfer of regulation of CMCs from the Ministry of Justice (MoJ) to the FCA occurred in April 2019 and, since that date, the FCA have observed a steady decrease in the number of CMCs. And interestingly, ‘lead generators’ now account for more than half of the industry.
The FCA’s view is that CMCs are trusted providers of high-quality, good-value services that help people pursue legitimate claims for redress and well-run CMCs benefit the public interest.
Over the past 2 years, the FCA have carried out some detailed work which has informed its future supervisory work programme. The work has shown that standards are improving, but there are areas where firms are not meeting expectations.
The purpose of the Portfolio letter is to set out the priority areas of focus for the next 2 years.
The priorities
The FCA will focus supervision on embedding the Consumer Duty and the following areas:
- Service standards
The FCA will carry out work to consider whether CMCs are investigating the existence and merits of each element of a potential claim before making or pursuing the claim or advising the customer to do so. This involves looking at firms that submit high volumes of complaints to the Financial Ombudsman Service (Ombudsman) but achieving low uphold rates. This work will help the FCA understand the impact of the Ombudsman’s proposals to charge representatives.
- Personal injury
The FCA will review the marketing literature and due diligence conducted around the sourcing of personal injury leads and will look at how firms are ensuring and monitoring good outcomes under the Consumer Duty. The intention is to ensure CMCs do not mislead consumers into believing unregulated activity falls within FCA regulation.
- Lead generation
The FCA recently carried out an ad-hoc survey of all lead generators to gain a better understanding of the current claim areas being worked on. As a result of this survey, the FCA will consider whether it would be appropriate to make changes to the annual CMC001 report to gather this information regularly.
Key issues
Firms should be proficient in identifying and mitigating their own issues, and responsibility lies with the firms’ senior managers. Part of this involves notifying the FCA proactively when issues have been identified, through the SUP 15 process or otherwise. The key issues firms are expected to pay regard to are:
- Misleading advertising
Clear, fair and not misleading advertising is at the heart of a well-functioning industry.
- Inappropriate sourcing of customers
Where firms have accepted leads from third parties, they are expected to carry out and record sufficient due diligence checks.
- Poor service standards
CMCs are expected to engage with potential customers meaningfully at the pre-contract stage, outlining the available options and ascertaining why customers wish to proceed.
- Consumer understanding
Key information needs to be prominent and in plain language: CMCs are to support their customers so that all communications (before, during and after sale) meet customers’ needs.
- The ‘halo effect’
CMCs to take steps to ensure customers are not misled as to the extent of the firm’s authorisation and what service is covered by regulation.
- Poor attitude to regulatory obligations
The FCA expect firms’ senior managers to take steps to verify that reporting is up to date and to appoint a Principal User on FCA systems.
- Financial services claims
CMCs are expected to act honestly, fairly and professionally in the best interest of its customers and submit relevant claims to respondent firms and not ‘blanket’ firms with volume.
The FCA will continue to monitor the CMC sector and work with firms to ensure that standards continue to be met and maintained, that CMCs continue to be trusted providers of high-quality, good-value services and consumers benefit from well-run firms that help people pursue legitimate claims for redress.
