Here is a call to arms! Let us all do something about the scourge of claims management companies in the field of financial services.
A number of Members of Parliament are interested in getting something done. So at least let us contact our MPs and say what our experience with CMCs has been, and what our suggestions for improvement are.
But also do not miss the opportunity to make the connection between CMCs and the FOS, and to press the case for the reform of the FOS along the lines set out below.
There is a substantial amount of anecdotal evidence that CMCs are a scourge. Probably every reader will be able to support or add to, the following list of problems:
- Frequent and random cold-calling by telephone, throughout the day and well into the evening.
- In the course of a cold-call, suggesting to the prospective client that he or she is entitled to a substantial named sum, for example, £17,000, when that figure bears no relation to the case under discussion.
- Submitting a subject access request on behalf of the client as a way of fishing for information.
- Charging the client a fee before establishing, on reasonable grounds, that there is a legitimate complaint to be made.
- Requiring the payment of a cancellation fee which bears no relationship to work done.
- Presenting a claim to a firm when the firm has not sold the product complained about.
- Alleging breaches of the financial regulators’ rules which are either unsupported by the facts of the matter or are inappropriate to the product in question.
- Alleging breaches of the rules which appear to be cut and pasted from a pre-drafted menu of possible breaches.
- Lack of experience or knowledge which results in a legitimate complaint being overlooked.
On 9 September 2013, there was a meeting at Portcullis House, Westminster, arranged by Ian Broadbent of Blue Sky Mortgages. It was attended by three MPs including Jonathan Evans, the Conservative MP for Cardiff North, about 20 financial advisers, members of the press and members of the staff of some other MPs, and was chaired by Nic Dakin the Labour MP for Scunthorpe. I was also there.
The purpose of the meeting was to generate support for the proper regulation and control of CMCs, and also to reignite support for the reform of the FOS.
There was general agreement that CMCs need to be properly regulated, in the same way that others who earn their living in the financial services industry are regulated. Although the Ministry of Justice tries to do its job, it does not have the resources.
There was general, but by no means unanimous, agreement that CMCs ought therefore to be regulated by the FCA. To become authorised as CMCs, applicants would need to show that they were fit and proper, had had appropriate training and held adequate capital resources. They would then also be subject to proper supervision and discipline. Everyone agreed that cold-calling by telephone or text should be outlawed – as is already the case with cold-calling in person.
And then we come to the question of the reform of the FOS. I had been invited to the meeting to outline the proposals that Anthony Speaight, QC, and I had set out in a paper we submitted to the Treasury in 2011 when it was carrying out consultations on the government’s plans for changing the way in which financial services are regulated. I outlined our proposals in two articles in Money Marketing a few months later. The Treasury paid no attention to our paper, and the FOS remains as it was.
The proposals that Anthony and I put forward were based on the following main points. The FOS system is unfair and contrary to the rule of law, because:
- The FOS does not apply the ordinary law. Instead, the FOS decides a case on the basis of what he considers to be fair and reasonable even if the law requires a different result.
- The rules of the FOS do not comply with the ordinary law in all respects; for example, there is no long-stop to prevent stale complaints from being made.
- There is no appeal.
- Contrary to the law, the FOS virtually never permits a dispute of fact to be resolved in an oral hearing held in public.
- The complainant is not bound by the result, but if the complainant accepts the award, the adviser is bound by it.
To meet those defects, we proposed that all cases going to the FOS should be decided by an adjudicator – as happens at present – but with the application of the ordinary law. In more than 90 per cent of all cases, the parties currently accept the outcome at this point. But if either party disagrees with the adjudicator, instead of the case being referred to an ombudsman, it would be reheard by a proper specialist tribunal, with the parties giving evidence in public and being subject to examination and cross-examination, with all the usual processes of a court, including appeals. The final result would bind both parties. All this could be done without cost to the complainant, with limited exceptions.
At the recent meeting, what I outlined was received politely by the MPs present, but Jonathan Evans MP said that while there was growing interest in dealing with CMCs, there was no parliamentary appetite for any changes to the FOS. He said that what united MPs of all parties in relation to financial services was the interest of the consumer, and the proposed changes to the FOS scheme were seen as not in the consumer’s interest.
That reaction has the air of political reality about it, but should be challenged by every firm in the financial services industry, large and small.
The practical reasons are simple. First, the aspects of the FOS process which Anthony and I believe need reforming are causing real and costly difficulties for all financial advisers. Any real and costly difficulty placed in the way of an adviser doing his or her job, which is to provide advice to clients, results in that adviser being less able to concentrate on giving advice.
Secondly, and importantly in this context, CMCs are part of the complaints handling process which, if not resolved by the firm against which the complaint is made, end up with the FOS. Thus, it makes practical sense for there to be an overall and thorough review of that whole process.
As a matter of tactics, the proper regulation of CMCs should be in the forefront of the current campaign, especially because a growing number of MPs are becoming involved. But no opportunity should be missed to make the point that the FOS operates outside the law, and that that must change.
We are not saying that financial advisers should be treated more favourably than all other advisers. But at present they are treated more harshly than all other advisers, and indeed more harshly than all other citizens in the UK. That is not fair, and is also contrary to the well-established cornerstone of our constitution: the rule of law. In other words that we are all subject to the law which we can establish in advance of taking any action.
But the FOS operates outside the rule of law.
Take up the challenge: get your MP onside.
Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of moneymatterslegal.co.uk