The Financial Conduct Authority has threatened action against claims management companies found to be misleading consumers after finding "widespread" poor practice in the sector.
The financial regulator has reviewed more than 200 adverts issued by CMCs since it assumed control of the market's regulation at the beginning of April and warned in a statement issued today (August 23) it has found examples of bad practice which could threaten a company's authorisation with the watchdog.
The FCA said CMCs must do more to ensure their advertising does not mislead potential customers and warned it had already visited companies which it considered to have "particularly poor" practice.
On both website pages and social media the regulator found instances of companies failing to identify themselves as a CMC, neglecting to tell customers they could make a claim to an ombudsman or compensation scheme for free, and appearing to give the impression customers would get a better outcome if using the services of the CMC.
Jonathan Davidson, executive director of supervision - retail and authorisations at the FCA, said: "Many CMCs play a significant role in helping consumers to secure compensation.
"But CMCs using misleading, unclear and unfair advertising practices to get business is completely unacceptable."
Mr Davidson said the FCA would "not hesitate" to take action where it considers customers are being misled or otherwise treated unfairly by poor advertising.
The regulator also found CMCs were using the term "no win, no fee" but not setting out the fees customers must pay.
Others were only including examples of case studies where the compensation provided to consumers was very high despite, according to the FCA, the average amount received by consumers being considerably lower.
Some firms were also found to still be using small font for important information or placing it in a position which was "difficult" to see.
Mr Davidson said CMCs should understand that the FCA will take their compliance with its rules on financial promotions into account when considering applications for full authorisation.
If the FCA finds a firm has used "very poor promotions" which do not meet the threshold for continuing authorisation, the regulator said it will set out what actions the CMC needs to take and by when to avoid having to close down.
The watchdog said it had already taken action following its findings including visiting CMCs with particularly poor practice, highlighting its concerns to other firms in an effort to amend adverts and using its formal financial promotions banning power where a CMC appeared to be using a celebrity endorsement without the individual’s permission.
According to the regulator many firms had changed or withdrawn adverts as a result of this action.
The FCA also issued a dear CEO letter to CMCs in June which highlighted the regulator's promotional rules and also warned certain signs, such as low levels of uphold rates for complaints submitted to the Financial Ombudsman Service, could work against companies when applying for authorisation.