Out-Law News | 06 Jun 2018 | 4:48 pm | 2 min. read
It is consulting on draft rules and guidance for CMCs, including how it proposes to authorise and supervise firms and the steps it will take in response to breaches of its rules. The consultation paper also covers changes to the voluntary jurisdiction of the Financial Ombudsman Service (FOS), which will become responsible for resolving disputes about CMCs.
The FCA will take over regulatory responsibility for CMCs in England and Wales from the Ministry of Justice claims management unit on 1 April 2019. It will also assume regulatory responsibility for CMCs in Scotland, which are not currently regulated, from this date.
"Three years in the making, the addition of CMCs to the ever-growing list of FCA responsibilities will be closely watched to see the impact on CMC behaviours," said insurance and wealth management expert Colin Read of Pinsent Masons, the law firm behind Out-Law.com.
"The FCA is keen to see CMCs treating customers fairly, and taking on due diligence and client money holding obligations as a means of encouraging greater professionalism among CMC businesses," he said.
Before any contract is agreed, CMCs would be required to provide potential customers with an information document setting out the services that they provide and an illustration of their fees under the rules proposed by the FCA. They would also be required to highlight to potential customers any free alternatives to using their services, such as ombudsman schemes.
Firms would be subject to new capital requirements linked to the type of business that they undertake, their income and expenditure and whether they hold client money. Those that hold client money would also be required to segregate this from the firm's own funds, hold it on trust on behalf of those clients and maintain accurate and up-to-date records identifying what money is held on behalf of each client.
CMCs would be required to record all calls with customers, and to keep those recordings for a minimum of 12 months. They would also be required to keep records of electronic communications, including emails and text messages. These requirements reflect the fact that "a large proportion of CMCs' business is conducted by telephone and this is where much of the harm in the market occurs, such as poor service or misleading or aggressive marketing", the FCA said.
The FCA has also proposed new due diligence requirements for CMCs that buy so-called 'lead lists' from third parties. It will be the responsibility of the CMC to ensure that the names have been obtained legally, and that the lead generator has appropriate systems and processes in place to ensure compliance with the relevant data protection, privacy and electronic communications legislation. CMCs will be required to keep a record of this process.
CMCs will be required to register for temporary permissions with the FCA in advance of 1 April 2019, regardless of whether they are currently regulated by the claims management unit or whether they are about to be regulated for the first time. Firms will then be allocated one of two application periods after 1 April 2019, during which they will be required to apply for re-authorisation or cease to carry out regulated activities altogether. New CMCs entering the market after 1 April 2019 will not be entitled to a temporary permission, and will instead have to apply for full authorisation before they can carry out regulated activities.
The individual accountability rules set out in the FCA's Senior Managers and Certification Regime (SM&CR) will apply to CMCs in line with their extension to other regulated financial services firms, which is due to happen towards the end of 2019. As the FCA has not yet finalised its rules for other firms, it will consult on how it plans to apply the SM&CR to CMCs at a later date, it said.
The FCA's draft rules and guidance consultation closes on 3 August 2018.