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.
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