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From The Financial Times.
Budget cracks down on claims management groups
Claims management companies — blamed for encouraging a ‘compensation culture’ — are to get tougher regulation and enforcement after the Treasury confirmed new supervisory rules.
The Financial Conduct Authority will assume oversight of about 1,700 CMCs from the Claims Management Regulator, part of the Ministry of Justice, and make their bosses subject to a rigorous new accountability regime.
Senior staff at CMCs will be captured by the FCA’s new Senior Managers Regime, which makes executives liable for a fine or ban for failings on their watch.
The accountability regime took effect for lenders and insurers earlier this month and is expected to be extended across the entire financial sector by 2018.
“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 CMC managers can be held personally accountable for the actions of their businesses.”
The prominence of CMCs has risen in recent years with scandals such as payment protection insurance, where banks have provisioned a total of £30bn for compensation, making it the UK’s costliest instance of mis-selling.
CMCs are estimated to have received as much as £5bn of the overall £22.2bn paid out by banks in PPI compensation between 2011 and 2015, according to a recent report by the National Audit Office.
The Association of British Insurers, which had lobbied for the regulatory changes, said: “It should go a long way in driving the cowboy operators out of town and helping to ensure honest customers don’t end up footing the bill for their dodgy practices.”
The MoJ had already proposed capping the fees charged by the companies for winning PPI and other cases. These can be as high as 40 per cent of the compensation awarded.
Meanwhile, a two-year deadline on claiming PPI compensation is expected after an FCA consultation.
The MoJ has overseen the companies since 2007 and inherited fining powers in late 2014. Since then it has fined four outfits a total of £1.7m or stripped them of their licences, including one that made 40 million nuisance calls over PPI.
The number of CMCs regulated by the MoJ has dropped over the years, from 2,693 in 2012 to 1,752 in 2015, according to the Claims Management Regulator’s annual report.
LV, the insurer, called for more funding for the FCA to bring about tougher enforcement.
“With greater powers there should be greater enforcement and the FCA should introduce larger fines and have the ability to criminalise the behaviour of rogue CMCs that are the heartbeat of our compensation culture,” said Martin Milliner, general insurance claims director at LV.
The watchdog has already seen its remit balloon over the past two years after it inherited competition powers and began to regulate payday lenders and consumer credit groups, an increase of 50,000 new companies. But its budget has remained relatively static, at £479m compared with £452m in 2014-15, a rise of 6 per cent.
The FCA said: “There has been a lot of work done by the CMR to drive up standards and it is important that this continues in the interim period. We will work closely with the government and the CMR to ensure that there is a smooth handover of regulation to us.”
Nick Baxter, the independent chairman of the Professional Financial Claims Association, said: “People need professional help to stand up to big banks and it is crucial that the CMCs who provide this service put the interests of consumers before all else. Bad practices such as nuisance calling must be stamped out of the industry — now is the time to crack down on rogue companies and properly regulate the industry so that consumers can get back what they’re owed.”
Claims management companies — blamed for encouraging a ‘compensation culture’ — are to get tougher regulation and enforcement after the Treasury confirmed new supervisory rules.
The Financial Conduct Authority will assume oversight of about 1,700 CMCs from the Claims Management Regulator, part of the Ministry of Justice, and make their bosses subject to a rigorous new accountability regime.
Senior staff at CMCs will be captured by the FCA’s new Senior Managers Regime, which makes executives liable for a fine or ban for failings on their watch.
The accountability regime took effect for lenders and insurers earlier this month and is expected to be extended across the entire financial sector by 2018.
“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 CMC managers can be held personally accountable for the actions of their businesses.”
The prominence of CMCs has risen in recent years with scandals such as payment protection insurance, where banks have provisioned a total of £30bn for compensation, making it the UK’s costliest instance of mis-selling.
CMCs are estimated to have received as much as £5bn of the overall £22.2bn paid out by banks in PPI compensation between 2011 and 2015, according to a recent report by the National Audit Office.
The Association of British Insurers, which had lobbied for the regulatory changes, said: “It should go a long way in driving the cowboy operators out of town and helping to ensure honest customers don’t end up footing the bill for their dodgy practices.”
The MoJ had already proposed capping the fees charged by the companies for winning PPI and other cases. These can be as high as 40 per cent of the compensation awarded.
Meanwhile, a two-year deadline on claiming PPI compensation is expected after an FCA consultation.
The MoJ has overseen the companies since 2007 and inherited fining powers in late 2014. Since then it has fined four outfits a total of £1.7m or stripped them of their licences, including one that made 40 million nuisance calls over PPI.
The number of CMCs regulated by the MoJ has dropped over the years, from 2,693 in 2012 to 1,752 in 2015, according to the Claims Management Regulator’s annual report.
LV, the insurer, called for more funding for the FCA to bring about tougher enforcement.
“With greater powers there should be greater enforcement and the FCA should introduce larger fines and have the ability to criminalise the behaviour of rogue CMCs that are the heartbeat of our compensation culture,” said Martin Milliner, general insurance claims director at LV.
The watchdog has already seen its remit balloon over the past two years after it inherited competition powers and began to regulate payday lenders and consumer credit groups, an increase of 50,000 new companies. But its budget has remained relatively static, at £479m compared with £452m in 2014-15, a rise of 6 per cent.
The FCA said: “There has been a lot of work done by the CMR to drive up standards and it is important that this continues in the interim period. We will work closely with the government and the CMR to ensure that there is a smooth handover of regulation to us.”
Nick Baxter, the independent chairman of the Professional Financial Claims Association, said: “People need professional help to stand up to big banks and it is crucial that the CMCs who provide this service put the interests of consumers before all else. Bad practices such as nuisance calling must be stamped out of the industry — now is the time to crack down on rogue companies and properly regulate the industry so that consumers can get back what they’re owed.”
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