Claims Management Compliance: FCA Regulatory Requirements

What It Is

Claims management is the regulated activity of advising on, investigating, or presenting claims on behalf of customers seeking compensation or redress. Since 1 April 2019, claims management companies (CMCs) operating in the United Kingdom have been regulated by the FCA under the Financial Services and Markets Act 2000, as amended by the Financial Guidance and Claims Act 2018. The regulatory framework is set out primarily in the Claims Management: Conduct of Business sourcebook (CMCOB), supplemented by the broader FCA Handbook provisions that apply to all regulated firms.

CMCOB covers the key regulatory requirements specific to claims management activity. CMCOB 2 sets out general conduct obligations including the duty to act honestly, fairly, and professionally, and the requirement to assess whether a customer has a reasonable prospect of a successful claim before proceeding. CMCOB 3 addresses pre-contract information requirements — the detailed disclosures that must be provided to customers before they enter into an agreement with the CMC. CMCOB 4 covers fee caps and charging restrictions. CMCOB 5 addresses client money obligations for CMCs that handle customer funds.

The scope of regulated claims management activity is broader than many firms appreciate. It encompasses financial services claims (PPI, mis-sold investments, unsuitable advice), personal injury claims, housing disrepair claims, employment claims, and criminal injuries compensation claims. A firm that helps customers pursue any of these categories of claim as a commercial activity requires FCA authorisation. The FCA has taken enforcement action against firms operating without authorisation and maintains an active unlawful business team focused on the CMC sector.

Claims management regulation must now be understood through the lens of Consumer Duty. CMCs are subject to Principle 12 and the four Consumer Duty outcomes. For an industry that historically operated with limited regulatory oversight and significant consumer detriment, the combined effect of CMCOB and Consumer Duty represents a fundamental transformation of the regulatory expectations placed on claims management firms.

Why the FCA Cares

The FCA inherited a sector with a troubled regulatory history. Under MoJ regulation, claims management was subject to light-touch oversight that failed to prevent widespread consumer harm. The sector was characterised by cold-calling and unsolicited marketing, opaque fee structures, misleading success claims, and the pursuit of unviable claims that generated fees for the CMC but no benefit for the customer. The FCA's own research before assuming regulation found that many CMC customers did not understand what they would be charged, believed they were dealing with an official body rather than a commercial firm, or were unaware that they could pursue their claim directly at no cost.

The PPI deadline in August 2019 — occurring just months after the FCA took over regulation — tested the new framework immediately. The FCA found CMCs engaging in aggressive marketing, charging fees for claims the customer could have made directly, and in some cases submitting claims without the customer's informed consent. The regulator took swift enforcement action, including cancelling the permissions of several firms and issuing significant fines.

Beyond PPI, the FCA is concerned about the broader CMC business model. Many CMCs operate on a no-win-no-fee basis that aligns interests when it works properly but creates perverse incentives when it does not. CMCs may pursue high volumes of speculative claims because the cost of failure is borne by the respondent firm and the customer (in terms of time and personal data shared), while the CMC profits from the minority that succeed. The FCA's concern is that this model, unchecked, generates systemic harm: respondent firms incur significant costs processing unviable claims, customers' expectations are raised and then disappointed, and the complaints system is clogged with low-quality submissions.

The motor finance commission claims wave that emerged in 2024-2025 following the Supreme Court ruling has intensified FCA scrutiny. CMCs are marketing aggressively to consumers who may or may not have valid claims, and the FCA is concerned about history repeating: firms charging significant fees for claims that consumers could pursue directly, pursuing claims without adequate merit assessment, and generating a volume of complaints that overwhelms respondent firms' capacity to respond.

Who It Affects

The regulatory framework applies to all firms with FCA permission to carry on claims management activity. This includes firms that advise on claims (helping customers understand whether they have a claim and how to pursue it), firms that investigate claims (gathering evidence and assessing the merits of a claim), and firms that present or manage claims on behalf of customers (submitting complaints, negotiating settlements, and liaising with respondent firms or the Financial Ombudsman Service).

The scope captures both specialist CMCs — firms whose primary business is claims management — and firms for which claims management is ancillary to other activities. A legal firm that operates a claims management arm, a financial adviser that helps clients pursue redress claims, or a consumer rights platform that facilitates complaint submission may all be carrying on regulated claims management activity and require FCA authorisation.

Lead generators occupy a complex regulatory position. A firm that identifies potential claimants through marketing and sells their details to CMCs may itself be carrying on a regulated activity depending on the nature of its interaction with the customer. The FCA has scrutinised lead generation practices and expects CMCs to ensure that leads they purchase were generated in compliance with regulatory requirements, including data protection and marketing rules. A CMC that purchases leads generated through unlawful cold-calling is at risk of regulatory action itself.

