the alliance of claims companies · financial claims. members are not however drawn from the...

CP 18/15 Alliance of Claims Companies 1

Consultation Response

The Alliance of Claims Companies

FCA Consultation Paper CP18/15

Claims Management: how we propose to regulate claims management companies

August 2018


It is important to note that CMCs provide access to justice for a wide range of

consumers who may be unwilling or unable to bring a claim themselves.

A well-functioning CMCs market can also act as a check and balance on the conduct

and complaint handling processes of businesses, thereby benefitting the public

interest.

The overwhelming majority of stakeholders, including the banking and

insurance industries which have been hardest hit by CMC misconduct, argued that there is a legitimate need for CMCs

and that the Government should not seek to regulate them out of existence.1

1 Independent Review of Claims Management Regulation. March 2016. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/508160/PU1918_claims_management_regulation_review_final.pdf


Introduction The Alliance of Claims Companies (ACC) was founded in September 2015 and is the independent, representative, trade association for financial Claims Management Companies (CMCs), who believe in working together to promote fair customer outcomes. The ACC was formed to promote best practice and excellent customer service across the claims management profession and to ensure consumers receive redress where they have been let down or mis-sold by their bank, lender or service provider. We are formed on the basis of collective knowledge and expertise of its members, and membership of the Alliance is open to qualifying CMCs, who adhere to our Guiding Principles. Our ethos is that regulators should act to protect consumers from bad practice in the financial services industry and promote consumer access to justice. We are therefore committed to better application of the rules of authorisation to ensure that the claims management profession operates in the best interests of the consumer at all times, and it is with this in mind that we are committed to working with the Financial Conduct Authority (FCA) as the process of transfer of regulation evolves to ensure the best outcome for the consumer, and a fair and equitable rulebook for our members. The ACC has 60 CMCs as members and these range from large scale operations with over 900 staff to small micro businesses with less than 10 employees. Members are drawn from England, Scotland and Wales and include CMCs, solicitors’ practices and accountancy firms. These members represent well over 50% of the volume of current financial claims within the profession, and therefore the ACC is truly the representative voice of CMCs dealing with financial claims. Members are not however drawn from the Personal Injury (PI) sector. The ACC has amongst its membership some of the UK's biggest CMCs such as The Claims Guys, We Fight Any Claim, Allay Claims, Brunel Franklin, and The Fair Trade Practice and it operates under a set of Guiding Principles, which all members must adhere to, a copy of which is attached at Appendix 1. Our goal is to provide consumers with confidence in financial claims management companies and to allow the greatest number of consumers to have access to justice in financial claims. We operate under shared best practice and our Guiding Principles allow us to remove members if their actions were detrimental to consumers.


It is vital that CMCs are able to exist to aid consumers in making claims to allow access to justice and to ensure banks and other financial institutions are not allowed to get away with bad behaviour. This is why we exist, to allow good CMCs to help consumers, to aid other CMCs to become good CMCs where possible, and to help regulators identify and remove bad CMCs so that consumers can have confidence in the profession.

Overview 1Integrity Afirmmustconductitsbusinesswithintegrity.2Skill,careanddiligence

Afirmmustconductitsbusinesswithdueskill,careanddiligence.

3Managementandcontrol

Afirmmusttakereasonablecaretoorganiseandcontrolitsaffairsresponsiblyandeffectively,withadequateriskmanagementsystems.

4Financialprudence Afirmmustmaintainadequatefinancialresources.5Marketconduct Afirmmustobserveproperstandardsofmarketconduct.6Customers'interests

Afirmmustpaydueregardtotheinterestsofitscustomersandtreatthemfairly.

7Communicationswithclients

Afirmmustpaydueregardtotheinformationneedsofitsclients,andcommunicateinformationtotheminawaywhichisclear,fairandnotmisleading.

8Conflictsofinterest Afirmmustmanageconflictsofinterestfairly,bothbetweenitselfanditscustomersandbetweenacustomerandanotherclient.

9Customers:relationshipsoftrust

Afirmmusttakereasonablecaretoensurethesuitabilityofitsadviceanddiscretionarydecisionsforanycustomerwhoisentitledtorelyuponitsjudgment.

10Clients'assets Afirmmustarrangeadequateprotectionforclients'assetswhenitisresponsibleforthem.

11Relationswithregulators

Afirmmustdealwithitsregulatorsinanopenandcooperativeway,andmustdisclosetotheFCAappropriatelyanythingrelatingtothefirmofwhichthatregulatorwouldreasonablyexpectnotice.

FCA Handbook PRIN 2.1 The Principles

The very heart, and the foundation of FCA regulation rests in the Principles for Business as detailed above, and it is from this standpoint that the FCA has approached the task of preparing the draft Claims Management Conduct of Business Sourcebook (CMCOB) and associated regulations that will affect CMCs in this consultation. It must be stated clearly that this process has been in development since the then Chancellor, George Osborne, announced in his budget of Summer 2015 that

‘we’re announcing a major review of the regulation of claims management companies and we’ll cap the charges they can apply to their customers.’


This led, in October 2015, to HM Treasury and the Ministry of Justice commissioning a fundamental review of the regulation of claims management companies. This followed what was described as "concerns from consumers and affected sectors, particularly financial services, that CMCs fuel speculative unmeritorious claims for compensation and create a significant social nuisance through unsolicited calls and texts, misleading marketing and high charges" Carol Brady, a non-executive member of the Claims Management Regulation Board and Chair of the Trading Standards Institute, led the review which was completed in early 2016. The ACC fully engaged with the Brady Review, and indeed met with Carol Brady and her team as part of the review process. It is perhaps worth mentioning some of the issues we raised at that time here, and the FCA team have frequently reminded us that this work has very much been driven by the Brady Report. In a submission from our Founder Members, they argued that:

• The reasonable conclusion is that they (the proposals) are intended to mitigate the impact on financial institutions of their own wrongdoing in mis-selling PPI, and making secret commissions.

