The regulator wants to stamp out the practice of phoenixing by banning claims management companies from dealing with claims where they have a relevant connection to the business
The Financial Conduct Authority (FCA) has proposed new rules to stop employees from failed firms later working as claims chasers who charge consumers to take cases to the Financial Services Compensation Scheme relating to their former firm’s poor conduct.
The regulator wants to stamp out this practice of phoenixing by banning claims management companies from dealing with claims where they have a relevant connection to the business.
The FCA says it has already taken action where it has been possible to do so.
FCA executive director of consumers and competition Sheldon Mills says: 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, Mills says.
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, Mills says.
Personal Finance Society chief executive Keith Richards says: Last year I received 40 complaints about the conduct of claims management companies in less than a week when we highlighted our concerns and shared this evidence with the regulator.
The FCA is right to be concerned about individuals connected with a wound-up financial services firm reappearing in connection with a claims management company. Individuals should not be able to financially benefit from their own past conduct, which caused consumers to be out of pocket, he says.
It is appalling that of the 250 claims management companies the FCA regulates with permission to manage financial services claims, at least 18 are linked with businesses that could allow individuals to benefit from their past firms’ poor conduct, Richards says.
He says the cost of poor practices at a minority of claims management companies impacts public trust and pushes up the cost of financial advice. Phoenixing must stop.