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Legal changes

Claims Management Companies – the regulatory dust settles

The new rules apply to CMCs and lead generators within the jurisdiction of England, Scotland, and Wales.


In our previous updates we have followed the progress of the Financial Guidance and Claims Act and the launch of the Financial Conduct Authority’s (“FCA”) consultation in respect of the new regulatory regime. On 17 December the FCA finally launched its policy statement following the consultation, a link to which can be found here. The new rules, which go live on 1 April 2019, apply to CMCs and lead generators within the jurisdiction of England, Scotland, and Wales.

The outcome

The FCA has identified three areas of interest when it comes to CMCs:

  • to ensure that consumers receive value for money;
  • to ensure that CMCs help consumers achieve redress through a set of standardised rules; and
  • to promote high standards of conduct so as to improve consumer confidence in CMCs.There are a significant number of rules; however, the most significant require CMCs to:
  • As a consequence of the new regulatory regime, ALL CMCs must re-register for permission and they must apply for temporary permission by 31 March 2019. Those involved in financial claims must also apply for full permission between 1 April 2019 and 31 May 2019 and for all other CMCS (including those dealing with personal injury) between 1 June 2019 and 31 July 2019. The FCA will be scrutinising applications and those who are not granted either temporary permission or full permission will be barred from carrying out claims management activities.
  • provide a one page document to consumers setting out their services;
  • explore other methods of claims funding with the consumer, before the event insurance for example;
  • gain consent from the consumer before charging fees not previously disclosed;
  • keep consumers updated and seek consent for further steps if more than six months has passed since last update;
  • provide amended fee estimates when they are in a position to do so; and
  • maintain set capital reserves.The new rules come into force on 1 April 2019 with prudential rules coming into force on 1 August 2019. The capital requirements are £10,000 for class 1 CMCs and £5,000 for class 2 CMCs. Class 1 CMCs have an annual income of £1 million or more whereas class 2 have an annual income of below £1 million. There will be movement here as it is also linked to overheads and in theory, there could be a CMC with a £1 million plus income paying the lower fee due to their reduced overheads. Those holding client money must have a £20,000 annual income. 
  • The FCA has created a new CMC conduct of business rulebook which all CMCs must adhere to, in addition to the following rules and principles.
  • In an attempt to ensure access to the market for smaller CMCs, the FCA has also introduced a reduced fee of £500 payable to the regulator for those with a turn over of up to £50,000.


Application to CMCs

Principles for Business (PRIN), Threshold Conditions (COND), Systems and Controls (SYSC), General Provisions (GEN), Dispute Resolution (DISP)

Will apply fully to CMCs as consulted.

Conduct of Business

Proposals to be implemented without change.

Third party lead generators

CMCs to carry out due diligence on lead generators, must not use a lead generator if they are not complying with regulations and must keep a record of their lead generator.

However, CMCs are not to be made directly liable for the actions of lead generators.

Recording calls

CMCs must record all calls with consumers and keep those for a minimum of 12 months after the case settles, is withdrawn, or “goes away”.


CMCs should set out their fee when marketing as a no win no fee. Lead generators will also need to comply with this requirement, and where they do not know the fee must give an indication of the likely fee.

On the issue of fees, the FCA will consult in the future on the issue of cost capping and whether to extend this principle to those CMCs dealing with personal injury claims.


Whilst the policy statement continues to set out further detail, essentially, CMCs will be subject to much the same levels of regulation as other FCA regulated entities such as insurers, IFA’s and brokers.

There have been steps to reduce blockages to authorisation, however, the additional regulatory burden and the cost of compliance with these requirements will see inevitably see some CMCs vacate the market, or drive them underground.

It remains to seen how these changes will influence the behaviour of CMCs but it is clear that there will be a greater degree of scrutiny of both CMCs and those that deal with them. Compensators would be well advised to maintain a watching brief and be ready to react in the event of new trends or dysfunctional behaviours.

Can we help?

We will be watching the activities of CMCs carefully to ensure adherence to the new rules. In the meantime, if you believe we can assist you, on this or any other matter, please don’t hesitate to contact us.

Rob Williams, Partner.

Bavita Rai, Partner - Innovation & Client Affairs

Doug Kier, Partner - Scottish Affairs.

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