How to ensure compliance with new claims management advertising rules

DealThe Financial Conduct Authority has published new rules governing c
laims management companies’ advertising.

The regulator wants CMCs to do more to ensure their promotions do not mislead potential customers. On 23 August, announced a number of new rules in relation to financial promotions.

The FCA and CMCs

The financial regulator took over regulation of claims management firms on 1 April 2019.

Since then, the sector has been something of a focus for the Authority.

In June, the FCA sent a ‘Dear CEO’ letter to claims management firms, getting tough on unethical practices. The letter reinforced CMCs’ obligations under its regulation and flagged a number of areas where it had found practices falling short of its standards.

And on the 9th August, the regulator announced a new co-operation agreement with the Competition and Markets Authority aimed at improving competition in claims management.

What do the new rules for CMCs say?

Among the new regulations, claims companies have to comply with requirements relating to:

  • Due diligence on lead generation and rules
  • Providing clear, upfront information to customers about the fees they charge and the services they will provide
  • Giving customers a summary document about the services they will provide before the customer signs a contract
  • Telling customers about free alternatives such as the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS), including in advertising
  • Recording and retaining customer telephone calls for a year after their final contact with a customer

The improvements the FCA wants CMCs to make

The new rules introduced last month require claims management firms to:

  • Identify themselves as a claims management company
  • Prominently state if a claim can be made to a statutory ombudsman / compensation scheme without using a CMC and without incurring a fee
  • Include prominent information relating to fees and termination fees which the customer may have to pay if a firm uses the term ‘no win, no fee’ or a term with similar meaning

The rules are ‘designed to help consumers make an informed choice whether to use the services of a CMC’.

Identifying bad practice in claims management advertising

Launching the new rules, the FCA highlighted some areas where it has identified poor practice.

The regulator reviewed a number of financial promotions published by CMCs – including webpages and social media. Examples of bad practice they found included firms that:

  • Fail to identify themselves as a claims management company
  • Fail to state that the customer could make a claim to a statutory ombudsman or statutory compensation scheme, such as the Financial Ombudsman Service, without using the services of the firm, and without paying a fee
  • Appear to give consumers the impression that they would get a better outcome if they use the services of the CMC
  • Use the term ‘no win no fee’, but do not set out the fees that the customer must pay
  • Include only case studies where the compensation provided to consumers is very high, even though the average amount received by consumers is considerably lower
  • Include important information in small font or in a position that is difficult to see, when it should in fact appear prominently in a promotion

How can you comply with the new rules?

The new requirements are pretty clear and unambiguous. They detail how the FCA expects claims management companies to behave when producing financial promotions.

As well as complying with the new rules above, there are other actions CMCs should take to ensure that their financial promotions live up to the regulator’s expectations:

  • Financial promotions requirements don’t just relate to print; your website and social media also fall under the rules. Ensure they’re compliant as well
  • Take steps to ensure your promotions follow the rules on being fair, clear and not misleading
  • Small print is an important element of ads and communications – read tips on making yours fair
  • Make sure you follow FCA guidelines around prominence, particularly around fees, terms and conditions
  • The regulator is focused on ensuring that promotions are suitable for their audience and offer fair treatment for vulnerable customers. Make sure your ads follow the rules on suitability and vulnerable customers
  • Understand wider requirements around ad standards. The FCA isn’t the only regulator responsible for the quality of adverts – the Advertising Standards Authority and Committee of Advertising Practice set rules that all advertisers must follow.

You can read their latest report, which gives pointers on their approach and requirements, here

  • Financial promotions compliance doesn’t just relate to the end product. You need to ensure that your processes for reviewing, approving and archiving your promotions are also up to scratch. Read our tips on ensuring your FP approvals meet FCA standards

The FCA response to firms that don’t meet their standards

The regulator has recently been robust in its response to financial promotions that don’t comply with its rules. Misleading promotions have been in the FCA’s sights, particularly following the collapse earlier this year of investment firm London Capital & Finance.

The FCA isn’t afraid to challenge unclear, unfair and misleading promotions, as we reported recently, looking at ways the Authority deals with firms that break its rules.

Publishing the new rules, Jonathan Davidson, FCA Executive Director of Supervision – Retail and Authorisations, said that:

“CMCs using misleading, unclear and unfair advertising practices to get business is completely unacceptable. We won’t hesitate to take action where we consider that customers are being misled or otherwise treated unfairly by poor advertising.”

Firms awaiting full FCA authorisation were also warned that “we will take their compliance with our rules on financial promotions into account when considering applications for full authorisation.”

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.

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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.