• The other aspect of this appears to be an attempt to curtail the success of CMCs in gaining redress for customers.

• It is generally accepted that circa £50bn worth of PPI was sold. As Lord Turnbull said, the sales were close to fraudulent. The product was represented as providing valuable cover and peace of mind. In fact, it was toxic: extremely expensive, with exclusions so onerous that a successful claim was (at best) improbable. This was reflected in Claims Ratios generally worse than 30% - and often much worse than that.

• There has been a history of regulatory failure, both in allowing this to happen in the first place, and then in failing to enforce remedial action.

• CMCs have accordingly been responsible for getting back the bulk of all that has been recovered. Those who used CMCs would generally not have recovered their money for themselves. In some cases, they were paying someone else to do a job for them; in a large number of others they did not feel capable - and, given their vulnerability, the obstructiveness of the financial institutions, and the unnecessary difficulty of taking action, they were right. There is a perception that FOS would act as a safety net, but that is not true: mainly because claimants just would not even start claims, let alone refer them to FOS. (There are also some systemic issues in FOS’s dealing with PPI cases).

• CMCs in fact represent the most effective agency not just for getting back money misappropriated from ordinary people, but also for making financial institutions behave better.


• In a better world, there would be less need for CMCs; but that is not the world we live in, and there seems no appetite on the part of the Treasury to change it for the better. CMCs are therefore essential. They are a market mechanism, which benefits consumers.

• Better regulation of CMCs is desirable, if it is genuinely done to promote a vigorous, fair market for consumers. A regulator committed to this - whether the current one or a new one - would be welcome.

• As well as benefitting consumers, CMCs provide a great deal of employment both directly and indirectly – it would be reasonable to estimate in excess of 50,000 jobs. This would not for a minute justify a bad industry; but it is a further reason to treat a good one fairly.

• Whilst in principle we would not be opposed to the transfer of regulation to the FCA there would need to be a number of detailed controls that ensure that the regulation of CMC’s does not conflict with the same organisation regulating financial institutions.

It is also perhaps worth restating the view (as expressed to the Brady Review) from our Founder Members as to why consumers choose to use CMCs:

• In 2008, the Financial Ombudsman (FOS) wrote to the Financial Services Authority to say it thought the problem was so serious, and general, as to mean there ought to be a redress exercise. The FSA could have done this pursuant to section 404 of the Financial Services and Markets Act. This would have meant very large numbers of clients could be compensated without the need for a formal complaint by anyone. That this was not done has led to the need for CMC’s in the PPI marketplace

• Many consumers lack the time or expertise to assess whether they’ve been mis-sold a product or to handle the claim process.

• For many of the population a PPI complaint is prohibitively frightening and complicated. It would not be unreasonable to assume that the most vulnerable were at risk of being sold it as evidenced by the FOS annual report which shows that complaints about PPI come from socio economic groups D & E2.

• Customers accept that having this work carried out by experienced claims management companies is of value as it saves them from having to engage with the problem – and from the potential anxiety of dealing with the institution which wronged them in the first place.

2 ‘We uphold a relatively high number of PPI complaints. And because PPI accounts for a relatively high proportion of the complaints brought to us by DE consumers, DE consumers are more likely than other groups to have their complaints upheld.’ FOS Annual Review 2014/15. http://www.financial-ombudsman.org.uk/publications/ar15/ar15.pdf


• Consumers also benefit from having an expert eye looking over the documentation – this perfectly reasonable choice is no different from using a lawyer to handle a divorce or write a will; a travel agent to book a holiday or a barber to cut one’s hair – all these services can be done without the use of a paid service but consumers choose to have expert, professional assistance.

• The poor standard of complaints handling by some banks resulted in many consumers feeling they could not trust their provider. This can be evidenced by the fact that there have been a series of FSA and FCA fines and interventions, but the banks appear to have treated these almost as a cost of doing business rather than as reasons to modify behaviour. A number of other major institutions have been fined in relation to poor complaint handling, and Lloyds twice (including a record fine of £117 million)3. It is clear that the consumer cannot and should not be expected to trust their provider when it comes to complaint handling.

• Consumers became increasingly aware that they may have suffered an injustice, were not being proactively offered recompense, and did not trust their bank to fairly handle their complaint - CMCs stepped in to handle compensation claims on behalf of consumers.

• And for those who were not aware, CMCs have been able to carve out a distinct role by bringing consumers attention to the issue of PPI mis-selling and redress. This action is vital given that according to the FCA in 20154 43% of the population do not even know that there is a PPI problem (74% of those surveyed had heard of PPI and only 77% of them understood that there might be a problem with it).

So, it is clear that our members, and the view of the ACC, is that we welcome better regulation, and the associated protection for the consumer, but with a clear set of safeguards that allow CMCs to be able to continue to aid the consumer and bring the financial services industry to account for their systemic culture of wrongdoing.

‘It was clear that the banks sales-based culture had cost their shareholders dearly and that investors needed to do more to support the process of

cultural change in the UK’s banks. The report5 found that between 2000 and November 2014 UK retail banks and building societies had set aside

over £38.5 billion to pay compensation to customers. This meant that £1 in every £4 of pre-tax profits earned by the banks had been paid out in

redress and associated administrative costs.’

