The government should introduce a levy across the controversial claims management sector in order to ensure their regulation can become ‘self-financing’ and sustainable in line with the regulation of similar industries, a group of six MPs has recommended.
In a letter to Chris Grayling, the secretary of state for justice, the MPs also called for regulation of the sector to be taken away from the Department for Justice and handed to the financial services regulator, the Financial Conduct Authority.
The letter states the proposals are the result of discussions with small and medium-sized businesses in the financial services sector, including a number of advisers, who have expressed “huge concern” about the behaviour of CMCs.
In September Ian Broadbent, director of Lincolnshire-based advisory firm Blue Sky Mortgages, organised a meeting in Parliament to discuss the issue of CMCs. At the meeting MPs agreed to lobby the Treasury to bring the regulation of claims management companies under the jurisdiction of the FCA.
The letter from MPs said that regulation of CMCs should transfer to the FCA as current CMC regulator within the Ministry of Justice does not have the capacity to deal with the rising level of concern about the practices and behaviour of firms.
It says: “In contrast to the small financial services businesses that pay into a regulatory framework, the claims management companies make no financial contribution to the system of regulation and control.
“Indeed there are no financial incentives to restrain them from indulging in bad practice.”
The letter adds that where bad practice occurs, the behaviour of claims management companies is impacting negatively on the health of [SMEs] in the financial services sector as well as causing huge distress to people through unwanted cold calling.
The letter is signed by six MPs including Nic Dakin, Labour MP for Scunthorpe; Rebecca Harris, Conservative MP for Castle; Jonathan Evans, Conservative MP for Cardiff north; Yvonne Fovargue, Labour MP for Makerfield; Naomi Lon, Alliance MP for Belfast east and Jackie Doyle-Price, Conservative MP for Thurrock.
A spokesperson for the Financial Ombudsman Service said: “We would all agree that some form of regulation of CMCs is needed.”
In March Mr Dakin kick-started a debate on the issue in parliament, during which he called for tighter regulation of CMCs and lamented the lack of an appeals process for firms.
Last month, a small claims court judge ordered a CMC to repay Alan Lakey, partner at Highclere Financial Services, £340.20 for time spent handling a baseless claim.
The Association of Professional Advisers have also waded into the debate, calling for the MoJ to take “tougher action” over CMCs that manufacture complaints and intrude into people’s lives.
Last year, Martin Evans, IFA of Newport-based Prism IFA, said that CMCs should be regulated by the FCA, as this will allow the regulators to issue sufficient punishment if they do fall outside their remit. He cited cold texts and cold-calling as examples of “appalling” behaviour.
