Visits from the Financial Conduct Authority supervisory teams to claims management companies are imminent, as the watchdog plans to crack down on the sector to single out the ‘rotten apples’.
Jonathan Davidson, FCA’s executive director of supervision, retail and authorisations, told FTAdviser that the regulator is encouraged by the number of companies that want to continue to operate in the sector, after it took over its regulation earlier this month.
Data out in April showed more than 900 claims management companies have registered to continue trading while they go through the FCA’s authorisation process.
However, receiving temporary permissions from the FCA does not mean a company will automatically receive subsequent authorisation.
In order to receive FCA authorisation, CMCs must meet the threshold conditions, while management will be assessed for their skills, experience and suitability during the application process.
And the FCA has vowed to tackle any "frivolous, vexatious or even fraudulent" claims.
Mr Davidson said: "As in many regulatory issues, it's often a few bad actors that tarnish the reputation for the many, and our aim as a regulator is come down on them very hard."
He revealed that the watchdog would start identifying outlier firms straight away.
He said: "Just because they haven't been fully authorised doesn't mean that we aren't supervising them already, and we have started collecting data and intelligence on the firms even before they transferred to us for our supervision.
"We will be out and we are starting to think which firms we're going to visit in the next days and weeks."
Mr Davidson explained the FCA has a broad range of intelligence and data sources, which it will use to determine if a firm is deemed an outlier in respect of not doing the appropriate due diligence on its lead generation, submitting vexatious claims, or not providing clarity on the fees and charges that are in place.
He said the regulator gathers information through the complaints it receives in its contact centre, and whistleblowers reports.
The FCA will also look at the complaints against CMCs submitted to the Financial Ombudsman Service.
"A firm that has a high level of complaints and a high level of upholds will definitely come near the top of the list," Mr Davidson noted.
The watchdog will also analyse firms' own complaints data and volumes compared to the size of their business and scan the market for financial promoters to make sure these are complying with FCA rules, he added.
As part of the new rules being imposed by the FCA, CMCs will have to provide "clear, upfront" information to customers about their fees and services, including a summary document before the customer signs a contract.
They will also be expected to tell customers about free redress alternatives such as the Fos and the Financial Services Compensation Scheme.
The FCA has also stated that CMCs will have to record and retain customer telephone calls for a year after their final contract, a requirement the regulator hopes will reduce the chances of high pressure sales techniques.