3 https://www.fca.org.uk/news/press-releases/lloyds-banking-group-fined-£117m-failing-handle-ppi-complaints-fairly 4 https://www.fca.org.uk/publication/consultation/ppi-research-analytical-report.pdf 5 http://newcityagenda.co.uk/wp-content/uploads/2014/11/Online-version.pdf


‘The 2014, 2015, 2016 and 2017 results brought a wave of additional provisions for Payment Protection Insurance, investment product and

packaged bank account mis-selling and breaches of the Consumer Credit Act. Three and a half years later the total costs have increased to over £63 billion. The profitability of UK retail banks has been imperilled by persistent

misconduct and an aggressive sales-based culture. This has made every citizen poorer through our pension funds and our ownership of bailed out

banks.’6

Top 10 financial scandals in UK retail banking7

Type of Misconduct Provisions (£ billion) Years provisions were incurred PPI Mis-selling 45.9 2010-2018 Interest Rate Hedging Products Mis-selling

4.8 2012-2015

Endowment Mortgages Mis-selling

1.9 2002-2006

Mortgages 1.4 2002-2017 Packaged Bank Account Mis-selling

1.4 2014-2017

Consumer Credit Act Breaches

1.0 2013-2015

Investment Products & Advice Mis-selling

0.9 2003-2015

Pensions Mis-selling 0.6 2000-2002 Unfair unauthorised overdraft charges

0.6 2006-2007

ID theft and Card Protection Insurance Mis-selling

0.5 2014-2015

Other issues / Miscellaneous

5.4 2000-2016

Total 64.4 2000-2018

6 http://newcityagenda.co.uk/wp-content/uploads/2014/11/Online-version.pdf 7 http://newcityagenda.co.uk/the-top-10-retail-banking-scandals-50-billion-reasons-why-shareholders-must-play-a-greater-role-in-changing-bank-culture/


‘The scandals covered a wide range of products and practice. But key root causes of these issues include poor quality products, inappropriate staff

bonus schemes and an aggressive sales-based culture.’8

And we feel that this view from another of our Founder Members is a fair illustration of how we are approaching this consultation response:

‘We think it is clear that the banks continue to mistreat their customers.

We know that if it were not for the work of reputable CMCs such as ourselves that many clients would not recover the compensation to which

they are entitled.

The Banks approach to the whole mis-sold PPI scandal is to attempt to deflect the attention from them and shift the blame on to the CMC’s and

their clients.

We would ask that you do not allow this to happen and instead of limiting our remit, you work with us to continue to play our role as the true

supporters of the client’s rights and to ensure the right outcome for the client.’

‘Firms’ culture and governance is a priority for us. Culture in financial services is widely accepted as the root cause of major conduct failings in

the industry in recent history.’9

8 http://newcityagenda.co.uk/the-top-10-retail-banking-scandals-50-billion-reasons-why-shareholders-must-play-a-greater-role-in-changing-bank-culture/ 9 FCA Regulation Roundup email. 26th July 2018. Jonathan Davidson.


‘Harms’ in the Current Market It is clear from the FCA’s Consultation Roadshows, meetings between ourselves and the FCA Transition Team, and the CP itself, that the basis for the FCA’s approach in forming a regulatory framework for CMCs, and the basis behind CMCOB are what they perceive as ‘harms’ in the current market.

When working well, CMCs can provide useful services for customers. However, the Brady Review found a number of harms in the CMC sector,

which we have discussed with the CMR. This is further reinforced by complaints data on the sector published by the LeO, and information we

have from other sources such as our Financial Lives survey.10

It should be clearly stated here that the Brady Review was published in March 2016 – some 29 months ago. It would have of course considered data and market intelligence from 2015 – making the assumptions and inferences and references to ‘current harms’ somewhat historical. Indeed, to deem analysis and data examined from 2015 as in any way indicative of the data, trends and behaviours of the market in August 2018 is somewhat disingenuous at best, and is at worst a dishonest application of data to suit a political agenda. It can in no way be described as current.

10 CP 18/15. Section 2.1


LeO Complaints Data The CP talks of using complaints data from the Legal Ombudsman to illustrate current harms in the market. Again, LeO data is by nature historical, though it at least provides us with data up to 31 March 2018. Let us examine the data in more detail:

11

What is clearly illustrated here is that complaints accepted by the Legal Ombudsman against CMCs have halved since they assumed responsibility for the sector in 2015. This clearly shows that perceived harms in the market are not necessarily borne out by LeO data as the FCA suggest.

What is important to note also is the pay-out figures for PPI redress, as this gives us a sense of scale as to the number of consumers seeking redress – in the millions – which generate only 1212 accepted complaints against CMCs in the last financial year. This does not in any sense show a wide scale consumer harm being perpetuated by CMCs.

11 LeO Annual Reports 2015-16; 2016-17; 2017-18. http://www.legalombudsman.org.uk/helping-cmcs/#publications

0

500

1000

1500

2000

2500

2015/16 2016/17 2017/18

2438 2290

1212

LeO accepted complaints against CMCs 2015-18

CMC Complaints


12 Further to that, as PPI redress figures increase in 2018, it can be seen that complaints decreased. The evidence of LeO clearly does not show there is a systemic issue with CMCs leading to consumer detriment. The FCA further talks of CMR Reports as evidence of current harms in the market. Let’s examine the CMR data as presented in their annual reports:

12 https://www.fca.org.uk/news/ppi-monthly-refunds-compensation


13 This data clearly shows a downward trend in all activities related to potential misconduct by CMCs (and these figures include all CMCs not just financial CMCs). It does show a jump in warnings issued in 2017/18 bucking the trend for these to be falling, but they still are at levels below those in 2014/15. For the most serious harms, cancelled authorisations show a general downward trend, indicating historical behaviours have been modified to the benefit of consumers. The evidence of the CMR clearly does not show there is a systemic issue with CMCs leading to consumer detriment. We have previously expressed our concerns with the historical nature of data in the Brady Report, so it would appear that the FCA are reliant on their own data to identify that there are current harms in the market. Let’s look at that data: ‘Only 40% of UK adults are confident in the UK financial services industry, and only 31% feel that financial firms are honest and transparent.’14 One can clearly infer that the financial services industry are banks, lenders and others who mis-sold financial products to consumers.

