FCA Announced Plans to Crack Down on CMC Phoenixing

The Financial Conduct Authority (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.

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​FCA has taken action against a case where a managing director of a financial advice firm was barred for providing inadequate service to consumers. Then his wife set up a CMC and represented customers claiming more than £5m from the FSCS in claims against the husband’s former financial advice firm.

However, in new proposals, by stopping CMCs from managing FSCS claims with which they have a relevant connection, the FCA will ensure CMCs are not seeking to profit from past misconduct of individuals connected with the CMC.

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.”

“Our proposals are designed to put an end to this practice and to increase consumer trust and confidence in financial services firms, CMCs and the redress system,” he added.

According to the regulator, by this new plans, it wants to ensure that firms have customers’ best interests at heart and are not incentivised to treat customers poorly, that they will take due care in the provision of financial products and services and, when things go wrong, will take responsibility and put things right for their customers.

The consultation is open for comment until 21 June 2021.