Appointed representatives in the claims management sector face heightened scrutiny under the FCA's AR supervision programme. The FCA has found that some principal firms exercised inadequate oversight of their appointed representatives, allowing sub-standard practices to persist. The FCA expects principals to take active responsibility for the compliance of their appointed representatives and has taken enforcement action where oversight was deficient.

What Firms Get Wrong

The most fundamental compliance failure is inadequate merit assessment. CMCOB 2.1.9R requires a CMC to assess whether the customer has a reasonable prospect of a successful claim before entering into an agreement. Many CMCs treat this obligation as a formality — collecting basic information and proceeding regardless of the merits. The FCA expects a genuine assessment: the CMC must evaluate the factual basis of the claim, consider the relevant legal and regulatory framework, and form a reasonable view about the likelihood of success. Firms that systematically pursue claims without adequate merit assessment are breaching CMCOB and failing Consumer Duty.

Second, pre-contract disclosure is frequently deficient. CMCOB 3 requires CMCs to provide customers with specified information before they enter into an agreement, including: a clear description of the service the CMC will provide; all fees and charges the customer will incur (including the fee cap structure); the customer's right to cancel; the right to pursue the claim directly at no cost; and the availability of free alternatives such as the Financial Ombudsman Service. The FCA has found that many CMCs bury this information in lengthy terms and conditions, use language that obscures rather than clarifies, or fail to provide the pre-contract information at all before the customer is committed.

Third, fee-related failures are endemic. Some CMCs charge fees that exceed the regulatory caps, either directly or through ancillary charges that are not transparent. Others charge fees for services not provided — for example, levying an assessment fee and then failing to conduct a meaningful assessment. The FCA has also found CMCs charging fees to customers who subsequently discover they could have pursued the claim directly at no cost — a practice that, even where technically permitted, raises serious fair value concerns under Consumer Duty.

Fourth, client money handling is frequently non-compliant. CMCs that receive settlement payments on behalf of customers must comply with CMCOB 5 client money rules. The FCA has found firms failing to segregate client money, failing to reconcile client accounts, or using client money for operational purposes. These failures mirror the issues seen in the payments sector and carry equally serious consequences — mishandled client money puts customers at risk of loss if the CMC becomes insolvent.

What Evidence Is Expected

The FCA expects CMCs to maintain documented procedures for every stage of the customer journey, from initial contact through merit assessment, pre-contract disclosure, claim submission, and settlement. For each customer, the file should demonstrate: how initial contact was made and that marketing rules were followed; the merit assessment conducted and its outcome; the pre-contract information provided and evidence that the customer received and understood it; the agreement entered into and the fees applicable; the work conducted in pursuing the claim; and the outcome, including any settlement received and the fees charged.

Merit assessment records are subject to particular scrutiny. The FCA expects to see what information was gathered from the customer, what additional investigation the CMC conducted (such as checking the customer's product history or reviewing the respondent firm's regulatory record), the assessment of the claim's merits, and the basis for the decision to proceed or decline. Where the claim has a weak factual basis but the CMC proceeds regardless, the file must explain the rationale — and the FCA will challenge explanations that amount to "we proceed with everything."

Fee records must demonstrate compliance with the applicable fee cap and provide a clear audit trail from the settlement amount to the fee calculated. Where fees are deducted from settlement funds, the CMC must document the settlement amount, the fee calculation, and the net amount remitted to the customer. The FCA expects reconciliation records showing that all customer funds are accounted for and that fees do not exceed the capped levels.

Complaint handling records must demonstrate compliance with DISP and Consumer Duty. CMCs generate significant complaint volumes — both from their own customers and from respondent firms — and the FCA expects robust complaint handling processes. For complaints from customers, the firm must investigate the merits, provide a clear response, and inform the customer of their right to refer the complaint to the Financial Ombudsman Service. The FCA also expects CMCs to conduct root cause analysis of complaints to identify systemic issues in their processes.

Good Implementation Looks Like

A compliant CMC starts with a genuine commitment to pursuing viable claims on behalf of customers who benefit from the service. The firm's marketing is accurate, clear, and does not create unrealistic expectations about outcomes or timeframes. Where the firm contacts potential claimants proactively, it does so in compliance with data protection and marketing rules, and clearly identifies itself as a commercial claims management firm.

The merit assessment is substantive. The firm gathers sufficient information to form a reasonable view of the claim's prospects — this typically includes the customer's account of what happened, any documentation they hold, the product or service involved, the respondent firm's identity and regulatory history, and the relevant regulatory framework. Where the claim has no reasonable prospect of success, the firm declines it honestly and promptly, directing the customer to free alternatives if appropriate. The firm tracks its claim success rate as a core MI metric and investigates if the rate falls below expectations, as a low success rate may indicate systematic failure in merit assessment.

Pre-contract disclosure is proactive and clear. The firm provides the CMCOB-required information in a format the customer can easily understand before they are asked to commit. The disclosure prominently states the fees the customer will pay, the customer's right to pursue the claim directly at no cost, and the availability of free services such as the Financial Ombudsman. The firm obtains a clear, affirmative acknowledgment that the customer has received and understood this information. The format avoids fine print, legal jargon, and any language designed to discourage the customer from pursuing the claim independently.

