Budget 2016: A Tougher Regulatory Framework Announced for CMCs
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March, 16, 2016
A commitment was included in today’s Budget statement to implement the recommendations of the report from the Independent Review of Claims Management Regulation.
Whilst the report – also published today – highlighted significant conduct issues in terms of misrepresentation of services, nuisance calls and texts and the progression of inappropriate (i.e. speculative and/or fraudulent) claims by CMCs, its focus was squarely on base regulation. The hope is that by tightening the regulatory regime these behaviours will diminish.
Of the 17 recommendations in the Report, the key ones of interest are that:
Consideration should be given for the FCA to take over the regulation of Claims Management Companies (the Government has already confirmed in the Budget that this will happen).
All CMCs should be reauthorised under a robust new process, and seek permissions for each of the activities that they carry out.
Those performing ‘controlled functions’ within CMCs (e.g. directors) should be required to pass a ‘fit and proper persons test’ and be personally accountable for rule breaches.
Mandatory telephone call recording be introduced, with all client communications to be retained for 12 months following contact with clients or settlement/conclusion of a claim – whichever comes later.
The review was never intended to deal directly with the issues frequently encountered in the personal injury space, but the proposed tightening of the regulation will hopefully bring about a reduction in some of the sharp practice that has been a feature of the CMC market over many years.
We particularly welcome the move to introduce call recording which may help address the aggressive claims farming activity which has resulted in high volumes of speculative and suspect claims across the market.
However, as the Report’s authors themselves point out, the transfer of regulatory powers from the existing MoJ CMRU to the FCA is not without risk, and needs to be carefully managed in order to avoid disruption and effect a speedy transition of powers.