Terms of FCA study into claims management services set out

The FCA announced that it was opening a market study into claims management services earlier this month. Its plans to examine whether business incentives and funding models, including opaque offshore funding structures, are driving poor conduct, form part of the terms of reference for the review (19-page / 464KB PDF) that the regulator has now published.

“Firms are supported by various funding structures,” the FCA said. “For example, firms can take on external debt financing and face interest costs. Others can be funded by private equity or private credit, with a focus on generating returns for their shareholders, or by third party litigation funding, including portfolio funding. We will explore how different funding structures influence firms’ operational and growth strategies, including the extent of offshore funding activity."

In its review, the FCA also intends to examine the consumer journey when making claims via claims management companies (CMCs) – including how firms find and advertise to consumers, and how well consumers are kept informed and supported. The regulator will also look at whether firms are providing value for money, including existing fee cap arrangements, as well as whether firms have the financial resilience to support the large volumes of customers they claim to serve.

The FCA will also explore whether, and if so how, consumers are impacted by the different ways firms operating in the claims management sector are regulated, despite carrying out “economically similar activities”. Claims management companies (CMCs) are subject to FCA regulation, while law firms are regulated by the Solicitors Regulation Authority (SRA), for example.

“As part of our work, we will explore whether this fragmentation may create scope for regulatory arbitrage and/or uneven compliance costs,” the FCA said. “We will also look at whether harmful practices could be arising at the edges of regulatory regimes, given the dispersion of responsibility for advertising, data use, pricing and conduct across different regulators, and if so, whether these have any impact on competition and consumer outcomes.”

The FCA intends to work closely with the SRA and other regulators when undertaking its market study. It is due to report on its study by 18 May 2027. Stakeholders have until 19 June 2026 to share their views on the scope of the review with the regulator.

Jacob Hay of Pinsent Masons, a civil litigator specialising in disputes in the financial services sector, said: “The FCA’s announcement highlights that poor practices on the part of some CMCs cause real prejudice to consumers, who can be left ‘harassed, confused, potentially misled, and out of pocket’. The behaviours highlighted by the FCA include unwanted texts and emails, misleading adverts, promises of unrealistic returns, unfair cancellation fees, consumers being signed up without meaningful consent and, reportedly, fraudulent signatures.”

“These are serious concerns for the FCA, which has responded by launching a comprehensive review of the sector. The FCA’s collaborative approach with the SRA ought to ensure that the full claims management ecosystem can be placed under scrutiny,” he said.

“There is of course no suggestion that CMCs, when properly operated, do not help serve the interests of their customers. However, there is a recognition that poor CMC practices can have the opposite effect, and place unnecessary strain on firms. That strain can, in turn, hamper innovation and growth,” Hay added.

At the time the FCA announced its market study, Jonathan Cavill and Anthony Harrison of Pinsent Masons described it as one of the most significant regulatory interventions in the claims management sector since CMCs came under FCA authorisation in 2019.

Commenting in response to publication of the terms of reference, Cavill said: “What’s interesting about this thematic review is that the FCA is looking beyond individual poor behaviours to the commercial engines behind them, for example how lead generation, funding structures and scale incentives can push firms towards volume over outcomes, with predictable consequences for consumer harm and market confidence. For the sector, the practical message is that ‘good conduct’ now has to be evidenced. This includes how customers are sourced and informed, through to claim validation, fees and operational resilience.”