Regulatory Update: Claims Management Regulator - Annual Report 2017 to 2018

Posted: 25th July 2018

Background

On the 5th July 2018, the Ministry of Justice (MoJ) published a report summarising the performance of the Claims Management Regulator during the period of April 2017 to May 2018.

The report highlights the key developments, achievements and progress made in claims management regulation over the last 12 months, all of which have been heavily influenced by the passage of the Financial Guidance and Claims Act 2018 through parliament in May 2018.

Such developments include:

• Implementation of revised conduct rules to ban up-front fees in PPI cases
• Prohibition of charges on unsuccessful PPI cases
• Requirement of an itemised bill in cases where an agreement has been cancelled and the Claims Management Company (CMC) issues an invoice

Additionally, the report also touches upon the forthcoming transfer of responsibility for regulating CMCs to the Financial Conduct Authority (FCA) in 2019, which will affect CMCs through the development and subsequent implementation of a stronger regulatory framework, alongside increased accountability for senior managers.

As stated by Carol Brady MBE, current Chair of the CMR Board, “the regulatory landscape will change considerably” as a result of the transfer.

KEY FINDINGS

The number of CMCs focussing on financial claims has contracted but total revenue has increased

The MoJ have reported that the thirteen largest CMCs account for over 50% of the total turnover in the market, with six of these firms handling more than half of all PPI complaints.

This potential lack of competition helps to explain why the number of CMC firms operating within the financial claims sector is down 15% from last year. Despite this, the turnover in this sector has increased 11% from last year to £600 million. This is likely to be the result of increased public awareness of the PPI deadline and Plevin through the FCA led advertising campaigns.

CMC activity in the mis-sold packaged bank account (PBA) market has stabilised over the last two years

Now, just five CMCs account for a significant proportion of PBA complaints, with less than fifteen smaller CMCs specialising in PBA cases only. This is further exemplified by the fact that although the initial number of PBA complaints has remained flat, the number of complaints brought to the Financial Ombudsman Service (FOS) has continued to decline, with a decrease of 42% (to 11,674) reported in 2017 / 18.

CMCs in operation within the mis-sold short-term loans market has increased

The number of CMCs operating in this market has increased by 45% over the course of 2017 / 18 to 125. 

Furthermore, complaints in this area have also shown to have dramatically increased, with the number of complaints brought to the FOS rising by 64% this year.

As a result, the number of complaints recorded in the mis-sold short-term loans market has subsequently surpassed that of PBA. However, the number of mis-sold short-term loan complaints recorded this year still amounts to less than 10% of that received from PPI, recorded at 186,417 in 2017 / 18.

NEXT STEPS

Responding to the transfer of the responsibility for claims management regulation to the FCA next year, the Claims Management Regulator has highlighted three main priorities for the coming year. 

The first of these priorities is to ensure that CMCs are complying with newly implemented conduct rules, specifically those relating to PPI claims. This includes a ban on up-front fees alongside itemised invoicing where the contract has been cancelled by the CMC to ensure all cancellation charges are reasonable to the consumer.

The regulator has also stated that it will be working closely to monitor the activity of CMCs ahead of the interim fee cap and the forthcoming PPI deadline in August 2019 to ensure that any malpractice, particularly around misleading marketing, is quickly tackled.

Additionally, the regulator will work with CMCs to ensure the quality of complaints presented remains of a high standard, alongside maintaining a full overview of growth areas to determine which areas present the highest risk of malpractice and may therefore require closer inspection.

Considerations for firms

Firms should consider key areas of growth over 2017 / 18, a period which has seen complaints within the high cost credit market become a new focus area for CMCs. Financial services firms should ensure that robust complaints handling and root cause measures are implemented, properly supported and that capacity plans are robust enough to handle the high volume of complaints which can result from targeted CMC activity.

With the PPI deadline now approaching, financial services firms should also be aware of any late influxes of complaints ahead of the deadline driven by CMCs.

Given the transfer of regulation across to the FCA, higher standards of accountability for CMCs, linked in part to the extension of the Senior Managers & Certification Regime should prevail, with standards being driven up across the industry. Firms should, however, remain aware of future potential claims and complaints and take pro-active measures wherever necessary to address back book areas of consumer harm or risk, ultimately preventing future risk from crystallising.