The FCA has announced its proposal to prevent what they term ‘claims management phoenixing’. Claims management phoenixing (CMC phoenixing) refers to when individuals from financial services firms go out of business and later become (or seek to become authorised) in connection with Claims Management Companies (CMCs) and charge consumers for seeking compensation against their former firm’s poor conduct by bringing claims to the Financial Services Compensation Scheme (FSCS).
The FCA are proposing to ban CMCs from managing FSCS claims where they have a relevant connection to those claims.
The FCA has used an examples of there it has taken action to prevent this practice, including where a managing director of a financial advice firm provided inadequate service to consumers and was subsequently barred from acting as a company director, his wife set up a CMC. This CMC represented customers claiming more than £5m from the FSCS in claims against the husband’s former financial advice firm. The FCA was able to refuse the authorisation of the CMC as the firm did not meet its standards.
While the FCA believes it has been able to stop claims management phoenixing by refusing authorisations, like the example above, the new rules being proposed will put a stop to claims management phoenixing across the market.
Sheldon Mills, Executive Director of Consumers and Competition as the FCA, said:
“Consumers should be able to choose to use a CMC to help them claim compensation from the FSCS. But paying someone to provide help who is connected with the firm that caused the consumer’s loss is wrong, particularly where the firm had a responsibility before winding up to help its customers to obtain compensation.
Our proposals are designed to put an end to this practice and to increase consumer trust and confidence in financial services firms, CMCs and the redress system.”
By stopping CMCs from managing FSCS claims with which they have a relevant connection, the FCA aims to ensure that CMCs are not seeking to profit from past misconduct of individuals connected with the CMC.
The FCA wants to ensure that firms have customers’ best interests at heart and are not incentivised to treat customers poorly, that they will take due care in the provision of financial products and services and, when things go wrong, will take responsibility and put things right for their customers.
Comments in regards to the proposal must be submitted by 21st of June 2021. Comments can be made via the response form on the FCA’s website, via email to cp21-14@fca.org.uk or in writing write to The CMC Policy Team, Financial Conduct Authority, 12 Endeavour Square London E20 1JN.