SRA Warns Claims Management Law Firms In England And Wales About High-Volume Financial Services Claims

Amid concern that the financial services sector may be facing a new surge in complaints because of the Financial Conduct Authority's (FCA) investigation into discretionary commission arrangements...
UK Finance and Banking
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Amid concern that the financial services sector may be facing a new surge in complaints because of the Financial Conduct Authority's (FCA) investigation into discretionary commission arrangements in the motor finance industry, the Solicitors Regulation Authority (SRA) has issued a timely warning to law firms working on financial compensation claims together with a warning notice addressed to them.

The high number of complaints from customers about commission arrangements for car finance agreements has heightened the SRA's existing concerns about certain improper practices and poor patterns of behaviour by firms acting in the mass claims sector. These include acting for claimants without proper authority, proceeding without considering the merits of claims, and making inaccurate and/or fraudulent claims. The guidance released alongside the warning reminds law firms of their regulatory duties and potential issues they might face when representing customers in this sector, in order to ensure these firms meet the standards the SRA expects.

This is a welcome development given that claims management activity conducted by SRA-regulated businesses are not expressly required to comply with the detailed prescriptive rules on conduct applicable to FCA-regulated claims management companies, set out in the FCA's CMCOB Claims Management: Conduct of Business sourcebook.

Many businesses have had to deal with the poor conduct of claims management firms purporting to act for clients who have not properly instructed them; alleging claims that it transpires they cannot evidence; using subject access requests (SARs) to gather evidence without obtaining evidence from their client first; and threatening to bring a deluge of claims in order to leverage a settlement.

What are the key points of the SRA's guidance?

  • Client instructions and authority: Firms must obtain client instructions and consent to proceed for each single claim, even where a firm may have previously represented the client, or where a claim is intended to be progressed as part of a high-volume process.
  • Fees: Information about charges for claims management activities must be clear, transparent and accurate. The SRA expressly gives as an example that firms should provide a clear explanation of whether sums that are written-off or offset against existing loans will be factored into the firm's final calculation of its charges. Fees should be fair and reasonable.
  • Explaining claim options: Acting in the best interests of a client involves expressly explaining to clients about any other potential routes for progressing their claim, for example, that they can refer their complaint to the Financial Ombudsman Service (FOS) and that they can do so without professional assistance or incurring costs.
  • Taking unfair advantage of third parties, misleading the court and fraudulent claims: Firms must not attempt to mislead their clients, the court, or others. The guidance emphasises that during high-volume claims processes, this could include escalating mass numbers of complaints through to the FOS or a firm at a single point in time and making unreasonable or inappropriate demands for those complaints to be reviewed and/or determined. Demands must not be made for amounts of compensation that are not legally recoverable and claims must not be progressed without being able to evidence a sound basis for them.
  • Merits of claims: Claims should not be filed until a client has been properly advised on all of the merits of its case. Firms must gather sufficient evidence from their clients to give full consideration to the relevant circumstances of each claim, so that they can advise on those elements of the potential claim. Advice to clients must take into account any prior responses to relevant correspondence received from firms or the FOS and, if templates are used, they must still ensure that evidence provided in response by firms is properly taken into account.
  • Making subject access requests: The SRA acknowledges that, in high-volume work, gathering sufficient evidence might involve making aggregated, bulk SARs to firms. However, the SRA has expressly said that they must not be sent indiscriminately or without first undertaking due diligence checks to establish the legitimacy of client details and the necessity of a SAR for a potential claim given the information obtainable from each claimant.
  • Advertising: Firms must ensure that any publicity in relation to their practice is accurate and not misleading. This includes not making unsupported or unrealistic statements about the prospects of success of any claim.

Osborne Clarke comment

Although the guidance is not as detailed and proscriptive as that applicable to FCA-regulated claims management companies, the SRA's focus on this topic should be welcomed by customers of claims management firms and firms alike, given the historically poor conduct of some of those operating in the mass claims sector.

Firms representing claimants in these claims should be aware of the risk of disciplinary action if they fail to adhere to their regulatory duties and meet the standards expected by the SRA. Firms that are defending these claims will need to be aware of the key patterns of behaviour identified in the guidance and consider how the SRA's warning will affect their handling of SARs and compensation claims.

This Insight was produced with the assistance of Josh Payne, Trainee Solicitor at Osborne Clarke LLP

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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