Rogue CMC owners banned from resurfacing under new name
By John Hyde >>
(10 June 2022)
Financial regulators will ban directors of failed claims management companies from re-surfacing and providing the same services under a different name.
The Financial Conduct Authority this week announced that it will prohibit any claims management activity by individuals who have shown poor conduct under their previous wound-up firm. The ban will also stop companies from being set up by those with a direct connection, such as spouses, to people who have run such firms.
The practice known as ‘claims management phoenixing’ is said to occur when a firm winds up and an individual connected with it re-opens under a new guise to avoid the liabilities of the old business. Typically, directors or senior staff owe significant sums and/or have engaged in misconduct, but reappear with their new firm doing the same business.
Of the 250 CMCs regulated to manage financial services claims, around 18 have connections to former firms which have benefitted from misconduct. At least 220 claims every year to the Financial Services Compensation Scheme involve phoenixed firms subject to claims under their previous guise.
The FCA said: ‘Claims management phoenixing is egregious because it takes advantage of consumers who have suffered loss and allows individuals not only to continue carrying on regulated activities after they have conducted themselves poorly, but to benefit materially from their own (or their firm’s) past misconduct.’
The FCA says its ultimate aim is to end the practice of CMC phoenxing altogether. Any individual directly or indirectly involved with a firm subject to an FSCS claim will be banned from carrying on any regulated claims management activity. New rules and guidance are expected to come into force on 7 July.
(Courtesy: The Law Society Gazette)