New rules preventing claims management companies (CMCs) from being paid to help in cases where they are connected to a customer losing out in the first place will come into force next month.
The changes, introduced from July 7, ban firms from carrying out regulated claims management activity in certain circumstances.
Claims management “phoenixing” has happened in the past when people from financial services firms have gone out of business, but have later reappeared in connection with CMCs.
They may have charged consumers for seeking compensation against their former firm’s poor conduct, by bringing claims to the Financial Services Compensation Scheme (FSCS). The FSCS pays customers out when firms go bust.
The Financial Conduct Authority (FCA) rule changes mean firms will be banned from carrying out regulated activity on claims and potential claims to the FSCS if they have a connection with the activity that caused the claims.
CMCs will also need to tell the FCA about connections they have to relevant financial services firms.
The FCA estimates that at least 220 FSCS claims per year involve phoenixing connections between the firms submitting the claims and the former financial services companies they are made against.
The new rules aim to reduce that number to zero for FCA-regulated CMCs, within two years of the rules coming into force. The rules will not apply to pre-existing contracts.
Sheldon Mills, executive director of consumer and competition at the FCA, said: “No-one in financial services should be able to gain financially from their own past misconduct.
“Our new rules aim to stop this practice – and increase consumer trust and confidence in both CMCs and financial services firms.”