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Regulation of claims management services

Claims management services which are regulated

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Claims managers are firms which aim to handle claims for people who have potential legal claims for damages for personal injury or a wide variety of other claims, such as financial claims for defective advice or claims for state benefits.

Claims management companies obtain cases either by advertising or direct approach. They act either directly for the client in pursuing the claim, or as an intermediary between the claimant and a legal professional or insurer. Claims management companies derive revenue sources such as referral fees from solicitors, commission on auxiliary services and the sale of ‘after-the-event insurance.

The growth of the claims management industry was encouraged following changes made to private funding arrangements in the Access to Justice Act 1999. This Act permitted recovery of success fees charged by lawyers in personal injury cases, as well as recovery of the premium paid for insurance policies taken out to cover opponents’ costs. In addition, most personal injury claims were removed from Legal Aid, with the exception of complex and high-value cases and medical negligence claims. This left the market to finance claims handling by means of conditional fee agreements (CFAs) and legal expenses insurance, altering the make-up of the sector to a private market supported by a range of providers.

Concerns grew over the unprofessional conduct by some providers of claims management services for commercial gain, particularly as the services extended into areas of litigation beyond personal injury and into claims for certain kinds of benefits where no litigation was involved. The behaviour of the The Accident Group and its collapse in 2003 caused particular.

Regulation of claims management services was recommended by the Better Regulation Task Force (BRTF) in its report ‘Better Routes to Redress’ [May 2004]. While the report rebutted the idea of a compensation culture (and made the point that claims had fallen in recent years), one of the report’s conclusions was that activities of claims intermediaries were contributing to the ‘have a go culture’ and recommended that claims intermediaries should be subject to statutory regulation, if self-regulation did not work. The BRTF recommended the industry should attempt self-regulation on a voluntary basis in the first instance and if this did not prove to be successful then the Government should bring forward statutory regulation.

The Government Response to the Better Regulation Task Force Report, Tackling the

“Compensation Culture” was published in November 2004. The Government agreed that that the claims management sector should be given one last chance to put its own house in order and if it did not do so, the Government would consider new formal regulation could be introduced. The Government wanted to see a major change in quality and behaviour by claims management companies so that the service provided to consumers is significantly improved and consumers’ expectations were not raised falsely through potentially misleading advertising and other sales practices.

The Claims Standards Council (CSC) was established in 2003 to provide voluntary regulation of the claims management industry. Whilst many claims management companies became members, many others that did not support the attempt at self-regulation. Without total support from the industry and the ‘teeth’ to enforce regulation, it became clear that in order to raise standards, statutory regulation was urgently needed. The Government consequently introduced to Parliament the Compensation Bill in order to establish a framework for the regulation of claims management services.

Concerns about misconduct by some CMCs sparked a government review that led to a change in regulation.In March 2016 Carol Brady published the Independent review of claims management regulation: final report, commissioned by HM Treasury and the Ministry of Justice. As a result of the review, the Financial Guidance and Claims Act 2018 was enacted. The Act provided for:

* the amendment of the Financial Services and Markets Act 2000 (the 2000 Act) to provide for certain requirements and powers on the Financial Conduct Authority and the Secretary of State, to enable the transfer of regulation from the Ministry of Justice to the Financial Conduct Authority. The sections will be supplemented by secondary legislation made under powers in the 2000 Act.

* the transfer the regulation of CMCs from the existing Claims Management Regulator (CMR), which is part of the Ministry of Justice (MoJ), to the FCA..

* the Claims Management Ombudsman, a Financial Ombudsman Service, took on responsibility for resolving complaints about CMCs from the Legal Ombudsman


Department for Constitutional Affairs, Regulation of Claims Management Companies Policy Statement; 2 March 2006.

House of Commons Research Paper 06/28 19/05/2006

Claims management companies enter FCA regulation today
FCA Press Releases Published: 01/04/2019]

Regulation of claims management services

The Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018
( SI 2018 No. 1253)  came into effect on 1 April 2019 and replaced the previous regulation of claims management services (CMS) under the The Compensation Act 2006.

CMS are now one of the 'regulated activities' under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. See Financial services.

The changes in regulation from the former system include:

* regulation extwnds to Scotland so the FCA’s regulatory framework for CMCs will be applicable across England, Scotland and Wales;

*. the previous regime set out activity for six different sectors (personal injury, financial products and services, employment issues, industrial and criminal injuries and housing disrepair) with one permission enabling claims management activity across all six sectors. The new regulatory regime creates seven different permissions across different sectors in respect of different types of activity:

• Seeking out, referring and identifying claims;

• Advising, investigating and representing in relation to personal injury claims;

• Advising, investigating and representing in relation to financial services and product claims;

• Advising, investigating and representing in relation to employment claims;

• Advising, investigating and representing in relation to criminal injury claims;

• Advising, investigating and representing in relation to industrial injury disablement benefit claims; and

• Advising, investigating and representing in relation to housing disrepair claims.

For further information, see FCA: Claims management companies

[Page updated: 25/02/2020]


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