13 Claims Management Regulator Annual Reports: 2016/17 and 2017/18. https://www.gov.uk/government/collections/claims-management-regulator-annual-reports 14 https://www.fca.org.uk/publication/research/financial-lives-consumers-across-uk.pdf#page=14

0 4 1 0

105

66 6945

296

247

196

252

4 7 60

50

100

150

200

250

300

350

2014/15 2015/16 2016/17 2017/18

CMR Activities 2014-18

Authorisation Suspended Authorisations Cancelled Warnings Financial Penalties


The survey does however point to one potential source of ‘harm’ in the current market: ‘In the last 12 months, 69% have been approached, unsolicited, by a claims management company.’15 It is worth noting that the Methodological Note to the survey tells us that only 2,593 respondents were asked the questions on Claims Management16, and that the majority self-completed online surveys after being invited by letter. We are not told how these respondents were sampled or selected. In conclusion, we are sceptical as to the size, scale and associated consumer detriment derived from the FCAs ‘current’ harms in the market and will continue to challenge rhetoric that suggests otherwise. The industry, in financial CMCs, is seeking to further professionalise and the existence of the ACC clearly illustrated the desire to self-regulate as far as possible and to a widespread desire to drive up standards across the board and to drive down potential risks and harms to consumers. That is the current market picture, and the starting point we believe where the FCA should consider the drafting of CMCOB and associated regulatory decisions that will impact on the CMC market. We now move to consider the questions as set out in CP 18/15.

15 https://www.fca.org.uk/publication/research/financial-lives-consumers-across-uk.pdf#page=14 16 https://www.fca.org.uk/publication/research/financial-lives-consumers-across-uk.pdf#page=14 (Page 115)


Do you agree with our proposal to apply our Principles for Businesses to CMCs? Yes. The Principles are very much a re-stating of the rules and the culture by which our member firms, and all good CMCs currently operate their business, and as such we have no issues with this proposal. We clearly see the merit in ensuring that in particular PRIN 6 & 7 are cornerstones for the development of the regulatory regime for CMCs.

Do you have any comments on the application of COND to CMCs? We raised our concerns with the FCA Transition Team when our Executive Committee met with Garry Hunter and his team on the 24th July 2018 in relation to COND. Our concern is that there remain a number of CMCs who are subject to regulatory action, enforcement action and who are under investigation by the CMR and in some cases these actions have been ongoing for years rather than months. We want to ensure that any CMC who seeks FCA authorisation and maybe affected by this issue will be considered on an individual case by case basis, based on the FCAs assessment of the issues that the CMC are being investigated for, and not merely accepting the word of the CMR in these cases. We would welcome the opportunity to work more on this issue with the FCA as they develop their views towards the publication of the associated PS for this paper as we want to ensure that as many good CMCs as possible reach the relevant threshold. We would welcome the FCAs interpretation of what they would constitute as ‘serious previous misconduct’17 leading to firms not reaching the level to achieve authorisation as we move towards temporary permissions and authorisation. Other than this issue, we have no further concerns about the application of COND, and we would want to ensure that they are as consistently applied to all CMCs as they are to all other FCA regulated organisations.

Do you agree with our proposal to apply SYSC to CMCs? Yes, we believe that the full application of SYSC will contribute to an effective GRC framework. Systems and processes are the structures of highly efficient businesses and we believe that the application of SYSC will ensure that all CMCs are held to the same standard. We would urge a sensitive approach to the introduction of this element as it one of the elements of the FCA Handbook that will likely be a challenge for all firms to achieve from a standing start as the standards required in SYSC are significantly different than that of the existing regulation and will require a period of adjustment and a cultural shift. However, we reiterate that we believe this will lead to a more professional CMC industry and lead to further safeguards for consumers.

17 CP 18/15 Section 10.3


You may wish to note that the ACC in association with a leading commercial legal practice has introduced a compliance package for its members (and others) that will lead them through the application process from now to full authorisation. This will include a full analysis of where firms are today, and undertaking all of the necessary work to ensure that all the elements of FCA authorisation are complied with. This will we hope lead to a high standard of applications from those member firms who use this process, and will ensure a further level of professional self-regulation amongst the industry in seeking to achieve the standards required. Again, this is a positive development for consumers.

Do you agree with our proposal to apply GEN to CMCs? Yes. These are items that all CMCs are currently subject to and adhere to.

Do you agree that CMCs should be obliged to comply with these proposed general conduct of business rules? Yes.

Do you agree that CMCs should be obliged to comply with these proposed rules on using third-party lead generators? Yes. We currently have a regulator that often incorrectly applies the rules around these areas. We would urge the FCA to ensure that they liaise closely with the ICO around the issues contained therein around GDPR. There are many complexities around data protection and we would expect a clear collaboration between the FCA and the ICO to ensure that they both undertake their roles in these areas co-operatively as opposed to the FCA duplicating the role of the ICO. This would avoid incorrect advice being given to CMCs and ultimately leading to consumer detriment as a result of incorrect advice.

Do you agree with our proposal to require CMCs to record all calls and electronic communications with their existing and potential customers? We would urge the FCA to seek guidance from the ICO in relation to this issue, as our membership have divided views over the issues around call recording and we have a number of concerns around the application of GDPR in relation to keeping non-customer calls for 12 months. There are clearly issues here around the right to be informed, fairness, and the retention of personal data for those calls which do not lead to a consumer becoming a customer of a CMC.


Whilst we clearly see the benefit in safeguarding CMCs against spurious complaints and protecting the consumer in many instances, we do have concerns around some of the proposals. We would not wish to see regulatory divergence in this area to the detriment of CMCs (do all lenders have to record all calls?) and we would have concerns around the increased costs for CMCs in complying with this element of the regulations.

