On 7 June 2022, the Financial Conduct Authority (FCA) published its response and policy statement on preventing claims management phoenixing by financial services firms. The paper constitutes the FCA's response to its open consultation 'CP21/14: Preventing claims management phoenixing' which closed in July 2021.
Claims management phoenixing occurs when an individual or individuals connected to a financial services firm that has gone out of business later reappear in connection with a claims management company (CMC) and charges consumers for seeking compensation against their former firm's poor conduct by brining complaints to the Financial Services Compensation Scheme (FSCS) The FCA estimates this has been occuring at a rate of around 220 times per year.
What will be changing?
In light of the responses to CP21/14, the FCA has proposed two significant changes:
- CMCs will be prohibited from carrying on any regulated claims management activity in respect of a claim or potential claim to the FSCS in certain circumstances; and
- CMCs will be required to tell the FCA of any connections they have to financial services firms.
The new rules will take effect on 7 July 2022
Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations (ACSO), the trade body for businesses that help consumers in the civil justice system, said:
"We welcome the FCA's policy statement on phoenixing. Claims management companies should never seek to profit from the previous poor conduct of individuals in this way, and consumers must have confidence that protecting them and their financial interests is a top priority.
"In our consultation response, ACSO supported FCA intervention to remote the significant harms arising from CMC phoenixing, which damages the sector as a whole, including the reputations of well-managed, compliant CMCs.
"We hope this action will help to restore public trust in the industry, which makes an important contribution to the defence of consumer rights. ACSO and its members will continue to work with the regulator to champion the highest possible standards of service and compliance in the claims sector."