The firm handles customer funds with the same rigour expected of any firm subject to client money rules. Settlement payments received on behalf of customers are held in designated client accounts, segregated from the firm's own funds. Reconciliation is conducted at least daily. Fees are deducted in accordance with the agreement and within the applicable fee cap, and the net amount is remitted to the customer promptly. The firm's compliance function conducts regular reviews of client money handling and reports findings to senior management.

Related Tool

The MEMA Consumer Duty tool helps claims management companies conduct and document the outcomes assessments the FCA expects. It provides a structured framework for evaluating performance against each of the four Consumer Duty outcomes, with specific modules tailored to the claims management sector. For Outcome 1, the tool assesses whether the firm's claims management service is designed to meet the needs of customers in its target market. For Outcome 2, it evaluates whether the firm's fees represent fair value relative to the service provided and the outcomes achieved.

The complaints and DISP module supports CMCs in managing complaint volumes and conducting root cause analysis. Given the FCA's expectation that CMCs use complaint data to identify and address systemic issues, the tool tracks complaint themes, resolution rates, and ombudsman referral outcomes, providing the MI that the FCA looks for during supervisory engagement.

Together, these tools provide CMCs with a compliance infrastructure that supports day-to-day operations while generating the evidential documentation the FCA requires. For firms that have recently entered the regulated market or that are seeking to upgrade their compliance frameworks in response to Consumer Duty, the tools provide a structured starting point that aligns with current regulatory expectations.

Related Service

Our FCA authorisation service supports firms seeking claims management permissions, guiding applicants through the gateway process and helping them build the regulatory infrastructure the FCA requires. The FCA applies a rigorous assessment to CMC applications, particularly on fitness and propriety of key individuals, the adequacy of financial resources, the robustness of compliance arrangements, and the firm's approach to client money. We help firms address each of these areas with the specificity and evidence the FCA demands.

Our compliance outsourcing service provides ongoing regulatory support for authorised CMCs. This includes periodic file reviews assessing merit assessment quality, pre-contract disclosure compliance, fee cap adherence, and client money handling. We provide quarterly compliance reports to the board, conduct training for front-line staff on regulatory requirements, and act as the firm's compliance function where the firm does not have the resource or expertise to maintain one in-house.

For firms facing FCA supervisory engagement — whether in the form of an information request, a supervisory visit, or enforcement action — we provide expert support throughout the process. The claims management sector is subject to intensive supervision, and the FCA's approach reflects the sector's history of consumer detriment. We understand the FCA's priorities, the evidence it requests, and the standards it applies, and we help firms respond effectively while building sustainable compliance improvements. This is particularly relevant for firms navigating the motor finance commission claims environment, where the FCA is monitoring CMC practices closely and is prepared to intervene where it identifies harm.

Related Sectors

Claims management activity intersects primarily with the consumer credit and financial services sectors. The majority of regulated CMC activity involves financial services claims — including mis-sold payment protection insurance, unsuitable investment advice, unfair bank charges, and increasingly, motor finance commission complaints. CMCs operating in this space must understand not only CMCOB requirements but also the underlying regulatory framework of the products they are making claims about. A CMC pursuing motor finance commission claims, for example, must understand the FCA's review findings, the Supreme Court ruling, and the applicable CONC and Consumer Duty provisions.

Personal injury claims management, while subject to the same CMCOB framework, operates in a distinct regulatory and legal environment. CMCs in this space interact with the legal profession, the court system, and the Ministry of Justice's fixed-cost regime. The FCA has been particularly concerned about lead generation practices in personal injury — cold-calling accident victims, purchasing data from intermediaries of uncertain provenance, and the creation of misleading advertising that suggests claims are risk-free. CMCs in this sector must ensure their marketing and customer acquisition practices comply with both FCA rules and the wider legal framework.

Housing disrepair claims represent a growing area of CMC activity. Following the extension of legal aid restrictions and increased awareness of tenants' rights, CMCs have entered this market offering to pursue claims against landlords and housing providers. The FCA has observed practices similar to those that generated harm in the financial services CMC market: aggressive marketing, inadequate merit assessment, and fee structures that reduce the net benefit to the customer. Firms entering this market should apply the same compliance rigour as for financial services claims.

The regulatory environment for claims management continues to evolve. The FCA has signalled its intention to review the fee cap structure, strengthen client money requirements, and enhance supervision of marketing practices. Firms that treat current CMCOB requirements as the ceiling rather than the floor are likely to find themselves needing to upgrade their compliance frameworks when the next round of regulatory change arrives. The most effective strategy is to build compliance frameworks that exceed current minimum requirements and can accommodate foreseeable regulatory developments without fundamental redesign.