The Government wants CMCs to be more strictly controlled and decided that the FCA was the only regulator capable of delivering a “tougher regulatory regime”. For its part the FCA, forever keen to expand the scope of its regulatory influence, jumped at the chance to regulate the claims industry, and offered to “regulate in a way which prioritises high standards of conduct and improves public confidence in claims management services.”
However, in its eagerness to regulate the claims industry did it ever consider how it will manage the inherent conflict of interests between the CMCs and the other organisations that it currently regulates?
This conflict arises because the FCA will now be regulating a sector whose entire profitable existence is at the considerable expense of the large financial institutions it regulates.
This concern was raised by some of the CMCs that responded to the Brady Review, but was not considered to be a barrier to FCA regulation because the FCA “is a well-established regulator, with responsibility for supervising a wide range of businesses with divergent and, at times, diametrically opposed interests.”
This inadequate explanation in no way addresses the enormity of the conflict that exists between the financial institutions that perpetuated the UK’s largest financial mis-selling scandal and the claims management industry that assisted customers to reclaim over £20 billion in compensation. Or the conflict between CMCs assisting people to obtain compensation after an accident, and an insurance industry that lobbied for the slashing of compensation payments to injured motorists.
There have been several occasions where the financial sector appears to have used its considerable influence over the Government and regulator to escape sanctions or to persuade the regulator to take action to the detriment of other organisations and consumers. It is appalling that the only significant regulatory action taken by the FCA in connection with the mis-selling scandal was not to penalise the banks, but to pander to them by agreeing to introduce the PPI deadline.
A further glaring example is the FCA’s PPI awareness campaign that informs customers that “complaining about PPI is a simple step you can do your self – for free – and avoid paying a claim company.” This advice should have included a warning that many of the banks have been fined millions for mishandling PPI complaints and that the latest figures from Financial Ombudsman Service shows that 36% of PPI claims are still being wrongly rejected.
As Michael White, the retired political editor of the Guardian said, most regulatory regimes end up with the regulator “if not in bed with the industry it is targeting, then at least engaged in heavy petting”.
Not only do the interests of CMCs conflict directly with the other organisations the FCA regulates, but also with the regulator itself. Most CMCs exist because they identify areas where customers have been ripped-off and where the regulator has been incapable or unwilling to take any action. The FCA is therefore in a very questionable position – regulating organisations that make money exploiting areas where FCA regulation has failed.
I have no doubt that where the FCA appears reluctant or afraid to take any meaningful regulatory action against the powerful financial institutions it regulates, this reluctance will not be extended to the CMCs it regulates. FCA regulation for CMCs will be tough and I am sure the banks and insurance companies will continue to use their considerable influence to make sure the FCA stays focused.
Love them or loath them, CMCs play a major role in holding big business to account over poor practice and corporate greed and provide access to justice for a wide range of consumers who may be unwilling or unable to bring a claim themselves. This is supported by FCA’s Financial Lives survey that found 67% of customers who used a CMC to make a claim would not have done so without the involvement of a CMC.
The transfer of CMC regulation to the FCA was instigated by George Osborne to “drive out further unnecessary costs from insurance premiums”, and is clearly part of the insurance industry sponsored personal injury reform package. As the Government has shown no intention of watering down reforms that will devastate the personal injury sector, perhaps the intention is to use the FCA to regulate this industry out of existence.