CMCs must play by the rules
Regarding your article ‘FCA slates CMCs for “poor attitude” to rules’ (Oct 29).
I think the Financial Conduct Authority’s ‘Dear CEO’ letter is a warning to claims management companies that it will act against companies that are causing harm to customers in the areas it has outlined.
CMCs are explicitly being reminded to have proper governance arrangements in place to support good customer outcomes.
Companies will need to consider whether the steps they’ve taken to reduce harm are adequate. This can’t be just a box-ticking exercise. The points raised by the FCA go beyond just concerns around technical process type issues.
No matter the size of the business, CMCs should be ready to show the FCA they have the appropriate governance systems and controls for the nature, scale and complexity of their business, and with the customer’s best interests being considered throughout.
Senior managers under the FCA’s senior managers and certification regime may well be asked difficult questions in the event the FCA isn’t satisfied with what it sees.
Duff & Phelps
Regarding your article ‘Fos chief defends £350,000 award despite “minimal” impact’ (See page 17). I note: “Ms Wayman defended the rise, ultimately decided by the FCA, saying it was ‘the right thing to do’ as it had been at the previous level for a number of years”.
While technically true, this does not justify the recent and sudden increase from £150,000 to £350,000.
The FCA’s own paper on the subject (Increasing the award limit for the Financial Ombudsman Service) said: “We last changed the award limit in 2012, when we increased it from £100,000.
“We said that, because the limit had not been changed since the Fos was set up in 2001, the consumer protection provided by the service had declined in real terms. The increase to £150,000, effective from January 1 2012, was based on general price inflation since 2001.”
Had the FCA simply applied RPI since 2001 the current Fos limit would be around £175,000, rather than £350,000. So in real terms it has doubled and, as illustrated by your article, for little real-world benefit to consumers.
If we assume the benefit to consumers is less than 50 cases with an average extra compensation of £100,000 (half the difference between £150,000 and £350,000) the overall consumer benefit would be less than £5m.
Even then, this is overstated, as some of those clients could have pursued advisers through the courts anyway, although the FCA’s paper on this estimated the additional professional indemnity insurance costs on advisers as being “an overall increase in insurance costs of £77m”.
So if the FCA’s original assumptions were correct, then this is a very poor return for consumers as they will ultimately bear the costs of those additional PI premiums as advisers seek to pass those costs to clients.