Which? strongly supports the government's decision to transfer responsibility for regulating CMCs to the FCA, and to extend regulation to Scotland, where CMCs are currently unregulated.
CMCs can benefit consumers by increasing access to compensation among consumers who might not otherwise have made a claim. But over the past decade Which? has highlighted many issues with the sector.
We broadly welcome the FCA’s proposed approach to authorise and supervise firms, and to enforce FCA rules. In particular, we support the FCA’s proposals for CMCs to be required to record all calls with customers and to keep these recordings for a minimum of 12 months, as well as keeping a record of electronic communications.
Combined with the FCA’s proposals to extend the senior managers and certification regime to CMCs, this should act as a deterrent to poor practices and enable more effective enforcement. This could also address the issue of ‘phoenixing’, whereby firms re-emerge as a new CMC following liquidation or insolvency, with some or all of the directors remaining in place.
However, to address excessive fees and the weak incentives on firms to deliver effective compensation schemes, the FCA should require financial firms to pay the costs of CMCs where the firm is at fault and the consumer is owed compensation. For firms in other sectors that sit outside the FCA’s remit, the FCA should work with government and other regulators to introduce the same requirement.
This approach would still enable CMCs to operate on behalf of claimants, but it would incentivise firms to encourage consumers to make claims directly to them. It would also mean that consumers receive all of the compensation they are due, regardless of how they make their claim.