Do you agree with our proposal to require call recordings to be kept for a minimum of 12 months from the latest of the events specified at paragraph 4.10 above? Again, we would ask the FCA to seek further guidance from the ICO in relation to this requirement in relation to GDPR. Some CMCs will also need to invest in equipment and storage facilities for call recording storage, and in fact, in many areas it would require a human resource to manage a compliant call recording regime under these proposals. It is not clear from the cost benefit analysis whether the human resource has been considered.

Do you agree with our proposals for marketing by CMCs? Yes and No. Currently CMCs should adhere to all relevant marketing regulations (e.g. CAP code and the CMRs marketing and advertising guidance) and we would want to see that any new regulations pertaining to marketing are consistent across the range of firms authorised by the FCA, and if they are not we would question why we would need to endure stricter regulation in these requirements. We would urge the FCA to have a clear and consistent application of marketing regulations across their regulated firms. We would welcome the evidence of consumer detriment arising from current CMC marketing that does not meet the proposed requirements – especially in relation to signposting consumers to ‘free alternatives’ (We note that it is a requirement of debt management firms to signpost free alternatives in financial promotions pursuant to CONC 3.9.4A however we believe the debt management industry serves predominantly vulnerable consumers where the benefit of using a free alternative is very different, i.e. potentially help someone get out of debt quicker). We also have concerns about CMCOB 3.29R – in relation to ‘No Win No Fee’ financial promotion rules and cancellation fees. We believe this is prohibitive and in fact draconian, and somewhat discriminatory against CMCs and would seek further consideration of this requirement that is fair and equitable and would welcome the evidence of consumer detriment that has led to this requirement being proposed.


Do you agree with our proposals for existing pre-contract disclosure requirements? We would argue that this is already undertaken by CMCs in respect of their Terms and Conditions. We also have concerns around the prescribed nature of the fee illustration proposed by the FCA is less clear and fair to consumers than the current rules, in particular the various scenarios in which redress may be applied. For example, under the proposed rules it is not a requirement to provide a fee illustration where the redress is set off against any outstanding debt, we believe that this could lead to greater consumer harm. We would question whether the relevant required information can in fact be placed on a single page. We offer the FCA our knowledge and expertise in forming a joint working party to develop this proposal further that would satisfy the needs of the industry, the FCA, and consumers.

Do you agree with our proposals for ongoing disclosure? We believe that all good CMCs keep their customers updated and already adhere to these requirements. We would seek further clarification as to what the FCA determine is ‘key information’ in relation to this requirement to ensure that there is no ambiguity and a consistent approach. Further to that, in relation to 4.32 – CMCs cannot make customers aware of the level of redress until the lender makes a final offer so it would be impossible to produce a fee estimate in this sense as it would lead to consumer detriment which we seek to avoid at all costs.

Do you agree with our proposals for collection of fees by CMCs? In relation to this point we urge the FCA to consider the opportunity to eliminate the requirement for the collection of fees altogether and the associated benefits this would bring to:

• consumers (and in particular vulnerable consumers) • the industry as a whole, and • the FCA in terms of a more effective achievement of stated objectives

We believe this is a perfect opportunity for the FCA to introduce a range of substantive benefits to further enhance achievement of its own objectives.


In principle, the current practice of the more enlightened lenders who respect the contractual agreement between the CMC and the consumer and accede to the request to pay the compensation funds directly to the CMC should be replicated across the industry. We believe that if lenders were to pay the CMCs fee directly to the CMC and the net proceeds directly to the consumer this would provide the following benefits:

• Consumers won’t have the added burden of arranging the transfer of funds to the CMC

• Vulnerable consumers have one less part of the process to concern themselves about

• Financially vulnerable consumers aren’t compromised and confused by the likes of overdrafts consuming the funds in the all too common scenario whereby lenders send compensation funds directly to clients’ personal accounts.

• There is no possibility of arrears or collection demands for financially vulnerable consumers

• CMC cash flow will be improved by quicker payment. Positive cash flow is a major advantage in a wind down scenario thus reducing this risk to the consumer.

• There will always be a ‘work in progress’ amount of fees due to the CMC going through the lenders payment process which provides an additional level of prudential resource

• CMCs will not hold client money and therefore pose less of a risk to client detriment • There is no client asset therefore no need for a CASS oversight officer

Alternatively, if the full amount of the compensation is paid to the CMC for them to pay the consumer then similar benefits will be realised.

Do you agree with our proposed application of the existing SUP rules to CMCs? Yes. We believe this is not a great departure from current rules. We welcome the FCAs clarification around the definition of an auditor.

Do you agree with the new notification requirements and guidance we are introducing into SUP 15? Yes, as we believe these are consistent across the FCA regulatory landscape.


Do you have any comments on the reporting requirements set out in this CP and the accompanying legal instrument? Again, we believe that this is consistent with the requirements for all FCA regulated firms and as such we have no concerns with the introduction as it almost directly replicates much of the information that CMCs currently provide to the CMR.

Do you agree with the proposal for the FCA to impose an administration fee on CMCs for late data submissions? Yes, though we would like to see an appeal process for any exceptional circumstances that may affect the submission process.

Do you agree with our proposal to apply bespoke prudential standards to CMCs, other than lead generators, and to separate these CMCs into two groups for the purposes of applying prudential requirements? Yes – however we do not believe that the current tiering of two classes of CMCs is sufficient. We feel that there may need to be more Classes of CMCs than Class 1 and Class 2. We would welcome the opportunity to work further with the FCA on an appropriate tiering mechanism for the profession.

Do you agree with our proposal to set the prudential resources requirement for CMCs, other than lead generators, on the basis of a fixed minimum amount and the fixed overheads requirement? We have concerns around what the FCA determine as fixed overheads. Costs such as advertising and marketing costs vary with activity levels and are directly correlated to sales volumes and therefore classed as variable costs. The majority of staffing costs tend to be process related in CMCs and as such vary with volume of claims and are therefore classed as variable costs. We believe more work needs to be undertaken by the FCA in relation to an appropriate level of prudential resource requirement for CMCs. We know that this issue was raised at the roadshows and again by our Executive Committee when it met with Garry Hunter and his team on the 24th July 2018. One scenario that was provided by a representative of the FCA where a firm might continue to market where it was looking at imminent closure due to financial pressure, was where it would look to trade itself out of a precarious financial position. However, this scenario would not be applicable given that under the proposed rules, firms must meet the prudential resource requirements by August 2019, the same month the PPI deadline takes effect.


