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non-compliance to hit claims management companies in their pockets

16 December 2014

On 29 December 2014 the Compensation (Claims Management Services) (Amendment) Regulations 2014 will come into force, allowing the Claims Management Regulator (CMR) to fine claims management companies (CMCs) who breach their authorisation.

Rules introduced in October set the standards expected of CMCs across advertising and marketing; running a business; taking on business and representing clients.

Currently, the CMR can penalise bad practice of CMCs with suspensions, variations and cancellations of their authority to provide services. The regulations will allow them to impose fines of up to:

• £100,000 for CMCs with turnover under £500,000
• 20% of turnover for CMCs with a turnover in excess of £500,000

The level of fines will depend on the nature and seriousness of breach, previous warnings, detriment to consumers, financial gain by the CMC and the means to pay a penalty.

In principle, the introduction of financial penalties provides a powerful tool with which to reduce bad practice in the claims industry. In practice the effectiveness of the regime will depend largely on the resources and determination of the regulator to stamp out poor practice.

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