Claims Management Company Regulation

Regulatory Lawyer, Jeremy Barnett reflects on the vast changes in claims management regulation.

Claims Management Regulation Update

January 2016

HM Treasury and the Ministry of Justice have commissioned a fundamental review of the regulation of claims management companies (CMCs).  The MOJ expect the review to make final recommendations to HM Treasury and the Ministry of Justice in the early part of 2016. Everyone involved in the Claims Management Industry is awaiting the recommendations to see what direction the changes to the current regulatory landscape is going to take.

Before the brave new world is unveiled it seems like a good time to reflect on the vast changes in claims management regulation that have occurred over the previous 18 months.

The Claims Management Regulation Unit (CMRU)

The Claims Management Regulation Unit (CMRU), the unit of the MOJ that was set up to police the claims management sector has seen a significant increase in its regulatory powers and resources over the last 18 months.

The CMRU published their latest Annual Report which set the tone for their aims for the foreseeable future, namely, to “work to protect and promote the interests of consumers and the public and to ensure that the CMCs we regulate understand and comply with the conditions of their authorisation.”

The Legal Ombudsman’s Jurisdiction

Consumers were also given a new avenue of redress in January 2015 following the extension of the Legal Ombudsman’s jurisdiction to deal with complaints about poor service from CMCs. The Legal Ombudsman now has powers to order compensation, make CMCs reimburse costs or to provide other forms of suitable redress. When the Legal Ombudsman began investigating consumer complaints in January this enabled the CMRU to expand its enforcement team and to re-allocate the resource previously used for handling consumer contacts. This means that the CMRU’s compliance and enforcement unit now has more than 100 staff which is a significant resource to employ in the field.

It is interesting to note that the majority of concerns reported to the CMRU related to live marketing calls (88%). This is particularly significant because the CMRU says that “these reports often provide intelligence about potential misconduct such as high pressure sales or misleading marketing, which is used by our specialist marketing team to address non-compliant practices.” Therefore these complaints alert the CMRU to potential areas of concern to which they target their enforcement resources. It seems therefore that a good way to avoid scrutiny by the regulator is to tighten up procedure around live marketing calls.

Financial Penalties for Claims Management Companies

But perhaps the most significant change was when the CMRU’s enforcement tools were further increased in December 2014 with a new power to impose financial penalties on CMCs that break the rules. The power is contained in the Conduct of Authorised Persons Rules which were published on 12th December 2014. This prompted Kevin Rousell head of the CMRU to say  “we do not tolerate bad practice and continue to take action against companies which break the rules, including removing their licence to trade. Issuing fines will be an important new weapon for us.”

The CMRU has made full use of these additional statutory powers its first fine was issued on 15 August 2015 in the sum of £220,000. The CMRU then imposed two further substantial fines 15 October 2015 saw one CMC fined £570,000  and on 2 December a second CMC was fined £870,000. Worryingly for the companies involved the fines were immediately heralded by press releases by Kevin Rousell, Head of the CMRU, which risk undermining confidence in the firms. A trend is emerging as the size of the fines have been steadily increasing. Although as always the financial penalties imposed are calculated on the following basis:

  • within a range of £0 – £100,000 for regulated CMCs with a turnover of less than 500,000; and,
  • 0% – 20% of turnover for regulated CMCs with a turnover of £500,000 or more.

Kevin Rousell has been quoted on the MOJ website as saying that “Companies should be in no doubt that if they break the rules then we won’t hesitate to fine them in addition to the tough action we already take”. Certainly the actions taken over the last six months bear this out. The CMRU’s activity as shown by their latest published figures demonstrate that between July and September 2015, the regulator took the following action:

  • 21 investigations instigated
  • 59 licences cancelled
  • 1 financial penalty issued. (2 financial penalties were issued just outside the reporting period in October 2015.)
  • 43 warnings issued
  • 73 audits carried out
  • 328 visits conducted

What does the future hold for industry regulation?

This poses the question what does this mean for the future of the industry regulation? The scope of the pending review has indicated that it will consider “the resources and powers required for a strengthened regulatory regime – including the power to implement the cap on charges that CMCs can apply to their customers – and what architecture might be most appropriate to deliver this, including its governance and scope.” The review is looking to recommend further reform of the existing regime, with new powers and resources provided to the CMRU. Other areas that are under consideration include:

  • dual regulation between the CMRU and the Financial Conduct Authority (FCA);
  • creation of a new independent regulator; or
  • transfer of responsibility for regulation of CMCs to the FCA.

This certainly suggests that the trend is for an even tougher and more robust regulation of the industry. The CMRU has indicated that its priorities remain a crack down on Nuisance calls and unsolicited marketing. The Regulator has shown that it is ready and willing to use its every expanding armoury of  powers to ensure CMC’s it has investigated fall into line.  Therefore diligence in ensuring that your CMC complies with the ever complex regulatory regime is essential.

How can St Pauls Chambers help?

St Pauls Chambers have a specialised unit that deal with Claims Management Company issues. They have advised on a number of issues including Referral Fees, Data Protection / other allegations (Re Direct Assist) and whether a CMC are contractually entitled to render charges on windfall payments following FCA ruling against Banks.

Jeremy Barnett has advised in cases where the MOJ has imposed or ‘is minded to impose’ financial sanctions in excess of £500,000.

Related people

Jeremy Barnett

Jeremy Barnett

Call: 1980

Featured insights

What happens if you drive without a licence?
What are the penalties for Benefit Fraud?
Stages of Money Laundering explained

Contact Us

Chambers is centrally located within walking distance of the train station, secure car parks and the Courts.

Contact Us

St Pauls Chambers
Park Row House
19-20 Park Row

For out of hours assistance please call the senior clerk on 07854170429.

The switchboard will open from 08:30 until 17:30

Phone: +44 (0)1132 455 866
Email: [email protected]
CJSM: [email protected]

Portfolio Builder

Select the expertise that you would like to download or add to the portfolio

Download    Add to portfolio   
Title Type CV Email

Remove All


Click here to share this shortlist.
(It will expire after 30 days.)