Regulation fees paid by claims management companies

Overview

This consultation invites views on the fees for applications for authorisation and annual fees for the regulation year 1 April 2013 to 31 March 2014 and initial views on a fees framework for complaints handling by the Legal Ombudsman.

This consultation is primarily aimed at persons authorised to provide regulated claims management services in England & Wales under the Compensation Act 2006 and those businesses and individuals contemplating making an application for authorisation.

Why your views matter

Regulation

The claims management regulation system is a self-financing system, with applicant and authorised claims management companies meeting the costs of regulation through the payment of authorisation fees.

The level of these fees is set in advance of the year to which they apply.  They are calculated based on the number of new claims management companies predicted to apply for authorisation, the turnover of current authorised claims management companies together with the proportion of claims management companies expected to maintain their authorisations both in year and into the following year.

This consultation sets out the proposed fees for the regulation year April 2013 to March 2014.

A number of significant changes, which have the potential to greatly impact on the claims market, will take place in 2013 - 2014.  These include the ban on referral fees in personal injury claims, a ban on offering inducements to make a claim, the growth of Alternative Business Structures, and the Government’s reforms to the costs of civil litigation.

Each of these factors could lead to significant changes to the structure of the claims market and have been taken into account when considering future fees income.

The Government will implement a ban on the payment and receipt of referral fees for personal injury claims in April 2013.  Those claims management companies currently receiving referral fees for providing access to claimants in personal injury cases will no longer be able to operate in their current form.

This could lead to a reduction in their income levels depending on their reliance on referral fees and whether they are in a position to restructure their business model. 

The ban could also mean fewer claims management companies applying for authorisation to provide regulated services in the personal injury sector, existing claims management companies leaving the market and an increase in unauthorised trading.

A significant amount of fee revenue comes from the personal injury sector and any reduction of the sector will therefore, have an impact on total fee income. The costs of the primary compliance and enforcement functions of the Claims Management Regulator (the Regulator) will be ongoing.

Continuing resource will be needed to further consumer protection and to meet the challenges posed by the financial products and services sector – in particular the payment protection insurance claims market, and to ensure compliance with the bans on referral fees and inducements and the policing of a potential increase in unauthorised trading.

Therefore, we need to mitigate now against any contraction of the personal injury sector whilst ensuring that full regulatory costs are recovered and regulation remains adequately resourced.

Complaint Handling by the Legal Ombudsman

In August 2012 the Government announced its intention for the Legal Ombudsman to take on complaints about poor service received at the hands of claims management companies.

The Legal Ombudsman will provide a new avenue of redress for clients of claims management companies and will assist the Regulator in driving out some of the poor standards and practices currently seen in the market.

The independent complaint resolution service provided by the Legal Ombudsman is free to consumers, with the costs incurred met by the lawyers, and also in future authorised claims management companies.

This consultation contains estimated costs that the Legal Ombudsman believes it will incur in providing this function for claims management companies. This consultation sets out preliminary proposals for how the costs of complaint handling might be recovered from authorised claims management companies.