The Financial Conduct Authority is exploring the case for capping the fees claims management companies can charge for bringing claims.
The regulator wrote to CMCs informing them that it will send an information request to a representative sample of the market to "explore whether it is necessary to introduce fee caps and, if so, how it should do this".
According to the Financial Guidance and Claims Act, the FCA must look at restricting charges for CMCs in relation to financial products and financial services claims, which can include fee caps.
Under these rules, the regulator can also restrict charges for other type of claims.
FTAdviser understands that the watchdog is working to meet its obligation in this area but is going further by considering the introduction of fee caps for financial services and also for other CMC sectors.
The current payment protection insurance fee cap remains in place until the FCA introduces new rules.
The FCA assumed control of CMC regulation at the beginning of April, taking over from the Claims Management Regulator, and more than 900 claims management companies have registered to continue trading while they go through the authorisation process under their new regulator.
In the email sent to CMCs, the regulator stated that once its analysis of the data firms provide is complete, it may decide to publish a consultation paper, which will be an opportunity for CMCs, industry groups and other stakeholders to give their views on its plans.
According to Matthew Maxwell Scott, executive director of the association of consumer support organisations, it is "vital this FCA initiative has at its heart a focus of providing consumers with the clarity and certainty they need to make informed decisions before they enter into a contract with a CMC".
He added: "All reputable CMCs will support this aim and co-operate with the FCA to achieve it."
Mr Maxwell Scott noted that "fee capping can be appropriate for simple disputes, such as PPI claims, where the process is straightforward".
However, "personal injury and other legal cases involving detailed processes and often complex legal issues do not fit so easily within a capped environment," he warned.
He added: "We therefore recommend that the regulators assess how the market adapts to regulatory change before considering fee caps.
"While intended to protect consumers, an ill-considered cap could lead to businesses refusing to represent customers, creating a clear consumer detriment.
"Regulators must ensure that any new regime protects access to justice for consumers as well as preventing exploitation and poor practice."
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