Claims management regulation: consultation on secondary regulations

Written on 24 May 2018

The government has opened a consultation on proposed secondary legislation that would transfer the regulation of claims management companies (CMCs) from the Ministry of Justice to the FCA.

Primary legislation is currently before Parliament, in the form of The Financial Guidance and Claims Bill, that aims to make claims management a regulated activity under section 22, Financial Services and Markets Act 2000 (FSMA) and a controlled activity under section 21 FSMA (restrictions on financial promotions).

If passed, the secondary legislation which is the subject of the consultation will define the scope of regulation.

The aim of the documents subject to the technical consultation is to replicate as far as possible the regulatory framework under the Compensation Act 2006, but transfer regulatory jurisdiction to the FCA. The expectation appears to be that the FCA would prove a more effective regulator.

One significant proposed change is to require separate permissions for distinct types of CMC activity: for example, a CMC firm that wished to pursue claims management activity in both financial services and housing disrepair would need a separate permission for each work stream.

If the new legislation is passed and the regulatory jurisdiction is transferred from the Ministry of Justice to the FCA, CMCs may be subject to an increase in regulatory costs, tighter governance and controls and greater scrutiny. This could ultimately lead to consolidation in the sector.