The Financial Conduct Authority said when claims management companies (CMCs) offer unregulated claims services, they should be clear with consumers about which of their products are regulated and which are not.
The regulator said it was concerned that consumers may mistakenly assume that all the services CMCs offer are regulated by the FCA.
It said this assumption can mislead consumers about the level of protection they have and give unregulated activities extra credibility.
In a portfolio strategy letter last January, the FCA provided an update on its strategy and gave a view of what it sees as the risks CMCs pose to consumers.
It issued substantive information requests to 26 CMCs offering unregulated claims services for matters such as tax, timeshare, diesel emissions and flight delay claims.
This sample of firms included all the FCA authorised CMCs that were submitting tax claims and the regulator said it used additional scrutiny where unregulated claims activity accounted for a significant portion of the business.
In some instances, the FCA visited the business premises.
It found some of the sample of firms had undertaken very little, or no regulated claims management activity.
Some firms have applied to cancel their FCA permissions following its contact, and around 70 per cent have stopped unregulated claims activity.
Additionally, it also found inadequate systems and controls in place to differentiate between regulated and unregulated claims activity and that some firms charged significantly higher fees for unregulated claims.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Since taking over the regulation of CMCs, we have been worked assertively to raise standards, so CMCs are considered trusted providers of high quality, good value services that help people pursue legitimate claims for redress.
“We are disappointed to find that some firms have inadequate systems and controls in place to differentiate between regulated and unregulated claims activity and some are charging significantly higher for unregulated claims.
“Although we don’t have regulatory oversight of the unregulated activities, we consider that firms will want to satisfy themselves on whether this is appropriate.”
The FCA said the vision is for CMCs to be “trusted providers of high quality, good value services” that help people pursue legitimate claims for redress.
“We expect all firms in this market to take account of the findings we’ve published today and make any necessary changes,” Mills said.
“We will take tough action if we find firms aren't complying.”
FCA expectations
The FCA said firms must regularly review their regulatory permissions to ensure these are up to date, and apply to remove them if they are not needed.
The regulator has the power to cancel a firm’s Part 4A permission if it has not carried out regulated activity for at least 12 months.
Where CMCs offer unregulated claims services, the FCA expects them to be clear with consumers about which of their products and services are regulated and which are not.
