May 14, 2018

CMCs frozen out by cold calling restrictions

Following the enactment of the Financial Guidance and Claims Act, Claims Management Companies will now be regulated by the Financial Conduct Authority, with restrictions placed on cold calling

The Financial Guidance and Claims Act received Royal Assent last week, with several changes made to the regulation of Claims Management Companies (CMC).

The Act now limits the circumstances in which a CMC may contact an individual, albeit an outright ban on cold calling by CMCs has not been introduced.

Regulations of CMCs

The regulation of CMCs, or those engaged in the carrying out of claims management services, has been transferred to the Financial Conduct Authority (FCA).

The FCA has the ability to place fee caps on the costs of a service provided by a CMC under their regulatory remit, and has wider ranging powers to control the actions of CMCs. It remains to be seen what such a cap will entail.

This move has been more broadly welcomed by the personal injury sector as part of efforts to minimise the role of unscrupulous operators, particularly in light of the proposed changes to the settlement of whiplash claims. The whiplash reforms have brought concerns that CMCs may look to fill the gaps left by solicitors.

Cold calling

A CMC may no longer directly market its claims management services unless they are contacting a 'subscriber' who has previously notified the CMC that they consent to the calls being made by the CMC, or someone else instructed by the CMC.

The claims management services referred to are those in relation to the making of a claim including:

  • Advice
  • Financial services or assistance
  • Acting on behalf of, or representing, a person
  • The referral of one person to another
  • The making of inquiries

The Act has not imposed a blanket ban on cold calling by CMCs as sought by many insurers, yet it is unlikely that many individuals will have consented to allow CMCs to make cold calls to them in the manner permitted by the Act in relation to third party insurance compensation claims.

What can we learn?

  • The relevant provisions of the Act relating to the issues set out above come into force on 10 July 2018;
  • The transfer of the conduct of CMCs to the FCA along with the restrictions on cold calling, are part of the Government's wide ranging package of reforms relating to personal injury claims. However, the Act does not transfer the regulation of MedCo organisations to the FCA, as was proposed by the House of Lords. This would have been further useful enforcement of those who might seek to circumvent the reforms for their own purposes;
  • Beyond the reforms set out above, the Act provides the Government with the ability to ban "unsolicited direct marketing" relating to pensions, which has long been a stated aim of the Government;
  • The Act does not establish a timetable for the rollout of such a ban, but it does provide that the Secretary of State should set out a draft instrument setting out proposed regulations by the end of June 2018, failing which, the Secretary must publish a statement by the end of July this year explaining the delay.