Ian Osang, partner at Essex-based Ingard, and Alan Lakey, adviser for Hertfordshire-based Highclere Financial Solutions, called on the City watchdog to "clamp down" on claims management companies (CMCs) as soon as the window of redress for payment protection insurance (PPI) has closed.
Mr Osang commented: "The FCA has announced an end date to PPI claims, so all of these companies will need new victims to go after.
"Unless the FCA clamps down as soon as they take over regulation of the industry, we will be facing the same false claims on investment and pension advice as banks have on PPI."
These firms are a plague that must be contained. Alan LakeyThe FCA has confirmed said the final deadline for making a new PPI complaint will be August 2019, a deadline which has caused one CMC - We Fight Any Claim - to state it will take the regulator to court.
But Mr Osang said: "I can’t think of anything which demonstrates the decline in moral standards in society more than an industry which is primarily built on fraud, and where the authorities have turned a blind eye to this fraud."
Mr Lakey said: "FCA told me it is minded to grandfather all CMCs across. I questioned why it would do this, given that a high percentage are fraudsters, when the FCA refused such a process for advisers pre-RDR.
"I also find it strange that firms of solicitors that specialise in claims management will continue to be regulated by the law society."
Mr Lakey said he "wholeheartedly agreed" with Mr Osang that CMCs have enjoyed light touch regulation from the MoJ and have their hands slapped when proof of fraud is provided.
"These firms are a plague that must be contained. The FCA should assess each one of them before allowing them to be regulated. I would imagine any worthwhile audit would remove 75 per cent of them at a stroke", he stated.
According to a spokesman from the FCA, the issue is not something on which the regulator can comment ahead of any consultation it will do on bringing CMCs into its regulatory regime.
To date, PPI misselling redress has far outstripped the redress for the review into pension misselling in the 1990s.
Latest figures from the FCA show a total of £213.1m was paid in December 2016 to customers who complained about the way they were sold PPI. This takes the amount paid since January 2011 to £26.2bn: the largest amount of redress for any one misselling review in the UK.
A report from the National Audit Office in 2016 revealed the vast majority of PPI complaints - and any financial services complaints - to the Financial Services Ombudsman now come through CMCs, not from consumers or their advisers (see Figure 1).
Figure 1: Proportion of complaints to Fos using CMCs
Mr Osang contacted the Ministry of Justice about a spurious series of claims made by a CMC about him. He said: "The CMC lied to my client, lied to me, threatened me (with court action) and then paid a solicitor to lie to me and threaten me."
The MoJ responded to say it agreed with Mr Osang, and that the CMC in making false claims was committing fraud
Communications from the MoJ to Mr Osang, seen by FTAdviser, said the offences it committed against Mr Osang “may be deemed a fraud by misrepresentation under the 2006 Fraud Act”, the MoJ said it could not investigate fraud, so it let the company off with non statutory enforcement action.
Mr Osang added: "CMCs should be made to pay for unsuccessful claims to the FoS where it can be demonstrated there are no grounds for complaint.
"They should be made to sit exams; after all, how can someone with no knowledge of what financial products are and what risks different asset classes pose advise someone on whether they have been missold?"
Figure 2: Redress by product type (insurance - predominantly PPI - is in orange). Source: FCA
In 2013, Mr Lakey, together with Derek Bradley, founder of online advisory forum PanaceaAdviser, went to the MoJ with a file of complaints against CMCs, citing unfair treatment of advisers and their clients.
Mr Lakey added: "I provided incontrovertible proof that the claims management company had fraudulently tried to defraud my firm and also had the client's letter confirming she had not made a single one of the allegations levelled against me.
The MoJ told me they had taken action but would not tell me what that entailed. The company continue to trade, presumably in a similar manner, whereas any intimation of fraud on my part would result in swift enforcement."
simoney.kyriakou@ft.com
