FCA: Primary regulator
The Solicitors Regulation Authority (SRA) is to follow the approach of the Financial Conduct Authority (FCA) in capping the fees law firms charge for financial services claims management work.
However, it is not currently planning to cap solicitors’ fees for other types of claims management work, in particular personal injury.
The Financial Guidance and Claims Act 2018 imposed a duty on the FCA and SRA to make rules restricting charges for claims management activities in relation to financial services and financial products claims.
They also have a discretionary power to cap fees charged in other regulated claims management sectors.
A paper before this month’s meeting of the SRA board said the regulator was planning to benchmark its response against the FCA’s because the FCA was the “primary regulator” of claims management activities.
The FCA announced in January this year that it would be capping the fees charged by claims management companies (CMCs) for all financial services and product claims where there is a statutory ombudsman or compensation scheme.
The caps would be set on a “sliding scale”, depending the amount of money recovered for the consumer.
Where the cap did not apply, fees charged must be “no more than is reasonable”. PPI claims are not included in the latest restrictions, because there is already a cap of 20% of any compensation paid.
The board heard that only a “small number” of regulated law firms took part in financial services claims management activities.
A discussion paper will be issued later this summer which will propose benchmarking against the FCA.
The FCA had access to “significant amounts of quantitative and qualitative data” on which it had developed its proposals for fee restrictions.
“Our initial analysis of the FCA consultation is that on its face many of the assumptions underpinning and the rationale for its proposals would apply equally whether a law firm or a CMC was supporting the applicant in making a claim.”
The SRA said it would seek views through the discussion paper on whether the fee caps enabled consumers to make claims without paying “disproportionate or excessive” fees.
It would also consider whether claims management remained “viable as an area of work”, and whether consumers have “access to information to be able to make better-informed decisions about why they might want to use a law firm to process their claim and the cost of those services”.
The discussion paper would also explore whether there was “anything different about the profile of case types undertaken by law firms as compared to CMCs that may result in significantly different impacts”.
The SRA said it wanted to explore the impact of the way law firms operated on “the ability of different types of consumers” to access services.
“Not all consumers understand that they can make a claim themselves or the fees they might have pay if they engage a professional to help.
“To mitigate this information asymmetry, we will set out that we would want to use our transparency rules as a mechanism for making sure firms give an upfront description of, and price for, the services that they offer in processing and managing a claim for mis-sold financial products or services.”
The SRA board agreed that it would “need to have good reason for departing from whatever process the FCA introduced”.
The paper said that “at this stage” it did not intend to restrict fees in other claims management work.
“We do not have any evidence which suggests that consumers are subject to excessive fees in these other areas and that we need to intervene. We will, of course, keep this under review. The FCA does not intend to exercise its powers in respect of other areas and also intend to keep this under review.”
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