Claims management firms – blamed for the vast majority of nuisance calls as well encouraging a compensation culture – are to get tougher regulation and enforcement after the Treasury confirmed new supervisory rules.
Under the new rules, bosses will be liable for a fine or an outright ban if their firms break the rules.
“The government is clamping down on the rogue claims management companies that provide bad service and bombard customers with nuisance calls,” the Treasury Budget documents said. “The new regime will be tougher and will ensure managers can be held personally accountable for the actions of their businesses.”
The move follows an independent review of claims management regulation.
The key provision is the reauthorisation of all claims management companies under a more robust processs. However, the report also concludes that if Government wants a wholesale change in regulation, the Financial Conduct Authority would be the most effective body to deliver it. Any transfer of power would require primary legislation, and would come into effect no sooner than 2018.
The key aims of the review were to investigate poor value for money services offered by CMCs, mis-representation of services offered to consumers, nuisance calling and texts, and the progression of inappropriate claims.
The report found that strengthening the existing MoJ regime is likely to be less disruptive than other options. In particular, the regulator is more likely to be capable of retaining the skills, knowledge and experience of its existing staff.
Keeping the Claims Management Regulation Unit (CMRU) of the Ministry of Justice (MoJ) may also reduce the risk of the regulator being distracted from its existing functions while the new regime is being implemented.
Strengthening the existing MoJ regime is considered to be less disruptive than other options. In particular, the regulator is more likely to be capable of retaining the skills, knowledge and experience of its existing staff.
The early indications from the CMRU’s use of new fining powers are positive and demonstrate the CMRU’s ability to implement new rules in an effective and capable manner.
As such, retaining the CMRU within MoJ provides a low risk with a high degree of certainty that conduct standards will not slip during transition to the new regime.
The report concludes that given the wide range of reforms already underway, and the expected turbulence and contraction in the market, the least disruptive option would be for responsibility to remain with MoJ. If, however, the Government wants a step change in the regulation of the sector, then the balance would shift in favour of the FCA.
“What was needed was clarity so that companies can operate knowing they are compliant with regulations that apply,” said Dene Walsh, operations and compliance director of Verso Group. “This report goes a long way to establishing how CMCs will be regulated in future, though clearly government needs to decide at what point it may consider a step change in regulation is required.”
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