Rules to target advisers resurfacing as ambulance chasers

Rules to target advisers resurfacing as ambulance chasers

New rules on ambulance chasers could make it harder for unscrupulous advisers to phoenix as claims management companies.

Claims management companies will be regulated by the Financial Conduct Authority from Monday, 1 April 2019 in a bid to raise standards and crack down on misconduct.

This could also remove an avenue for firms looking to avoid their liabilities by phoenixing, where they close their business down to avoid their liabilities and return as a claims management company, often touting their new services to their former clients.

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Mark Neale, chief executive of the Financial Services Compensation Scheme, said his organisation had become aware of this practice, which he referred to as "double-dipping".

He said: "I am very clear we should intensify our efforts in that respect so we don't see directors simply reinvent themselves where they have a record of poor advice.

"We have seen them reinvent themselves as claims management companies. When we come across this we do report that to the regulator, which is currently the Ministry of Justice.

"We and the FCA are very clear that we need to collaborate even more closely on this issue, on intelligence sharing in order to bear down on what I think is known as phoenixing."

Mr Neale said bringing claims management companies under the oversight of the FCA could make this job easier.

Claims management companies are currently regulated by the Claims Management Regulator, which is a division of the Ministry of Justice, established in 2007 and intended to be an interim measure.

HM Treasury decided to pass the regulation of claims managers to the FCA after a government review found the existing regulator lacked sufficient powers and resources to supervise the market properly.

When the FCA starts regulating claims management companies in April there will be separate permissions covering their activities, and firms wishing to apply for them will need to satisfy the regulator they meet its threshold conditions in the normal way.

This means that when assessing authorisation applications, the FCA will look at a firm's and individual's history to check whether they meet its suitability requirements.

The FCA has taken a number of actions in recent months to prevent owners from shutting down their old firm, thinking they can escape from their debts or from bad advice they know is on their books, and then transferring their client book into a new firm and carrying on as before in a new name.

In May this year, the FCA and the Insolvency Service agreed to a deal intended to cut down on the number of phoenix companies operating in the UK and the regulator has also said it is using analytics to spot when a firm might be a phoenix.

The FCA declined to comment on how it would prevent advisers from phoenixing as claims management companies under the new regime.