Claims management company regulations, guidance and legislation
Regulations for companies handling compensation claims for injuries, employment issues, mis-sold financial products or housing disrepair.
Authorisation for claims companies
Any claims management company (CMC) working in the following sectors must be authorised by the Claims Management Regulator (CMR):
- personal injury
- financial products and services
- criminal injuries compensation
- industrial injuries disablement benefit
- housing disrepair
This is a legal requirement and it’s an offence to provide these services without being authorised unless your business is exempt.
Some businesses don’t need to be authorised. These include:
- insurance companies, brokers and Independent Financial Advisers
- solicitors, barristers and legal executives
- charities and advice agencies
- certain introducers whose main business isn’t managing claims
- independent trade unions dealing with members - as long as they follow the code of practice
View guidance on which businesses need to be authorised.
Applying for authorisation
CMCs need to pay a one-off application fee, complete an application and pay an annual fee to be authorised.
From 1 October 2014 all authorised CMCs must follow the new Conduct of Authorised Persons Rules 2014 that set out certain rules and standards around:
- running a business
- advertising and marketing
- taking on business
- representing clients
The regulator has produced guidance in relation to the rules.
Client account rules
Authorised CMCs that handle client money must follow Client Account Rules 2006.
As part of these rules, you need to send annual accountant reports to the regulator. The documents below are designed to help you with this:
Accountants report form (MS Word Document, 57.5KB)
Accountants report checklist (MS Word Document, 62KB)
If your clients pay fees by instalments, you may need a consumer credit licence. More information is available from the Financial Conduct Authority.
From 28 January 2015, the Legal Ombudsman will be able to deal with complaints about CMCs. All CMCs must establish written complaints handling procedures that follow the Complaints Handling Rules 2015.
The enforcement policy outlines how the regulator approaches enforcement and the actions available to tackle non-compliance.
From 29 December 2014, the regulator will be able to impose financial penalities on CMCs that have breached the conditions of their authorisation. The regulator has produced guidance on:
- the circumstances in which the regulator can impose a financial penalty
- how a financial penalty will be calculated
- the range of financial penalties that may be imposed
Read the financial penalties scheme guidance.
Marketing and advertising guidance
The regulator has produced detailed guidance around the different marketing methods used by the industry, covering:
- using auto diallers and silent calls
- using automated messages
- SMS and email marketing
- websites and online privacy
PPI claims guidance
To help CMCs understand the rules in the area of mis-sold PPI claims, the regulator has produced guidance on:
- rules around testimonials and what makes a misleading statement
- letting clients know about the Financial Ombudsman scheme
- how to ensure fee structures are fair and transparent
Read the handling mis-sold PPI claims guidance.
Professional indemnity insurance (PII) guidance
PII covers your business if a client claims to have suffered a loss due to your professional negligence.
You only need this cover if your business represents clients in personal injury claims or if your business is going to be doing this.
If you already have a PII policy because you act as an insurance intermediary, check with your insurer to see that the policy covers claims management work.
Referral fees ban
It is a regulatory offence to pay or receive referral fees in personal injury cases.
This means that you must not receive payments for giving details of any client to a solicitor who offers legal services to claim for personal injury damages. You can carry out other work for a solicitors for a fee.
If your business refers a personal injury claim and receives payment for it:
- You’ll be in breach of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and the business conduct rules.
- CMR will contact you and explain what rules you are breaking.
- Your authorisation could be suspended or cancelled if you don’t start following the regulations.
- If your business loses its authorisation, you must stop offering claims management services immediately.
CMR, Solicitors Regulation Authority (SRA) and Financial Conduct Authority (FCA) enforce the referral fee ban. These organisations coordinate actions and share market intelligence.
You’ll find more detail on how each organisation monitors and enforces the ban:
From 9 December 2014 CMCs must get written consent from the regulator to surrender their authorisation if:
- the regulator has given the business notice that it’s being investigated under Regulation 35
- the business has been given a notice to provide further information or documents under Regulation 36 in relation to an investigation
- the business has been notified that a warrant issued under Regulation 40 has been raised against it
- the alleged non-compliant activity that led to the investigation, notice or warrant, took place on or after 9 December 2014
What an authorised CMC can expect from the regulator
- We will write to you to let you know, when this restriction applies.
- We will write to you within 7 working days of making a final decision to let you know if the restriction has been lifted.
How to surrender authorisation in all other circumstances
If the above conditions don’t apply, a CMC can surrender its authorisation without needing our consent. However, you must write to the regulator to let us know you want to surrender your authorisation.
Part 2 of the Compensation Act 2006 established the framework for regulating claims management services. The regulator acts in line with this legislation and follows the regulations and orders below.
The Compensation (Claims Management Services) Regulations 2006 cover arrangements for:
- granting authorisation
- exempting from authorisation
- setting fees
- handling complaints
They also cover the following areas for the regulator to:
- require authorised persons to have PII
- make rules for how authorised persons should carry out business
- audit or investigate businesses
The Compensation (Claims Management Services) (Amendment) Regulations 2008 cover the need for CMCs representing clients in the personal injury sector to have professional indemnity insurance (PII).
- restrictions on CMCs surrendering their authorisation
- financial penalties for CMCs breaching the conditions of their authorisation
- removal of the regulator’s powers to review complaints and order redress
- power to share information with the Legal Ombudsman
- circumstances in which the regulator can issue directions to CMCs
The Compensation (Regulated Claims Management Services) Order 2006 sets out the claims management services that are covered by the regulator. These include:
- finding people making claims
- advising clients
- making representations
Compensation (Specification of Benefits) Order 2006 explains that a claim for a number of specified benefits, called industrial injury disablement benefits, shall be treated as a claim for the purposes of Part 2 of the Compensation Act 2006.
The Compensation (Exemptions) Order 2007 and Compensation (Exemptions) Amendment (No 1) Order 2007 set out which activities and businesses are exempt from authorisation.
Published: 16 April 2014
Updated: 23 January 2015
- Changes to complaints handling rules. Addition of The Compensation (Claims Management Services) (Amendment) Regulations 2014
- Added guidance about how the Legal Ombudsman complaints handling scheme will work.
- Update on changes to how CMCs can surrender their authorisation
- New conduct rules added along with new conduct rule guidance
- First published.
From: Ministry of Justice