Almost a third of claims management companies that requested temporary permissions or were granted full authorisation from the regulator last year have since relinquished their permissions or had them revoked.
In response to a freedom of information request submitted by FTAdviser, the Financial Conduct Authority confirmed at least 280 companies had temporary permission for claims management and no longer do, or had been granted authorisation for a claims management permission, but no longer has permission.
According to data provided by the FCA, 952 CMCs sought temporary permissions last year from the City watchdog when it took over regulation of the industry.
It means 29 per cent have since either relinquished their temporary permissions or authorisation, or have had them refused or revoked by the regulator.
The FCA assumed control of claims management regulation in April last year, taking over from the Claims Management Regulator, and took its first action against a company in December in the form of a £70,000 fine.
In February, the watchdog revealed it had refused to authorise a CMC amid concerns about how defined benefit file reviews were checked.
Keith Richards, chief executive of the Personal Finance Society, said the end of payment protection insurance complaints, which provided a steady stream of revenue for CMCs, could have served as a catalyst for many businesses leaving the industry.
Mr Richards said: "The rigour of FCA regulation, which is more demanding than previous regimes for CMCs, could also be a factor contributing towards the reduction in the number of CMCs having permissions."
In January the PFS embarked on a campaign to collect evidence of poor practice in the claims management sector, information which Mr Richards said the body continues to pass to the FCA.
Some of the allegations of malpractice flagged to the PFS included CMCs issuing "blanket calls for cash" and escalating complaints to the Financial Ombudsman Service, despite advisers proving the client had received suitable advice.
Mr Richards said "aggressive marketing practices" and a lack of transparency over charges and alternative methods for making a complaint had been identified by the FCA as long-standing issues with some CMCs.
Since the FCA took over claims management regulation last year it has warned the sector on unacceptable advertising, while barring a company over conflict of interest concerns and warning that low uphold rates could work against companies when it comes to authorisation.
The watchdog has also asked CMCs to record all client calls, a move which the PFS has previously said should make it "relatively simple" to establish if a company has strayed beyond its permissions.
But with financial advisers not getting involved with PPI – a staple of CMC complaints – the financial advice sector has not had too much attention from CMCs.
Mr Richards explained: "Since the Retail Distribution Review, the advice sector as a whole has seen higher standards in terms of advice given, as evidenced by the FCA’s 2017 suitability review and the ombudsman's statistics showing that less than half of 1 per cent of complaints relate to regulated financial advisers.