Claims Management Companies: Senior Accountability Under FCA Regulation

How the Regime Applies

Claims management companies authorised by the FCA are subject to the Senior Managers and Certification Regime as solo-regulated firms. Which Senior Manager Functions apply depends on the firm's tier and structure, but typically include the Chief Executive or an executive director running the business, and compliance oversight. Each Senior Manager needs FCA approval before starting, a Statement of Responsibilities, and is subject to the Senior Manager Conduct Rules.

The detailed conduct rules for CMCs are in the FCA's Claims Management: Conduct of Business sourcebook, covering matters such as financial promotions, pre-contract disclosure, fees and the handling of claims. For financial services claims, fees are subject to caps.

Where the FCA Focuses

Financial Promotions and Marketing

How CMCs attract customers has been a long-standing concern. The FCA expects promotions to be clear, fair and not misleading, and it pays close attention to lead generation, including through third parties and social media.

Customer Understanding

Customers must understand what they're signing up to, including fees and the fact that many claims can be made directly, free of charge, for example through a firm's complaints process or an ombudsman. The Consumer Duty reinforces the expectation that customers understand the service and its value.

Fair Value

Fees must represent fair value for the service provided. The FCA looks at whether customers receive meaningful benefit from using a CMC compared with pursuing a claim themselves.

Claim Quality

The FCA expects CMCs to pursue claims with a reasonable basis, rather than submitting high volumes of weak or speculative claims that burden other firms and the ombudsman.

Vulnerable Customers

Many CMC customers are dealing with financial difficulty, illness or other stressful circumstances. Firms must identify and respond to vulnerability.

Third Parties

CMCs often rely on lead generators, introducers and outsourced service providers. The firm remains responsible for their conduct.

Where Senior Accountability Sits

Because many CMCs are small, one or two individuals often hold most of the responsibility. The chief executive or managing director is typically accountable for the business model, marketing, fees and customer outcomes. The compliance oversight holder is responsible for monitoring compliance with the rules. In smaller firms these may be the same person, which concentrates accountability. SMF Capital's article on the Consumer Duty and the SMF framework explains where accountability for customer outcomes sits.

Common Failings

• Aggressive or misleading marketing, including through lead generators the firm doesn't adequately control.
• Weak disclosure of fees and of customers' ability to claim directly for free.
• Volume over quality, with weak claims submitted in bulk.
• Poor treatment of vulnerable customers, including pressure selling.
• Inadequate oversight of third parties.
• Thin compliance resources, particularly where compliance oversight is combined with running the business.

Building a Strong Senior Team

Leadership Committed to Good Outcomes

The most important factor is a leadership team that genuinely puts customer outcomes first, rather than treating compliance as a constraint on volume.

Independent Compliance

A compliance officer with real authority, adequate resources and direct access to the board or owners can make a significant difference. Where the firm is too small for a full-time compliance officer, a fractional compliance officer with relevant sector experience may be the proportionate answer.

Financial Discipline

CMCs need finance leadership that understands fee caps, revenue recognition on claims that may take months or years to resolve, and client money where relevant. FD Capital, a sister practice of SMF Capital, places fractional and interim finance directors with experience of regulated businesses.

Oversight of Third Parties

A named Senior Manager should be accountable for oversight of lead generators and other third parties, with clear standards and monitoring.

Different Types of Claims Business

Claims management covers a wide range of activity, and the risks differ. Financial services claims, such as those relating to mis-sold products or unaffordable lending, sit alongside the FCA's own work on redress and are subject to fee caps. Personal injury claims involve different processes and relationships with solicitors. Housing disrepair, employment and other claims types each bring their own marketing and conduct risks. Senior Managers should understand the specific risks in the types of claim their firm handles, rather than relying on a generic approach.

Relationships With Law Firms

Many CMCs work closely with law firms, referring claims or operating within wider legal services groups. Those relationships raise questions about referral fees, conflicts of interest, and which regulator is responsible for which activity. CMC Senior Managers should be clear about where their firm's regulated activities begin and end, and how customers are informed about any arrangements that affect them.

Complaints and Redress

CMCs must handle complaints about their own service fairly, and customers can refer complaints to the Financial Ombudsman Service. Complaint patterns are an important source of insight for Senior Managers, highlighting problems with marketing, disclosure or service quality. Firms that analyse complaints for root causes, rather than handling each in isolation, are better placed to fix underlying problems before they attract regulatory attention. Complaint data should form a regular part of the management information the senior team reviews.

Growth, Acquisitions and Exits

The CMC sector has seen consolidation, market exits and new entrants responding to changing claims opportunities. Firms that grow quickly, or pivot into new claim types, should make sure their compliance resources and controls keep pace. Buyers of CMCs should look closely at the senior team, the firm's regulatory history and any open issues, and plan Senior Manager approvals as part of the transaction.

Approval for CMC Senior Managers

Individuals applying for Senior Manager Functions at CMCs are assessed against the fit and proper test: honesty, integrity and reputation; competence and capability; and financial soundness. The FCA will look closely at candidates' previous involvement in firms with regulatory or conduct problems, and at their understanding of the rules. Regulatory references covering the previous six years will be required from relevant previous employers.

Questions for CMC Leaders

• Can we show that customers genuinely benefit from using our service, at the price they pay?
• Do customers clearly understand our fees and their right to claim directly for free?
• Do we control how our lead generators and introducers market on our behalf?
• Do we pursue only claims with a reasonable basis?
• Does our compliance function have the independence and resources it needs?
• How do we identify and support vulnerable customers?

The Bottom Line

Claims management companies are now firmly within the FCA's framework of personal accountability. Firms with leaders who put customer outcomes first, independent and well-resourced compliance, disciplined finance and proper oversight of third parties are best placed to meet the FCA's expectations. For more on the Senior Manager Functions involved, see SMF Capital's Senior Manager Functions guide.