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Calls for the FCA to take over Claims Management Companies regulation are wrong!

The financial trade press is swamped with the reporting of comments made by Jonathan Evans (chair of the All Party Parliamentary Group on financial services and insurance) in respect of the regulation of Claims Management Companies [CMCs]. Evans is quoted as saying, “I believe claims management firms need a serious regulator. It is perfectly clear the MoJ does not have the capacity, expertise or resource to be able to properly regulate CMCs. The MoJ register firms and deals with technical issues on details without proper conduct regulation. I believe it should be the FCA, it is the obvious place.”

Mr Evans claim is not accurate

One only has to look at the annual report of the Claims Management Regulator [CMR] so see that the claim by Mr Evan’s is not accurate. For the avoidance of any doubt, the CMR has teeth and uses them to deal with rogue CMCs. As the regulatory activities during the year April 2012 to March 2013 show the CMR refused 4 applications, authorised (with conditions) 6 applications, suspended 7 registrations, cancelled 211 registrations and issued 285 warnings. Not bad for a regulator which is accused of operating without applying “proper conduct regulation”.

Mortgages were moved to the FSA!

It strikes, me that we are back in the situation before statutory regulation of the mortgage industry. At that time there was a voluntary regulator which was effective in terms of regulation and cost-effective in terms of annual budget management. European legislators required a move to mortgages being statutorily regulated across Europe; hence the requirement for the regulation of mortgages to be moved from the Mortgage Code Compliance Board [MCCB] to the Financial Services Authority [FSA]. What was the result? Mortgages were not any better regulated (as evidenced by the lending debacle between 2005 and 2008) and the cost of regulation increased exponentially.

No need to move regulation

There is a lot of sense in the saying, “if it isn’t broke, don’t fix it”. The CMR is not broken, so there is no need to move regulation to another body. Of course, like in all industries, there are firms who operate within it who do not put the needs of customers first. Those firms need to be weeded out. What legislators, regulators, financial institutions/advisers and CMCs need to do is work together to raise the standards within the CMC profession – both within those firms who manage claims and those firms who receive them.

Eliminate cynical practices and consumer detriment

Frankly, the time of the All Party Parliamentary Group on financial services and insurance would be better spent eliminating the cynical practices of some financial institutions that have compounded the consumer detriment caused by having mis-sold products in the first place. There appears to be a growing desire to delaying genuine claims. The tactics include, but are not limited to, passing cases to the Financial Ombudsman Service (where they take two years to resolve – generally in favour of the customer where Payment Protection Insurance is concerned) and reducing the compensation by the inappropriate and spurious use of technical loop holes such as ‘comparative redress’ (which often results in an offer of payment for compensation of up to 35 per cent less than it should be).

Consumers need professional CMCs

As the tactics employed by certain financial institutions become more devious, consumers are more likely to need the help of a third party, such as a CMC, to manage their claim. Consumers need well regulated professional CMCs to work with them and for them to achieve redress where appropriate. To raise standards, the industry needs a specialist regulator who understands the business they are regulating – the CMR does. Let’s not make the same mistake twice. The MCCB knew the mortgage market and knew how to regulate it; what they lacked was statutory teeth. If the CMR needs bigger or better teeth, replace their existing set!

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The Benefits and Services of the Professional Financial Claims Association are intended to extend beyond its own membership. The Financial Claims Management sector needs a credible ‘voice’ at a time of change and increased scrutiny within the sector.