Claims management companies (CMCs), known in the financial services compliance business as “Ambulance Chasers” will must summon a lot more than ₤ 7m next year to set up a compliant scheme to adequately satisfy the regulator the sector, the Financial Conduct Authority (FCA) has revealed.
The sum to be paid in 2019-20, if accurate, is 42% of the total initial cost of taking over responsibility for the sector, which under the Financial Guidance and Claims Act 2018 devolves the authority from the Claims Management Regulator on 1 April next year. In total, the authority will recover an estimated ₤ 16.8 m from the sector by 2021, the regulator proposes.
In a consultation paper published at the end of August 2018 the FCA reminds firms that it is paid for completely by the bodies it regulates; that because of the claims management industry’s unclear foreseeable future it will need money up-front. Whenever taking up new obligations, the authority can in some cases defer recovery of the project costs until ‘a substantial body of fee payers’ is in place. The regulator also notes; ‘However, the claims management industry is undergoing considerable change and this uncertainty limits our ability to defer recovery of costs.’
Changes to the claims management landscape, notably 29 August 2019 deadline for the submission of cases for payment protection insurance,’ might possibly require CMCs to adjust their business models to carry on with providing claims management services for consumers, and some firms may depart the market entirely’, it notes. As such there is a risk that project costs might fall disproportionately heavily on those firms that successfully apply for authorisation.
‘It would be unfair for firms which take advantage of the regulatory gateway, but which leave within the first year, to pass their share of the project costs to those firms which continue to be authorised by us,’ the consultation paper considers. ‘For this reason, we have decided to collect a substantial proportion of our project costs in the first year.’ This will certainly equate to an amount of ₤ 7.1 m in 2019/20, about 42% of the total.
The proposals are set for a rough ride from the claims management industry. Although a vast majority of the firms are likely to exit the industry in 2019, how will the FCA demonstrate that they understand the industry well enough to regulate the remaining firms effectively? Unfortunately, just as a lock only keeps out an honest man, we could end up with disproportionate costs and infrastructure changes to what amount to be successful, ethical and compliant firms.
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What Does FCA Authorised Mean?Based on the Financial Services and Markets Act (FSMA) 2000, financial activities are regulated by the Financial Conduct Authority (FCA). Any firm carrying out any regulated activity must be authorised by the FCA, unless they are exempt. On Approval They Are FCA Approved Persons.
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The consultation on the proposals ran to 22 October. The FCA will publish a formal policy statement in December, for the rules to become effective from April 2019.
Lee Werrell Chartered FCSI
Making Compliance Work.