After years of riding roughshod across the financial services sector, the ambulance-chasing cowboys discovered there was a new sheriff in town at the beginning of this month.
From April onwards, claims management companies have fallen under the remit of the Financial Conduct Authority, and will now face regulatory requirements, which, hopefully, will ultimately mirror those of financial advisers and mortgage intermediaries.
The need for clients to be protected against mis-selling, and to have a transparent process available for meeting genuine claims for reparation, is something we can all support.
However, this service already exists through the Financial Ombudsman Service and, most importantly, it remains a free service for consumers.
I hope we will also start to see the extent to which they mislead consumers into making claims and what percentage of these claims are subsequently turned down.The decision by the FCA to regulate the claims management sector is a very welcome and positive step, particularly with the Senior Managers and Certification Regime on the horizon.
It is much less positive that these companies will not be required to pay into the Financial Services Compensation Scheme, as I believe having to contribute to the sector’s financial levy might make them a bit more careful in the way they approach the generation of new business.
It is disturbing to hear that more than 600 CMCs had already registered with the regulator at the time of writing this article.
One of the FCA’s reasons for extending regulation to CMCs was that it found 67 per cent of consumers who had placed a claim for compensation would not have done so if they had not been approached.
Supply and demand has always been a factor in the financial advice industry, but the increasing number of ambulance chasers suggests they are creating a false demand that is neither legitimate and producing positive results for no one other than themselves.
I look forward to the regulator taking a close look at a number of aspects regarding the way in which these operate, not least the outrageous charges they make, with some companies taking 10 per cent, 20 per cent or even 30 per cent of the compensation paid out.
I hope we will also start to see the extent to which they mislead consumers into making claims and what percentage of these claims are subsequently turned down.
Under the watchful eye of the FCA, I hope we shall see the CMC cowboys either set on the path towards lawfulness, or rounded up into the corral and put out of business.
Ken Davy is chairman of SimplyBiz Group
