Guidance

CMR bulletin 26

Published 15 October 2015

This guidance was withdrawn on 1 April 2019

This page has been withdrawn because it’s out of date. Responsibility for the regulation of Claims Management Companies has been taken over by the Financial Conduct Authority.

This edition provides information and advice on the review into how CMCs are regulated, financial penalties issued by the regulator, cold calling for personal injury claims , providing incorrect information to the regulator, unauthorised activity and co-operating with the Legal Ombudsman.

1. CMR review and new regulatory reforms

The Chancellor of the Exchequer announced a fundamental independent review into how CMCs are regulated in the Summer Budget. The review is being led by Carol Brady who has started talking to key stakeholders about the objectives, scope and design of a reformed regulatory regime. The review is due to be completed by early 2016.

Find out more details about the review including submitting evidence and comments here.

The Chancellor also announced new regulatory reforms that propose to restrict the level of fees that regulated CMCs can charge their clients (particularly in bulk financial claims such as PPI). Details of these proposals are under development and will be the subject of a forthcoming consultation exercise.

2. Regulator issues financial penalties

A firm responsible for generating hundreds of complaints about nuisance calls became the first to be levied with a £220,000 financial penalty under new powers introduced in December 2014. This was followed up with a second financial penalty of £567,423 against another firm which had failed to provide adequate time to consumers to understand the terms and conditions and failed to take action in response to complaints from consumers who had payments taken without giving their authority. A number of further financial penalties are being considered.

We have produced guidance on the operation of the financial penalties which explains the circumstances under which a financial penalty may be imposed and how it is calculated.

3. Cold calling for personal injury claims - reminder

CMCs are not permitted to make unsolicited cold calls for personal injury claims. Client specific rule 8 of the Conduct of Authorised Persons Rules prohibits businesses from acting in a way that would put a solicitor in breach of the rules governing their conduct. The SRA Code requires solicitors to satisfy themselves that any client introduced to them has not been acquired by way of an unsolicited approach by telephone or in person.

You must ensure that any telemarketing calls made to consumers, who are subsequently introduced to a solicitor, are solicited. This means that you cannot contact a consumer by telephone unless:

(a) they have explicitly agreed to be contacted about making a claim; and

(b) their contact details were not obtained as a result of an unsolicited approach, in person or by telephone, by your business or any other party.

If you purchase data from a third party, general rule 2 e) requires you to undertake professional diligence to ensure any referrals, leads or data have been obtained in accordance with the requirements of the legislation and rules. You must ensure that you document this due diligence in order to comply with general rule 2 d).

4. Providing incorrect information to the regulator

We will be carrying out enhanced scrutiny of information provided by CMCs during 2016/17 fee collection process due to start early 2016. Those providing inaccurate turnover figures will be re-invoiced for the correct annual fees and enforcement action may be taken.

It is an offence to knowingly or recklessly provide the regulator information that is false, misleading or deceptive. This includes information provided at application, during the annual fee collection process and at the request of the regulator.

4.1 Case study – providing false information

The director of Swift Accident Solutions, John Christopher Smith, and nine others, were found guilty at Manchester Crown Court of masterminding a £1million-plus ‘cash for crash’ fraud and convicted for their role in the scam involving more than 200 false whiplash claims. Among other counts of fraud, Mr Smith was convicted of making a false representation by failing to declare outstanding county court judgments when he applied for a licence to operate a CMC.

5. Unauthorised activity

It is a criminal offence to provide regulated claims management services without authorisation. It is also an offence to falsely claim to be authorised. Our specialist unauthorised team investigate all reports of unauthorised trading, and make use of a range of enforcement actions and sanctions that include cautions and prosecutions.

Where we find that a business is providing claims management services without authorisation, we will always take action in accordance with our enforcement policy. We will also take action against authorised CMCs found to aiding and abetting unauthorised businesses.

5.1 Case study - unauthorised trading prosecution

In 2014 a business was identified as providing claims management services by selling personal injury leads to authorised CMCs without authorisation. They were informed that it was a criminal offence to operate without authorisation but continued to operate illegally.

An investigation culminated in legal proceedings for contravention of the Compensation Act 2006, and in May 2015 the business was convicted at Stafford Magistrates Court, resulting in a fine of £3,750 which was reduced to £2,500 for a guilty plea together with costs of approximately £1,900.

5.2 Case study - unauthorised PPI claims business

A businessman who defrauded 1,500 consumers of over £170,000 through an unauthorised PPI claims business has been jailed for four years following a prosecution by Rhondda Cynon Taf trading standards. The charges followed an investigation which was assisted by the officers from the Claims Management Regulation Unit.

The defendant admitted two counts of Fraudulent Trading, contrary to section 993 of the Companies Act 2006 at Newport Crown Court on 7 September this year. The two charges were in relation to operating a claims management business without authorisation to do so and making fraudulent claims to secure customers.

5.3 Recent search warrants – unauthorised claims activity

Over the past two months the unauthorised team have executed three search warrants at businesses in Nottingham, Bolton and Bury. The searches were granted and executed by compliance officers under powers of the Compensation Act 2006. On each occasion the Police were in attendance and assisted compliance officers with the execution of the warrants. We are currently reviewing evidence obtained from these warrants in order to establish whether offences have been committed.

6. Co-operating with the Legal Ombudsman

The Legal Ombudsman has been handling complaints about CMCs since 28 January 2015. All CMCs are obliged to cooperate with the Legal Ombudsman as set out in the Complaint Handling Rules 2015. We receive a report each time a CMC fails to cooperate with the Legal Ombudsman and will take appropriate enforcement action against CMCs who breach the rules in this area.

The Legal Ombudsman provides help for CMCs to understand more about their work and what CMCs can do to address complaints before they are escalated to the Legal Ombudsman.

7. Nuisance calls – finding solutions from businesses

The Department for Culture, Media & Sport has announced a Small Business Research Initiative competition to generate new innovative solutions for the problem of nuisance calls. Up to £1.5milliion is available to find solutions to address nuisance calls, especially to more vulnerable members of society who are at highest risk of financial harm and personal distress.

Registration for the competition closes on 4 November and the deadline for applications is midday, 11 November.

Please direct any queries about the competition to: support@innovateuk.gov.uk