What Will FCA Regulation Mean for Claims Management Companies?
Following the independent review of claims management regulation, the Government has announced that the regulation of Claims Management Companies (CMCs) will transfer to the Financial Conduct Authority (FCA). The date for the transfer will be announced “in due course”.
So what exactly will this mean?
In 2014 regulation of the Consumer Credit Sector moved from the Office of Fair Trading to the FCA. A lot has been learned from this. It is probable that the transfer of CMCs from the Claims Management Regulator (CMR) to the FCA will follow a similar pattern.
As with Consumer Credit the FCA is likely to first transfer firms to interim permissions. From this point the FCA’s Threshold Conditions become effective. Firms will then be given a deadline by which they have to apply to be authorised. The application process requires firms to demonstrate that they can meet the FCA’s “fit and proper” requirements. For Consumer Credit Firms it has taken more than two years to manage the application process for some 50,000 businesses. With less than 2,000 CMCs the schedule is likely to be much shorter.
Depending on the timing of the transfer firms will be subject to either the current Approved Persons regime or the new Senior Managers regime which is due to replace the Approved Persons regime by 2018. There are differences but in both cases Directors, partners and other key individuals will have to be approved by FCA. These people will become personally liable for their areas of responsibility; and subject to censure and fines for breaches. In addition the nature of Claims Management is likely to demand that firms appoint a Compliance Officer. Along with these structural changes regulation is likely to restrict the fees that can be charged. Marketing practices will also come under scrutiny.
Regulation will increase operating costs and as a result, as we have already seen in the Consumer Credit sector, there will be consolidation. This means that those who remain will have the opportunity to grow their business albeit with a greater level of external oversight.
Claims companies need to be taking professional advice now, considering what this change means for their business and starting to plan. Many Consumer Credit firms under estimated what was involved in preparing for FCA authorisation. There have been a lot of lessons learned as a result. By taking action early the FCA transfer will be smoother for firms and any risk of not becoming fully authorised will be minimised.