The FCA says the standards of claims management companies (CMCs) are improving but there are areas where firms are not meeting its expectations.

It set out its strategy for supervising the CMCs industry over the next two years in a letter.

The letter included the regulator’s updated view of the harms and risks that CMCs pose, and its expectations for firms in the sector.

It said its priority is to look at service standards and whether CMCs are investigating the existence and merits of each element of a potential claim before making or pursuing the claim or advising the customer to do so.

It said it will review the marketing literature and due diligence conducted around the sourcing of personal injury leads and will look at how firms are ensuring and monitoring good outcomes under the Consumer Duty.

The FCA will also assess how CMCs ensure they do not mislead consumers into believing unregulated activity falls within the regulator’s rules.

It warned that often CMCs engage in claims which fall outside of the FCA’s perimeter, and a customer might assume those services are covered by its rules.

It said in the last two years it had engaged with 26 CMCs which processed unregulated claims, with the majority ceasing their unregulated claims activity.

The FCA has regulated CMCs since 2019 and said since then it has observed a steady decrease in the number of CMCs, with lead generators now accounting for more than half of the industry.

It said some firms have accepted leads from third parties but failed to carry out and record sufficient due diligence checks.

It said it engaged with 30 CMCs who were either referring or obtaining leads from third parties. Almost 90% were found to be non-compliant and the FCA’s review resulted in improved systems and controls to prevent the unlawful processing of data.

The FCA said it also still has concerns about CMCs advertising. It said it sometimes finds “multiple rule breaches within individual promotions, and repeated breaches despite our intervention.”

Recently, it said it had had concerns around housing disrepair and motor finance claims advertising.