The FCA has announced proposals to stop the practice of ‘claims management phoenixing’, by banning Claims Management Companies (CMCs) from managing Financial Services Compensation Scheme (FSCS) claims where they have a relevant connection to the claim.
Claims management phoenixing occurs when individuals from financial services firms go out of business, but later reappear in connection with CMCs and charge consumers for seeking compensation against their former firm’s poor conduct by bringing claims to the FSCS. The FCA has taken action where it has been possible to do so to prevent this practice, including where the managing director of a financial advice firm provided inadequate service to consumers. After the managing director was barred from acting as a company director, his wife set up a CMC.
The CMC represented customers claiming more than £5m from the FSCS in claims against the husband’s former financial advice firm. The FCA was able to refuse the authorisation of the CMC as the firm did not meet standards. While the FCA was able to stop claims management phoenixing by refusing authorisation in this case, the new rules being proposed will put a stop to claims management phoenixing across the market.
Sheldon Mills, Executive Director of Consumers and Competition as the FCA, said:
‘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.”