The Financial Guidance and Claims Bill - Update
The Financial Guidance and Claims Bill (“the Bill”) continues its progress through Parliament and has reached the Report stage.
The Financial Guidance and Claims Bill (“the Bill”) continues its progress through Parliament and has reached the Report stage following completion of the Committee stage in the House of Lords.
The Bill provides for the transfer of regulatory oversight for Claims Management Companies (“CMCs”) from the Ministry of Justice (“MoJ”) to the Financial Conduct Authority (“FCA”), seemingly to include the transfer of the assets and employees of the Claims Management Regulation Unit and of complaints to the Financial Ombudsman Service (“FOS”).
Regulation of CMCs and other claims players
In our previous update on the Bill, we speculated that the Bill could create opportunities for CMCs to enter into new business arrangements with other organisations involved in the handling of claims such as Credit Hire (“CHOs”) and medical reporting organisations (“MROs”) and commented upon the need for these organisations to be regulated. It was, therefore, interesting to see the proposals to amend the Bill to bring CHOs and MROs within the regulatory oversight of the FCA, something which had presumably not been envisaged by Government when they initially announced their proposals following the Brady Review.
Perhaps unsurprisingly, those proposals were withdrawn on the basis that they would require consultation and were outside the scope of the Bill. However, the fact that these proposals were debated will have served to give oxygen to the issue, and gives rise to at least the possibility of future expansion of the provisions of the Bill to cover other classes of organisation.
In the past we have been vocal about the need to regulate all those players involved in the management of claims and have expressed our view that bringing CHOs and MROs within the same regulatory regime as CMCs would make logical sense. Whilst these proposals are out of scope for the Bill, it is our view that the extension of regulation to CHOs and MROs is an issue worthy of further consideration by Government to optimise attempts to tackle serious dysfunctional behaviour the claims market.
Ban on cold calling
Many commentators were surprised that the Bill did not include a ban on cold calling activities in personal injury claims. The House of Lords tabled amendments to insert a ban. However, they were rejected on the basis that it was too early for the FCA to decide on the rules needed to regulate the sector.
Whilst it is disappointing that the Government has not seen fit to tackle nuisance calls, texts and emails inciting the submission of spurious claims, there is a real question as to whether an outright ban would be workable. There are a number of business sectors that use cold calling as a legitimate form of marketing, and have done so for years without causing a nuisance. A blanket ban would stifle a vital revenue stream for these businesses.
A targeted ban applying only to those involved in financial services and/or personal injury claims is an alternative option but would be difficult to enforce, with most cold calling activities undertaken in countries outside of the European Economic Area. This places them outside the jurisdiction of UK and EU regulators and means that they would be unlikely to be deterred by a ban.
Our view is that a far simpler method of achieving the same result would be to ban anyone involved in the processing and administration of personal injury claims from benefitting from cold calling activities. Switching enforcement to the CMC and solicitor that ultimately benefits from the cold calling could have a positive impact in eradicating this behaviour.
The FCA and SRA would need to work collaboratively establishing a regulatory obligation on CMCs and solicitors to ensure as far as practicable that they are not accepting referrals from cold calling sources with an effective penal regime in place in the event of default. CMCs and solicitors would then be required to disclose their referral sources allowing regulators to investigate reports of malpractice. A number of possible penal powers could well come into play, ranging from simple but effective financial penalties, to perhaps the transfer of the claim from the solicitor/CMC, to another firm ensuring that the defaulting firm receives no financial gain from the claim.
Whilst such a process could still be open to exploitation from those intent on dishonesty, focusing resources on those regulated entities which are within the jurisdiction of the regulators at least gives them a fighting chance in stamping out this dysfunctional behaviour.
The Bill is due back before the House of Lords on 24 October before being rubber stamped and passed to the House of Commons for debate. With public opinion being so strong, especially on the issue of cold calling, we may see these measures resurrected at some stage before the Bill receives Royal Assent.
Can we help?
We will be keeping a watching brief as the Bill progresses through Parliament and will report back as soon as there are any further developments. In the meantime, should you wish to discuss this in more detail, or would like assistance with any other matter, please do not hesitate to get in touch.