Again, we would be happy to work with the FCA to determine a calculation that meets the requirement of the FCA, the claims management profession, and the consumer. We would recommend requirements should be aligned to a more current indicator of activity levels such as the volumes of transactions recorded through the client account.

Do you agree with requiring CMCs that hold client money to have additional prudential resources and/or do you feel the level we propose is appropriate? This follows the tenure of our comments to the above question. It is clear that the level of resources proposed is not adequate or appropriate. Asking all CMCs to have a single standard figure of extra requirement is patently absurd. Some CMCs process 10 claims a week whereas some process 1000, and it is clearly wrong to suggest that if both of these were to hold client money (and we re-state that we would like to see the FCA press to introduce a rule that banks should pay CMCs fees directly and consumers the remaining redress amount directly – this would negate the need for CMCs to have a client account) that the same amount would be appropriate in both cases.

Do you agree that CMCs should meet the prudential resources requirement from 1 August 2019? If there are no changes to the way in which these requirements are calculated, then no we do not agree. We would wish to see the changes we suggest in the calculation of the resources required be adopted, and we would then have no issue with the proposed date.

Do you agree with our proposal that the PII requirements for CMCs that represent customers in personal injury claims be retained but for the PII requirements not to be extended to all CMCs? Yes.

Do you have any comments on the approach to wind-down planning that is being proposed, or evidence to support an alternative approach? We have no specific comments in relation to this.


Do you agree with our proposals on appointing a CASS oversight officer? If not, why not? Yes and No. We feel that if the FCA were to implement the proposal for all lenders to pay redress directly to CMCs, that this is a requirement that we agree with wholeheartedly. We also note that in other FCA regulated areas there is a distinction in relation to the extent of the application of CASS, depending on the amount of client funds held in the last calendar year, specifically debt management pursuant to the provisions of CASS 11. We would urge a similar approach here to ensure a consistent, equitable and proportional application of CASS If, however the FCA were to agree that lenders should pay CMCs their fees and consumers their redress directly, then there would be no need for a client account and a CASS officer.

Do you agree with our proposals on segregating client money and paying out client money as soon as practicable? If not, why not? Our argument in answer to the collection of fees stands here – we would like to see the FCA introduce a new rule for lenders to compel the payment of redress directly to consumers minus the fee which has been paid directly to the CMC by the lender in the first instance. If however firms did hold client money, we would argue that we would wish to see consistency across the financial sector and would suggest that there is a five working day timescale for paying out client money such as those referenced by CASS 11.10.4. These five working days should also start once the client has provided the necessary information to the CMC if being paid via BACS, as this needs to be managed in a GDPR compliant way.

Do you agree with our proposals on record keeping; reconciliations, including on top up of any shortfall and withdrawal of excess; and on notification requirements? If not, why not? In line with our previous comments on fees, we agree with the general thrust of these requirements, but we would suggest daily reconciliation is unnecessary, and we would propose that a 10-working day schedule for reconciliation is adequate. With the requirement to appoint a CASS oversight officer and to accommodate any shortfall, we believe that a 10-day reconciliation timescale is fair. Again, these elements would be unnecessary if the FCA were to adopt our system of redress/fee payment.


Do you agree with our proposals for an external client audit to be carried out? If not, why not? We agree with the proposals in line with the definition of auditor as agreed in the email from the FCA team to Mike Begg: ‘Chapter 3 of the Supervision module of our Handbook explains our requirements on auditors. SUP 3.4 sets out requirements on auditors’ qualifications, which, in summary, are that an auditor: 1. (1) is eligible for appointment as an auditor under Part II of the Companies Act 1989 or Part III of the Companies (Northern Ireland) Order 1990 (Eligibility for appointment) where applicable, otherwise Chapters 1, 2 and 6 of Part 42 of the Companies Act 2006 ; or 2. (2) if appointed under an obligation in another enactment, is eligible for appointment as an auditor under that enactment; The auditor must also be independent of the firm, as explained in SUP3.5. SUP3.10 details the duties of the auditor in relation to client assets and the report they are required to send us is set out in a template in SUP3 Annex 1A.’ We also note that in other FCA regulated areas, those firms with less than £1 million in their client account have no requirement for a CASS Officer.

Do you agree with our overall proposals for a CMC client money regime? If not, why not? In line with our previous comments in relation to direct payment of fees and redress, we would wish to see consistency across the industry, and would wish to ensure that banks and others have due regard to the consumers interests at all times.


Are there any of our proposals where more prescriptive rules or additional guidance would be beneficial? If so, what rules and guidance would you propose and why? Again, we would welcome the FCA to consider implementing rules to eliminate the requirement for the collection of fees altogether and the associated benefits this would bring to:

• consumers (and in particular vulnerable consumers) • the industry as a whole, and • the FCA in terms of a more effective achievement of stated objectives

As we stated in our response to the collection of fees, we believe this is a perfect opportunity for the FCA to introduce a range of substantive benefits to further enhance achievement of its own objectives. It is important to note that there are many scenarios where it serves the clients best interests, and indeed their wish, for the redress to be paid into the CMCs designated client account. Having rules relating to the client account that are too onerous, resulting in CMCs relinquishing their client account, is not in the best interests of the consumer.

Do you agree with our approach to apply our complaint handling rules and guidance in DISP, including the compulsory jurisdiction of the Ombudsman Service, to all CMCs we authorise? Yes. We would ask the FCA to consider the current issues at the FOS that are clearly leading to consumer detriment, and to assess whether FOS has the ability to meet these requirements in a timely and professional fashion.

