The Financial Conduct Authority has said it still has a number of “residual concerns” relating to claims management companies following an analysis undertaken by the regulator over the past two years.
These concerns include issues around advertisements, inappropriate sourcing of customers, and poor attitudes to regulatory obligations.
The regulator also said it was concerned about CMCs failing to investigate the veracity of claims properly and firms using their FCA authorisation to legitimise their non-regulated services.
In a letter published today (January 5), the FCA provided an update on its strategy for the year ahead and gave an updated view of what it sees as the risks CMCs pose to consumers.
The letter comes two years after the regulator set out a two-year strategy to mitigate the risks posed by CMCs.
It said in this time it has seen some improvements but noted that risks of harm remain while new risks have emerged.
Since taking control of CMC regulation in 2019 the FCA has implemented a number of broad changes to how the sector is regulated, focusing on fees and instances of phoenixing.
In 2021, the FCA announced proposals to ban CMCs from managing FSCS claims where they have a relevant connection to the claim in a bid to halt cases of phoenixing.
The regulator also confirmed in 2021 that it would go ahead with a proposed cap on CMC fees come March 2022 in an effort to curb “excessive charging”.
More recently, in June last year, the FCA pledged to eradicate phoenixing within two years.
At the time, advisers told FTAdviser that a crackdown was a nice idea but “wouldn’t happen”.
In today’s letter, the FCA said its vision is for CMCs to be “trusted providers of high-quality, good-value services that help people pursue legitimate claims for redress and benefit the public interest”.
It noted that because of the changes it has introduced in the past two years, it has seen a significant reduction of contacts and complaints to the FCA about CMCs.
The letter also reminded CMCs that they need to start preparing for the consumer duty, which comes into force on July 31 and will require CMCs to act to deliver good outcomes for customers.
The letter reminded CMCs that a firm will not be acting in accordance with the consumer duty where it seeks to exploit customers’ lack of knowledge, understanding or behavioural biases and noted that it has seen examples of exploitation.
“These practices are counterproductive and detrimental to a healthy financial services system and are the types of poor practices the consumer duty seeks to prevent,” it said.
Among the concerns the letter highlighted was poor quality advertising promotions used by CMC firms that can mislead vulnerable consumers.
This included examples of incidents where CMCs did not adequately state that the company is a CMC or state what fees are charged. It also gave the example of the omission of details of an ombudsman scheme.