On 30 January 2025, the Financial Conduct Authority (FCA) published a portfolio letter to claims management companies (CMCs), setting out its strategy for supervising CMCs, its updated view of the harms and risks that CMCs pose, and its expectations for firms in the sector.
Background
The FCA explains that, since regulation of CMCs was transferred to it in April 2019, it has seen a steady decrease in the number of CMCs, with lead generators now accounting for more than half of the industry. Its view is that CMCs should be trusted providers of high-quality, good-value services that help people pursue legitimate claims for redress and benefit the public interest. Based on some detailed work over the last 2 years (which has informed its future supervisory work programme), the FCA says it is encouraged that standards are improving, but warns that there are areas where firms are not meeting its expectations and it intends to focus on these areas.
Priority areas of focus
The letter explains that over the next 2 years, the FCA will focus its supervision of CMCs on embedding the Consumer Duty and the following areas:
- Service standards: The FCA plans to carry out work to consider whether CMCs are investigating the existence and merits of each element of a potential claim before making or pursuing the claim or advising the customer to do so. It will look at CMCs submitting high volumes of complaints to the Financial Ombudsman Service (FOS) but achieving low uphold rates, and will also use this work to understand the impact of the FOS’s proposals to charge representatives.
- Personal injury: The FCA plans to review the marketing literature and due diligence conducted in relation to the sourcing of personal injury leads and to consider how firms are ensuring and monitoring good outcomes under the Consumer Duty. It will also assess how CMCs ensure they do not mislead consumers into believing unregulated activity falls within the FCA’s regulatory perimeter.
- Lead generation: Following a recent ad-hoc survey of all lead generators to better understand the current claim areas being worked on, the FCA plans to consider whether it would be appropriate to consult on making changes to the annual CMC001 report to gather that information regularly.
Key issues
Also set out in the letter are several key issues that the FCA expects firms to pay regard to, including misleading advertising, inappropriate sourcing of customers, poor service standards, consumer understanding, halo effect risks, poor attitude to regulatory obligations, and financial services claims.
Next steps
The FCA notes that it will remain alert to industry changes that could harm customers and may adjust its strategy and programme of work to enable it to act where it can make the most difference.