On 17 May 2021, the FCA published Consultation Paper 21/14: Preventing claims management phoenixing by financial services firms (CP21/14).

In CP21/14 the FCA sets out proposals to address the practice the regulator calls ‘claims management phoenixing’ by individuals in financial services firms. Claims management phoenixing occurs when an individual connected with a wound-up financial services firm reappears in connection with a claims management company (CMC), seeking to benefit from the former financial services firm’s poor conduct by carrying on claims management activities against it. The FCA reports that of the 250 CMCs it regulates with permission to manage financial services claims, at least 18 have connections to former financial services firms which could allow individuals from those firms to benefit from the firms’ poor conduct.

To stop claims management phoenixing the FCA is proposing to prohibit CMCs from managing Financial Services Compensation Scheme (FSCS) claims if a person connected to the CMC is or was linked to the financial services activity that is the subject of the claim. In summary, the FCA proposes that CMCs are prohibited from carrying on any regulated claims management activity in respect of a claim or potential claim to the FSCS in the following circumstances:

• Any employee or controller of the CMC, or any member of the CMC’s governing body, was directly involved in or had responsibility for managing the financial services activity that is the subject of the claim or potential claim; and/or
• A member of the CMC’s governing body is related to a person who was directly involved in or had responsibility for managing the financial services activity that is the subject of the claim or potential claim; and/or
• The CMC or a member of its governing body has transferred or agreed to transfer a financial benefit to a person who was directly involved in or had responsibility for managing the financial services activity that is the subject of the claim or potential claim.

Chapter 3 of CP21/14 sets out in further detail the circumstances in which it proposes to apply this prohibition.

The FCA is also proposing that CMCs must notify it of certain connections they have or had with financial services activity and with persons involved in financial services activity. Chapter 4 of CP21/14 sets out further details regarding the proposed notification requirement.

The deadline for comments on CP21/14 is 21 June 2021.