Do you agree with our proposal to apply our rules in DISP Chapter 1 to CMCs? We do not agree with the requirement to self-publish complaint data (DISP 1.10) if a firm received over 1,000 complaints in a year. We would challenge the definition of a complaint as including an expression of dissatisfaction. We would also question again an arbitrary figure across all sizes of CMCs and whether this is fair – would a micro CMC who undertake a small amount of cases ever reach this level and should those who act in the interests of many thousands of consumers a month be potentially penalised by this requirement?


Does a small CMC who has a complaint rate of 70% but falls below 1,000 complaints do more harm than a larger CMC with a 10% complaint rate and 1,001 complaints? Is this requirement in DISP 1.10 consistent across all FCA regulated firms?

Do you agree with the Ombudsman Service’s proposal to grant CMCs outside our regulatory regime access to the voluntary jurisdiction? Again, we would wish to ensure that FOS have the capability to handle any extra responsibilities as suggested.

Do you have any comments on our proposal to apply the same approach to enforcement investigations and action to CMCs and individuals as we do to other regulated firms, as set out in EG? We believe that the proposals will be an improvement on the current system and will give CMCs greater clarity and this will again be positive for consumers as it would eliminate areas of inconsistency in approach to enforcement that currently happen. We also wish to reinforce our desire to see a close working co-operation with the ICO and the FCA in relation to their regulatory areas when dealing with CMCs to avoid duplication.

Do you have any comments on our proposal to follow the same procedures for decision-making and imposing penalties in relation to CMCs and individuals set out in DEPP? We welcome this and see it as a positive step.

Do you have any comments on the costs and benefits as set out in our cost benefit analysis? We do not believe the CBA is correct. CMCs were asked to estimate costs of the regulatory regime without having any knowledge of the proposals and in many cases they would have grossly underestimated the cost, and human resource required to achieve authorisation. We believe the CBA is unrepresentative, and worse, not informed by any robust data. This landscape is alien to most CMCs and their estimates would have been wildly miscalculated.


From your concluding remarks of the CBA you have estimated that the proposed package of interventions entails costs of compliance to the industry between £3.5m and £4m in one off costs, and between £6.6m and £11.7m in ongoing costs. This would suggest that you estimate one off costs being between £5,636 and £44,943 per firm, and between £10,628 and £131,460 in ongoing costs per firm. However, it is clear that good, medium to large sized CMCs who are fully compliant and have started to work towards FCA authorisation will need well in excess of the amount suggested by the CBA (In the case of one of our member firms it’s more like 4 times). We believe your reliance on historic and inaccurate data means that the CBA is inaccurate and we would like to see this revised.

Do you agree with our assessment of the impacts of our proposals on the protected groups? Are there any others we should consider? We agree with the assessment. We have taken an even-handed approach to our responses to these questions and we hope that our commitment to better regulation of the CMC profession is clear from these responses. Our commitment is to work with you to ensure that consumers can be confident in the CMC profession as we move forward towards 2019 and beyond.


Appendix 1 – ACC Guiding Principles

Guiding Principles for Members of the Alliance of Claims Companies Introduction The Guiding Principles and Specific Principles (“the principles”) aim to protect consumer interests and set out ‘best practice’ guidance for our members. At the heart of the principles is the requirement to be “honest, fair and transparent” in all dealings with customers. All Members must comply with the principles and all other relevant legislation, regulations and guidance notes. Guiding Principles

1. Members must be authorised by the Claims Management Regulator (or the Solicitors Regulation Authority in respect of solicitors’ firms) to conduct regulated claims management services (even if your location means you do not require authorisation).

2. Members must adhere to all relevant legislation, regulations and Rules of Conduct (for claims management companies; in particular, The Conduct of Authorised Persons Rules 2018).

3. Members must adhere to the principles of treating customers fairly; act responsibly and conduct their business with honesty and integrity.

4. Members must not charge an upfront fee for any claim, and further to that, members must be able to demonstrate clear and transparent fees and charging structures for consumers who use their service(s).

5. Members must implement appropriate systems and controls to evidence their compliance with these Principles and their regulatory conduct rules.

6. All Member firms must be directed by individuals that have a working knowledge of the Conduct rules relating to their business and ensure that their staff have the appropriate knowledge and skills to perform their roles compliantly.

7. Members must ensure that all reasonable due diligence is performed when obtaining referrals, leads or data from third parties. This includes robust procedures to ensure that customers have freely given specific, informed and unambiguous consent to allow their details to be used or passed to a third party, as well as consent to receive electronic marketing. Likewise, if Members rely upon other data processing conditions for direct marketing, such as legitimate interests, they must


ensure that they have undertaken an appropriate assessment of the processing condition to ensure that it is fair and lawful with in the data protection laws.

8. Members must take all reasonable steps to investigate whether the customer has a genuine claim. When representing a customer, members must specifically state the particulars of claim to the financial institution and must not issue template letters which are not based on the individual customer’s circumstances.

9. Members must adhere to the BBA's Letter of Authority principles as introduced in April 2016 (if your firm is required to submit LOAs).

10. Members must have in place a vulnerable customer policy to identify and protect those who may need special consideration, support or protection.

11. Members must act on any complaints in line with the Complaints Handling Rules 2015.

12. Members must take all reasonable steps to avoid conflicts of interest, for example, acting for a customer whose interests are in conflict with those of another customer or those of the Member.

