This week, the Financial Conduct Authority published a Dear CEO letter to claims management firms. The letter reminds firms of their obligations under FCA regulation and flags a number of areas where the regulator has found practices falling short of its standards.
Where are some CMCs failing when it comes to FCA compliance? We explore the regulator’s concerns and share tips to keep claims firms out of trouble.
Why has the FCA written to CMCs?
The regulator sent its Dear CEO letter to set out its expectations and to spotlight the practices it is concerned about.
Its concerns covered four main areas:
- CMCs are acting for their customers without getting their appropriate consent or completed letters of authority
- CMCs are submitting letters of authority and claims in fictitious customer names
- There is no relationship between the customer and the financial service provider receiving the claim
- CMCs’ financial promotions do not comply with FCA rules
It reminds firms of the claims management activities that come under FCA regulation.
Regulated activities include: “seeking out, referrals and identification of claims or potential claims and advice, investigation or representation in relation to a financial services or financial product claim”.
Blurring the lines between regulated and non-regulated activity is something that’s made headlines recently, as in the case of London Capital & Finance, where the FCA identified compliance failings in the firm’s promotion of regulated and non-regulated products.
Obtaining authority, ensuring claims are legitimate, and acting with integrity
Firms must get signed letters of authority before acting for customers.
They must comply with all relevant data protection legislation, including the GDPR, and ‘act honestly, fairly and professionally’ in the best interests of the customer.
Firms are reminded that they must conduct their businesses ‘with integrity…and with due skill, care and diligence’.
Each element of a potential claim must be investigated to ensure its ‘existence and merits’. Firms must not make or pursue a claim if they know or have reasonable grounds to suspect that it ‘does not have a good arguable base or is fraudulent, frivolous or vexatious’.
Putting in place adequate systems and controls
The letter reiterates the FCA’s expectation that firms have ‘adequate staffing, expertise, systems and controls to cope with any increases in your customer numbers. Your firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems’.
Vulnerable customers get a specific mention; fair treatment of the vulnerable has long been a focus of the regulator and is included among its 2019/20 priorities.
Ensuring financial promotions are fair, clear and not misleading
Another enduring concern for the regulator is the need for promotions and customer communications to be fair, clear and not misleading.
The FCA reminds firms that financial promotions ‘are likely to be the first contact consumers have with firms’ and that they are not confined to written communications, but can include ‘a website, Facebook post, tweet, press ad, poster, TV or radio advert, among other media’.
Financial promotions issues flagged in the Dear CEO letter include: firms failing to set out fees; failures to identify the firm that has issued the promotion; and failing to promote free alternatives to the CMC, such as the Financial Ombudsman Service (or suggesting that using the claims firm will get a better outcome than going via another route).
In the letter, the FCA also reminds CMCs that it has the power to ban financial promotions or adverts, including websites, that do not meet its requirements, as well as publicising its actions.
Read more about the FCA’s financial promotions rules and how you can comply.
What do CMCs need to do?
The regulator wants firms to ‘consider the points in this letter, and how you can demonstrate that you comply with our rules’.
The issues raised in the letter will be taken into account when the FCA assesses each firm’s application for authorisation – as all CMCs currently operate under a temporary permissions regime that allows them to continue operating legally until they are fully FCA-authorised.
If you are a claims firm and want to make sure your current standards will satisfy the FCA, you can read our recent blog. It looks at everything you need to know about the start of FCA regulation of claims management and has advice for firms wanting to stay on the right side of the regulator.
Get to grips with regulatory compliance
For any firm, CMC or otherwise, new to FCA regulation, the world of compliance terminology can be a confusing one. Jargon and acronyms abound, complicating the issues organisations need to get to grips with.
To help with this, we have published a financial compliance glossary, explaining some of the most frequently-used terms. Our financial compliance glossary is free, and you can download your copy from our resource library.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.