Claims management companies will need to be able to demonstrate they have "suitable competency" in the sector they operate in when they start being regulated by the Financial Conduct Authority.
HM Treasury has decided these companies will fall under the remit of the FCA, after concluding their current regulator lacked the powers and resources to regulate the market.
It has now published a consultation setting out how the rules will work in practice, including requiring that ambulance chasers have separate permissions depending on the specific activities and sectors with wish to operate in, including "advising, investigating and representing in relation to financial services and products".
As well as financial services there will be six other sectors claims management companies will be able to choose to operate in, including personal injury, employment, housing disrepair and industrial injuries disablement benefit.
In HM Treasury's consultation, it stated: "In order to ensure consumers are adequately protected, it is important that claims management companies have the appropriate skills, knowledge and expertise for the claims they are managing.
"As such, it is appropriate that a separate permission should be required for each distinct sector in which claims management companies operate.
"Firms will need to be able to demonstrate to the FCA that they have suitable competency for each sector in which they wish to carry on business.
"However they will not need to be assessed for competency or suitability in sectors which are unrelated to their business model, which is intended to help minimise the regulatory burden placed on firms. It will also help to ensure the FCA’s resources are used in an efficient and effective manner."
HM Treasury has stated there will be exemptions to the regulations, meaning some entities will not be required to meet them.
These will cover legal practitioners, most charities and not-for-profit advice agencies, trade unions certified as independent, student unions and small scale introducers for whom this is incidental to their main business.
The decision to move claims management companies under the remit of the FCA was made in the 2016 Budget and will be done under the Financial Guidance and Claims Bill, which is currently making its way through Parliament.
Martin Bamford, a chartered financial planner at Informed Choice, said: "FCA regulation of claims management firms is an important step, as they are often dealing with complex financial issues which require specialist knowledge.
"Hopefully this regulation will result in an end to speculative claims which are time consuming and emotionally draining for financial advisers to handle.
"Where there is a genuine complaint and a consumer needs specialist assistance, then a claims management firm can be a good solution, although they tend to charge a very high commission for what they do. Forcing firms to demonstrate their expertise and ongoing professional development would be a step towards justifying their commissions."
damian.fantato@ft.com
