Treasury: Major change to regulatory regime
Claims management companies (CMCs) that want to advise clients, rather than just find and refer claims to others, will have to show that they are competent to do so when regulation is transferred to the Financial Conduct Authority (FCA), it has emerged.
It is a move that could have significant implications for CMCs eyeing up the chance to run personal injury small claims if and when the government’s whiplash reforms coming into force.
The Treasury said ensuring that CMCs have the “appropriate knowledge, skills and expertise” for the areas they worked in would help strengthen regulation.
The long-awaited transfer of regulation from the Ministry of Justice’s Claims Management Regulator to the FCA is set out in the Financial Guidance and Claims Bill, which is going through Parliament.
In a consultation on the secondary regulations needed to establish the new regime – which is likely to come into force next year – the Treasury said the government was proposing “one significant change” to current procedures.
“Each CMC will require separate permissions depending on the specific activities and sectors that they wish to operate in. Depending on firms’ specific business models, some CMCs may require just one permission, while other CMCs may require several permissions.”
CMCs that simply want to ‘seek out, refer and identify claims’, in any or all of the regulated areas, will only need one permission.
However, if they want to advise, investigate and represent, then they will need specific permissions for any of the six regulated areas: personal injury, financial services and products, employment, criminal injuries, industrial injuries disablement benefit, and housing disrepair.
The consultation said: “The government’s view is that the activities of seeking out, referring and identifying claims are consistent in nature across each sector, and do not require sector-specific competency or knowledge…
“However, from the point at which CMCs provide advice to a client about a claim, investigate the claim, or represent a client, the six sectors that CMCs operate in become distinct and varied in nature…
“In order to ensure consumers are adequately protected, it is important that CMCs have the appropriate skills, knowledge and expertise for the claims they are managing.”
To obtain each permission, firms will need to be able to demonstrate to the FCA that they have “suitable competency for each sector in which they wish to carry on business”.
The Treasury also said the government’s intention was that claims made under section 75 of the Consumer Credit Act 1974, relating to the liability of a credit company for breaches by a supplier, would also be included in the FCA’s claims management regime.
The Treasury also laid out its plan for transition to the new regime, in which all CMCs with a valid licence would be able to register under a temporary permissions regime. This will be in place for 15 months from the date of transfer to the FCA.
Those operating under temporary permissions would obtain a single permission but would be required to abide by FCA rules.
The Treasury added that CMCs would be given different deadlines to apply for full authorisation from the FCA, with the “expectation” that the new regulator would decide on applications within 12 months.
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