Claims management companies (CMCs), known in the financial services compliance business as “Ambulance Chasers”must summon 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 assuming responsibility for the sector, which under the Financial Guidance and Claims Act 2018 passes to 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 projects.
In a consultation paper published at the end of August 2018 the FCA reminds firms that it is funded exclusively by bodies it regulates; that as a result of the claims management industry’s uncertain foreseeable future it will need money up-front. When accepting new responsibilities, 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.’
The shake up to the claims management conditions, notably 29 August 2019 deadline for the submission of cases associated with payment protection insurance,’ might possibly require CMCs to adjust their business models to keep on providing claims management services for consumers, and some firms may exit the market entirely’, it notes. As such there is a risk that project costs might fall disproportionately heavily on those firms that successfully get 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 figure will likely equate to an amount of ₤ 7.1 m in 2019/20, around 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.
Whenever the CMCs are set to apply for authorisation, there is plenty of help for them to engage with. Compliance Consultant are specialist FCA authorisation consultants and can assist all types of firms get the authorisation process right.
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.
FCA Authorisations are in some cases tricky and can appear very daunting to the newcomer. Compliance Consultant was created in 2000 to assist providers and individuals in their regulatory compliance requirements, here in the UK, EU and Middle East. We are also long-standing members of the Association of Professional Compliance Consultants (APCC).
Using our application experience developed from the FCA’s Authorisations Team feedback, Compliance Consultant Authorisation Services has succeeded in obtaining authorisation for a large number of clients of all sizes from a variety of fields.
Why Do They Need Compliance Consultant? In a speech By Sarah Rapson, Director, Authorisations on the 14th March 2018 at the APCC Conference she stated; “Sometimes firms fail to provide information we request, or they provide the wrong information, or over complicate their responses. This could be because they do not understand our concerns or the questions we ask or why we ask them. If in doubt, they should ask us. Similarly, firms can misunderstand what is required of them, especially where there is new regulation, such as PSD2 or MiFID2. Again, they should speak with us if they are uncertain as to our requirements. From time to time we deal with firms that will not engage with us or do so reluctantly; or they address our concerns in part but not fully. In such circumstances we may well conclude that a firm is not ready to be authorised and could not be supervised effectively. My message is simple; firms need to cooperate with us. Sometimes firms apply for authorisation prematurely, before they are ready to demonstrate that they meet the minimum conditions; at very least this will delay our consideration of their applications, especially if they also fail to provide the information that we require. Firms should apply when they are ready, not to secure their place in the queue. Those are just a few examples. But the common theme is that firms that understand what we are trying to achieve through having a rigorous approach to authorisations and why, are more likely to be successful in their applications.”