Specific Principles ADVERTISING, MARKETING AND PROMOTIONAL ACTIVITIES 14. Member firms must comply with all relevant legal and regulatory requirements and guidance notes in relation to advertising, marketing and promotions. This includes but is not limited to:

• The Privacy and Electronic Communications (EC Directive) Regulations 2003 (PECR);

• General Data Protection Regulation 2016 • Direct Marketing Association’s Direct Marketing Code of Practice (DMA Code); • Communications Act 2003; • Data Protection Act 2018 (DPA); • The Electronic Commerce (EC Directive) Regulations 2002; • UK Code of Non-Broadcast Advertising, Sales Promotion and Direct Marketing

(CAP Code); and • UK Coded of Broadcast Advertising (BCAP Code).

15. Members must not undertake marketing activities which could cause itself or a third party to breach its regulatory obligations. This includes solicitors to which the Member refers business. 16. Members must ensure that they clearly explain that charges will apply for a successful claim and qualify any “no win no fee” statements. 17. Where Members utilise introducers and/or agents they must ensure that there is a written contractual agreement in place between the parties. The agreement must make


adequate provision for the following: the introducer’s and/or agent’s responsibility to comply with the Member’s procedures and these Principles; the requirement for the introducer and/or agent to be authorised, unless he is exempt; the requirement for the introducer and/or agent to co-operate with the Member in the investigation of any complaints; the Member’s responsibilities for the compliance of the introducer and/or agent: and the requirement to allow the Member to undertake reasonable due diligence into the introducer’s and/or agent’s compliance with all relevant legislation and rules. CHARGES 18. Member Firms must not charge upfront fees for the purpose of assessing a claim. 19. Members may charge reasonable disbursements. These are genuine costs incurred on

behalf of the customer, e.g. £10 cost of a subject access request. 20. Member firms are permitted to apply a fee where the customer cancels the contract

after the 14-day cancellation period. A fixed cancellation fee cannot be charged but must be limited to the Member’s actual and reasonable costs incurred to the date of cancellation as a result of progressing the Client’s claim.

21. Members are permitted to charge their full fee where at the time of cancellation, or within the notice period, a reasonable offer has been received from the financial institution.

22. A customer’s debit or credit card details must not be used to collect fees without the informed prior consent of the customer.

23. Members must ensure that any charges or costs are made clear to the customer before and during the contract.

PRE-CONTRACT INFORMATION 24. Members must provide customers with adequate pre-contract information and a copy

of their terms of business, in writing, to enable the customer to make a balanced and informed decision about the services being offered.

25. Pre-contract information and terms of business should be written in a way that is clear, fair and not misleading and does not omit or distort key information.

26. Members must take adequate steps to confirm that the customer understands the service being offered prior to entering into an agreement. This includes providing an adequate explanation of the main methods by which redress may be paid.

27. Members must deal with vulnerable customers appropriately and sympathetically and make reasonable adjustments to deliver a service which is accessible for the customer.

28. Members must ensure that customers are provided with a 14-day cooling off period. HANDLING THE CLAIM 29. Members must ensure that an explanation of the claims process is provided to

customers including the need to read carefully all and retain all claims documentation. 30. Members must not encourage customers to provide false, incomplete or misleading

information in support of their claim.


31. Members must take account of the customer’s interests in deciding whether to take a claim to the Financial Ombudsman Service. This includes taking a proportionate approach and not misleading a customer as to the possible success of the claim.

32. Members must ensure that customers are kept up to date regarding the progress of their claim. This includes notifying a customer of the following matters: when a decision has been received by the financial institution (or the FOS); when a claim has been referred to the FOS; when redress has been received; when there is an unusual or significant delay in the processing of the customer’s claim; where the financial institution requires any additional information in support of the claim; when there is a significant change to the costs which the customer may have to meet; and when there is any suspension of or variation to the Member’s authorisation.

33. Members must ensure that correspondence and information requests in connection with the claim are dealt with promptly.

34. Members firms must check, as far as is reasonably possible, that the redress offered complies with the principles of the Financial Ombudsman Services, Financial Conduct Authority or Financial Services Compensation Scheme and challenge any discrepancies with the financial institution concerned before recommending an offer to the customer.

CUSTOMER SERVICE AND COMPLAINTS 35. Members must operate a complaints procedure that makes adequate provision for the

following: • Identification, receipt and acknowledgement of complaints recorded appropriately • Full and fair investigation of complaints by a competent person, unconnected with

the complaint (wherever possible) • Provision of redress • Timescale requirements • Referral rights to the Legal Ombudsman

36. Members must publish their complaints process on any websites owned or operated by

them and make reference to them within their pre-contract information or terms of business.

37. Members must accept a complaint regardless of the method by which it is made (e.g. letter, telephone, email, fax, in person, by a third-party representative) and provide a copy of its complaints process to the customer.

GENERAL 38. Members should participate in discussions, forums and/or exchanges regarding topics

affecting the ACC and the claims management industry, when required. 39. Members must provide information (where necessary) to promote the wider interests

of the ACC and its members and to enable the ACC to monitor compliance with these Principles.

40. Members must notify the ACC within 5 business days of becoming aware of the likelihood of any disciplinary, licensing, authorisation or enforcement being taken by


the Ministry of Justice, the Office of Fair Trading, the Information Commissioner or any other regulatory body. Members must keep the ACC informed about the progress and outcome of any such action.

41. The ACC will monitor Members’ compliance with the Code. 42. Members must act in the best interests of the ACC and avoid bringing it into disrepute. 43. The Executive Committee shall be empowered to expel any Member Business found to be acting contrary to the best interests of the ACC or in breach of these Principles, provided that: -

a) Written notice of the alleged misconduct against the Member Business has been served at the Member’s Registered Office by recorded delivery.

b) The Member Business has had a fair opportunity to state their case by way of appeal to the Executive Committee, such statement and supporting documentation having been delivered to the ACC’s office within 14 days of the Expulsion Notice being sent to the Member Business.

c) Any appeal has been heard or a time period of 30 days has elapsed since the Expulsion Notice was sent to the Member Business and that business has failed to take up the opportunity to appeal.

the alliance of claims companies · financial claims. members are not however drawn from the...

Documents