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CMCs exposed to FOS and FSA attack under MoUs with CMR

29 March 2011

The Memorandum of Understanding (MoU) published last week between the FOS and the Claims Management Regulator (CMR) may help respondent firms to deal effectively with perceived misconduct by CMCs.

The CMR exercises the Ministry of Justice's regulatory function, enforcing legislation and rules in the claims management sector. Complaints against CMCs by their clients are handled by the CMR itself under its Complaints Procedure, but (ironically for the body responsible for complaints under the Compensation Act) "The Regulator does not have the statutory power to order a payment of compensation."

The FOS cannot deal with complaints against CMCs from their clients; nor can the Legal Ombudsman - despite the fact that many consumers understandably assume that the claims managers are run by lawyers or at least provide quasi-legal services.  As Graham Reid pointed out, the Legal Ombudsman has been swamped by complaints against CMCs with which he is unable to deal.

At first glance, the MoU seems to say little more than 'you do your thing and we'll do ours - but we'll share information'. However, in apparent acknowledgement by the FOS of respondent firms' frequent disquiet about the role of CMCs in handling financial services complaints, the MoU does provide, in respect of 'information to be exchanged': "Subject to legal constraints, the ombudsman service agrees:

    • To provide the CMR with high-level information about the number and nature of complaints relating to CMCs and any discernable trends they indicate about CMCs' conduct ...
    • To provide the CMR wtih information if it discovers evidence of a serious breach of relevant legislation and/or rules by an individual claims management business, including potentially inappropriate behaviour and poor levels of service ..."

This is supported by similar language in the FSA's MoU with the CMR by which "the FSA will pass to the CMR indications or evidence of any breaches of law or misconduct ... committed by any person acting as a claims management business ...".  Firms now therefore have a framework through which to raise concerns about the conduct of CMCs.

Yesterday's FSA Feedback Statement says the FSA, FOS and OFT "closely liaise with the CMR".  That seems a strong claim when the ink has only just dried on the MoUs but the principle is welcome.  The FCA and FOS are to become subject to a statutory requirement to publish and maintain a MoU and we will also have to wait for the FSA and CMR's joint statement about dealing with complaints from CMCs which will be published "shortly".

Rather than grumbling quietly about the conduct of CMCs or even risking regulatory criticism by attempting to avoid dealing with them at all, firms can now refer the FOS or FSA to these MoUs and invite the Adjudicators and Ombudsman or their Supervisers to consider referring particular recurring bugbears or individual CMCs to the CMR.  Faced with an irrepressible volume of such information from FSA and/or FOS, the CMR would be obliged to act.