In a policy statement published today (June 7), the City regulator laid out a number of amendments to its rules and guidance for claims management companies which are due to come into force next month (July 7).
The FCA said that in two years time, the number of CMCs phoenixing would be "zero".
Claims management phoenixing occurs when individuals from financial services firms go out of business, but later reappear in connection with CMCs and charge consumers for seeking compensation against their former firm’s poor conduct by bringing a claim to the Financial Services Compensation Scheme.
At least 220 FSCS claims are submitted each year involving phoenixing connections between the firms submitting the claims and the former financial services firms they are made against, according to FCA estimates.
Our proposals will be successful if claims management phoenixing no longer occurs.FCA
“Our proposed rules aim to reduce that number so that within two years of the rules coming into force the number of FCA-regulated CMCs submitting claims with which they have a relevant connection is zero,” the regulator said.
“We will monitor the number of cases of claims management phoenixing. Our proposals will be successful if claims management phoenixing no longer occurs.”
An extension to the rules and guidance set to be introduced next month includes the addition of relatives of controllers as a relevant connection.
As for other categories of relations or extending the prohibition to cover any employee who has a connection to a CMC or the financial services firm subject of the claim, the FCA said this would “risk making the prohibition too restrictive”.
Overall, we feel our rules strike the right balance between capturing the CMCs that are causing the most egregious harm and unfairly preventing CMCs from managing claims.FCA
“We don’t want to prevent CMCs from managing claims they have no material connection to,” it explained.
“A rule that relies on connections that cannot easily be evidenced, such as ‘all known people’, would also be difficult to enforce.”
The FCA said it will also not be extending its rules to capture claims which are not covered by the FSCS, or where the connection was not involved in or had responsibility for managing a financial services activity.
The regulator argued this was not where the harm it is addressing has arisen.
“Extending the prohibition to the management of claims beyond those made to the FSCS would also significantly increase the regulatory burden of the rules,” it said.