The number of firms authorised to provide regulated claims management services has fallen markedly in recent years, almost halving since the FCA took over regulation of the sector from the Claims Management Regulator in April 2019.
The number of firms authorised to provide claims management services in April stood at 483, nearly halving from 942 in 2019.
An FOI request revealed the number firms operating in claims management part of the market has fallen in every one of the past seven years.
There was a particularly notable drop of 24% between April 2020 when the number stood at 923, and April 2021, when it dropped to 704.
That is likely to have been a consequence of the new FCA authorisation, rules and fees regime and CMCs, pre-empting the FCA’s later introduction of fee caps, according to consultants Broadstone, which put in the FOI.
It made the FOI was made in May after the FCA announced a review into the claims management sector.
The FCA launched a review of the claims management market last month, following concerns that consumers are being failed by some claims management companies and law firms. It said the review will focus on aggressive marketing, misleading advertising and unfair exit fees.
Other concerns cited by the regulator include consumers being signed up without their consent (without clear, upfront explanations of the implications of signing up or ticking a box, for example on social media adverts) or by multiple representatives, potentially causing confusion and delaying compensation.
Phil Smith, head of redress at Broadstone, said: “The sharp decline in the number of authorised claims management firms since the FCA took over regulation reflects a market that has come under far greater scrutiny and regulatory pressure in recent years. Higher standards around governance, conduct and consumer outcomes have undoubtedly raised the bar for firms operating in the sector.”
He warned that while increased oversight has helped drive out some poor practices, the FCA’s decision to launch a fresh review highlights that concerns around consumer harm and poor behaviour have not gone away entirely. “This has been reflected in the multiple warnings issued around the motor finance compensation scheme.”
He said people should fully understand what they are signing up to, what fees may apply and whether free-to-access routes such as the Financial Ombudsman Service are available before entering into agreements.
Last year the regulator set out areas for concern where firms were not meeting its expectations. Since then, the FCA has removed or amended 800 misleading adverts, in excess of 28,000 consumers have been able to exit contracts free of charge, and 3 CMCs reduced their unreasonable fees protecting over 500,000 consumers.
Formal investigations are also under way, with one announced by the FCA.