Claims management companies face a hike in levies as the regulator attempts to rein in the number of baseless and frivolous complaints received by financial services firms.
In two concurrent consultations, the Ministry of Justice’s claims management regulation unit says it aims to reduce the number of speculative, baseless or vexatious claims made by CMCs, the reports of which have been on the rise.
This will, according to the MoJ, help mitigate congestion at the Financial Ombudsman Service and relieve some burden from financial services companies who are bogged down by poor or speculative claims.
The new rules will aim to ensure the CMC has made sufficient efforts to establish if the product in question was ever sold and even if the prospective client ever did business with the financial organisation in question.
If the proposals go through, the MoJ believes they would address practices which financial institutions told the MoJ they find most objectionable, including CMCs failing to substantiate the basis of a claim, or sending out high volumes of speculative claims.
The consultation document said: “Practices such as CMCs making high-volume speculative claims, claims where no PPI existed and the use of non-compliant marketing have contributed to a poor reputation, and caused detriment to consumers and other businesses and organisations in the sector.”
A number of stories have emerged this year about advisers fighting back against baseless claims. Most recently, a judge ordered CMC Aims Reclaim to pay adviser Alan Lakey’s expenses when he invoiced them in response to a baseless claim.
Newcastle-based IFA Lowes Financial Management told FTAdviser it has reported CMC Emcas to the MoJ after receiving eight complaints in the past 12 months which were “without foundation and built on a premise of fabrication”.
This is not the first time Emcas has been in the spotlight. Last year (15 November), the company cited a “misunderstanding” as it dropped a complaint against advisor Ian Osang after incorrectly telling his clients he would not held personally responsible should they make a complaint.
Earlier this month (7 November) a group of MPs called for regulation of CMCs to be passed over to the Financial Conduct Authority.
The MoJ has also proposed a 10 per cent fee increase for all CMCs, with an absolute fee cap of £55,000, up £5,000 from the previous cap.
Responses to the new rules consultation are due 9 January 2014, and those for the fees consultation are due 15 December 2013.
