Financial Guidance and Claims Act becomes law

Out-Law News | 14 May 2018 | 10:20 am | 3 min. read

Legislation which will create a single financial guidance body, transfer the regulation of claims management services to the Financial Conduct Authority (FCA) and introduce a ban on pensions-related cold calling has become law.

The Financial Guidance and Claims Act has the potential to lead to a much stronger regulatory framework for claims management companies (CMCs) given the FCA's role as financial services regulator and strong consumer protection remit, according to insurance law expert Colin Read of Pinsent Masons, the law firm behind

"Financial services sector businesses will watch with interest to see how the new regulatory regime operates following the changes contemplated by the new Act," he said. "While the number of CMCs fell after the MoJ became involved in their regulation, complaints about CMC practice by consumers and business alike continue to be a theme."

"The FCA has plenty of experience in driving forward change within regulated firms. However, with plenty on its plate already, professionals involved in the complaints arena will be interested to see the extent to which the FCA is able to meet industry-wide concerns about CMCs," he said.

The new Act will underpin the creation of a new publicly-funded debt advice, pensions and money guidance body, which will replace the three existing statutory bodies with similar functions: the Money Advice Service, the Pensions Advisory Service and Pension Wise. The government has said previously that it expects the new body to be up and running "no earlier than autumn 2018".

It also gives the government the power to introduce a ban on "unsolicited direct marketing" relating to pensions. The legislation does not provide a timetable for the introduction of the ban, but requires the secretary of state to provide parliament with a progress report "explaining why regulations have not been made and setting a timetable for making the regulations" if no regulations have been published before the end of June.

Plans to broaden the cold calling ban to include claims management services were debated in the House of Lords, but were ultimately dropped. Work and pensions minister Baroness Buscombe said at the time that the new regulatory framework for CMCs would reduce the potential for "nuisance" calls by these firms, as they would be required to comply with "the FCA's tougher regulatory rules on marketing and advertising".

CMCs are currently regulated by the Claims Management Regulator, which is part of the Ministry of Justice (MoJ). The new legislation amends the Financial Services and Markets Act (FSMA) to transfer regulation of CMCs from the MoJ to the FCA, and also transfers the complaints handling function for CMCs from the Legal Ombudsman to the Financial Ombudsman Service (FOS).

Clause 17 of the new legislation provides the FCA with the necessary powers to restrict the fees which CMCs charge in order to protect consumers from disproportionate fees. It also requires the FCA to make rules restricting charges for claims management services dealing with claims for financial services or products.

The UK Treasury is currently consulting on draft regulations to enable the transfer of claims management regulation to the FCA, with a focus on the scope of regulation and the FCA's consultation requirements. The Treasury consultation closes on 1 June 2018. The FCA is currently expecting to assume responsibility for claims management regulation in spring 2019.

The government announced its intention to ban pensions cold calling in August 2017, after a consultation which found strong support for the measure. As envisaged, the ban would cover unsolicited calls, emails and text messages about pensions, and be enforced by the Information Commissioner's Office (ICO). There would be exclusions for legitimate businesses, including in cases where an existing client relationship exists.

"With the Act in place, this properly gets the wheels in motion for the cold calling ban," said pension scams expert Ben Fairhead of Pinsent Masons. "However, there are a few stages to be gone through before a ban will actually be in place given we now need to await the actual regulations that will implement it – and we can't be absolutely certain how quickly those will be produced. In any event, the fact remains that the ban, whilst welcome, will have its limitations in combatting pension scams."

"Scams continue to evolve and public awareness remains important, so it is good to see from The Pensions Regulator's recently-published corporate plan for 2018-21 that it is intending to refresh its anti-scams campaign again. The updated Code of Practice is also coming shortly," he said.