On the 4th August 2017 the Claims Management Regulator published its annual report summarising the performance of the regulator for the period April 2016 to March 2017. The report covers the main developments, achievements and progress made in claims management regulation over the last 12 months and sets out the Claims Management Regulation Unit’s (CMRU) priorities for the future.
The CMRU highlights in their report the Financial Guidance and Claims Bill which was introduced into the House of Lords in June and starts the legislative process of transferring responsibility for claims management regulation from the Ministry of Justice (MoJ) to the Financial Conduct Authority (FCA), and will establish a tougher regulatory framework than provided for under the Compensation Act 2006.
However, the regulator makes clear that they retain the responsibility to regulate the claims management sector, and will continue to deliver service under the current legislative framework, while working closely with the FCA and others to prepare for and deliver a successful transition.
Progress against Priorities
In order to deliver against the compliance priorities set out in last year’s annual report, the CMRU has carried out the following key work:
Nuisance Calls and Texts - 15 new investigations have been opened and several ongoing investigations from the previous year have been concluded. They have imposed large financial penalties on 5 CMCs, cancelled the authorisation of 3 CMCs, audited 111 CMCs and issued 40 warnings for direct marketing breaches. The CMRU have worked very closely with the ICO and other market regulators and the combined efforts, sometimes through joint audits of CMCs or execution of warrants of call centre premises they say have correlated with a notable decrease in complaints about nuisance calls.
Financial Claims - The CMRU have continued to target alleged non-compliant CMCs, particularly those accused of misleading clients during marketing and those where clients have been pressured into signing documentation during sales call and paying an upfront fee. During 2016/17, they have audited 108 CMCs, issued 27 warnings, issued financial penalties to 2 CMCs, cancelled the authorisation of 3 CMCs and imposed conditions on a further 2.
Personal Injury Claims - The regulator states they have continued their intensive programme of audits to check CMCs are complying with the referral fee ban and other conduct rules. They continue to target CMCs telemarketing personal injury claims services to ensure they are not encouraging clients to make a claim where they did not suffer an injury or exaggerate symptoms where they have. Their key work in the past year includes; carrying out 878 visits, 202 audits and issuing 50 warnings where rule breaches have been identified.
Unauthorised Activity - During the year, the CMRU have warned and issued formal cautions to a number of unauthorised businesses and initiated the successful removal of dozens of websites advertising claims services of unauthorised businesses.
CMC Activity and Turnover
The report states that applications for authorisation fell this year to an average of 9 applications per month compared to 16 per month in 2015/16. It outlines an almost 50% decrease in applications from businesses intending to operate in the personal injury sector and in the financial products and services sector.
This is likely to be as a result of proposed and imminent reforms in both the financial claims and personal injury sectors which may be making it less attractive for new businesses to enter the industry due to the future uncertainty and difficulties in business planning. The number of authorised CMCs overall has also reduced by 57% from 3,213 in 2011 to 1,388 in 2017, with the North West and London remaining the most popular locations for CMCs.
The total industry turnover declared by the regulator for the 12 months to 30 November 2016 was £726million, yet another decrease of 3% on the previous year. However, turnover in the financial claims sector increased slightly by 2% to £541 million, despite a reported reduction in PPI redress. Turnover for the personal injury sector decreased by 15% to £182 million.
Overview of Claims Sectors
It appears from the report that the number of regulated personal injury CMCs has fallen by 13% from last year’s figure with just over 750. The regulator states that there are still more personal injury CMCs than any other claims management sector. However, for many smaller CMCs, personal injury work is now subsidiary to other ancillary business activities. Although, having seen the emergence and decline of noise induced hearing loss claims activity in the previous period, the regulator recognises that this year has seen significant growth in activity around holiday sickness claims.
The number of CMCs operating in the financial products and services sector is down 15% from last year, according to this year’s report. It is explained that activity in the mis-sold packaged bank account market has stabilised, while complaints about mis-sold short-term (payday) loans have continued to increase during 2016-17.
Inevitably, the financial claims sector is likely to be affected by the FCA’s confirmed introduction of a deadline for making new PPI complaints, which will see anyone seeking compensation for mis-sold PPI having to make their claim(s) before 29 August 2019. Furthermore, the FCA have also issued rules and guidance related to how firms should handle complaints in light of the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd, which means that consumers may have new grounds to complain about PPI, which will also impact the sector.
Typically, relatively few CMCs actively operate in the four other regulated claims sectors including; employment matters, criminal injuries compensation, industrial disablement benefit and housing disrepair. However, the regulator highlights that in 2016-17 there has been growth in the housing disrepair market. This activity has often been part of wider claims activity around cavity wall insulation, solar panel installation and tenants becoming ill due to the poor maintenance of their property.
Compliance Priorities for 2017/18
The four main compliance priorities outlined above remain the same for the regulator for the year ahead and are likely to remain the same after regulatory responsibility has transferred. In particular, the regulator aims to robustly respond to changes and increases in non-compliant direct marketing as a result of significant reforms to be implemented during 2017/18 under the Data Protection Bill which implements measures in the General Data Protection Regulation (GDPR).
The CMRU states it will continue to insist that CMCs conduct sufficient customer fact finds before submitting enquiries and gather sufficient information to present a specific and non-generic complaint to the relevant financial services provider. They also wish to maintain close scrutiny of CMCs that take upfront fees for PPI cases to ensure content of sales calls is not misleading, and that clients aren’t pressured into signing paperwork and provide payment details without having enough time to consider information before making a decision.
The CMRU intend to closely monitor developments in the holiday sickness claims sector, to tackle non-compliant marketing, CMCs encouraging clients to exaggerate symptoms or make fraudulent claims, unauthorised activity and other serious misconduct. In addition, they aim to monitor the wider personal injury sector to ensure that any arrangements fully comply with the referral fee ban and take enforcement action where appropriate.
With regards to unauthorised activity, the regulator will again continue to monitor businesses that have surrendered their authorisation or had their authorisation cancelled to ensure that they do not continue to provide regulated claims services post-authorisation.
If you need advice on regulatory compliance, are being investigated or would like to appeal against enforcement please do not hesitate to contact Andrew Swan - Head of Regulation and Financial Crime or Sheila Ramshaw- Specialist in Regulation at Short, Richardson & Forth on 0191 232 0283.
A full version of the Annual Report can be accessed here: