Most advisers from time to time will encounter a client with a claim or potential claim relating to a failed or missold investment.

    Naturally, they want to help. Some merely point out that something may have gone wrong and suggest the matter be investigated. But others go further, perhaps referring the client to a third party claims management company (CMC), or carrying out investigations, giving advice and even making representations on the client’s behalf.

    Unfortunately, from 1 April 2019 these activities could amount to regulated claims management activity, and could have serious implications without the proper permissions in place.

    These activities will become regulated under the Financial Services and Markets Act 2000 (FSMA) from next month, with the FCA taking over from the Ministry of Justice.  

    This means advisers should take extra care not to provide services for which they don’t have permission. While the regulator is unlikely to focus on claims management activity by advisers immediately, it will be well placed to spot it, and keen to make examples of firms acting outside their remit.

    Here, we explain the kinds of claims management activity that will become regulated by the FCA, and set out in practical terms what advisers can and cannot do.

    Claims and regulated activity 

    Under section 22(1B) of FSMA, a regulated claims management activity satisfies the following conditions:

    • It consists of, or relates to, claims management services;
    • It is an activity of a specified kind;
    • It is carried on by way of business; and
    • It is carried on in Great Britain.

    The term 'claims management services' is very broadly defined as “advice or other services in relation to the making of a claim”.

    The second condition, that relates to 'activity of a specified kind', is the important one.

    From 1 April, any of the following will be specified activities where they relate to a particular type of claim:

    • Seeking out persons who may have a claim;
    • Referring details of a claim, potential claim, claimant or potential claimant to another person, including a solicitor;
    • Identifying a claim or potential claim; or a claimant or potential claimant;
    • Advising a claimant or potential claimant;
    • Investigating a claim 
    • Representing a claimant, either in writing or orally, regardless of the tribunal, body or person involved.

    The specified kind of claim most relevant to advisers and planners is financial services or financial product claims. This is not defined, but it is merely made clear that it “includes a claim made under section 75 of the Consumer Credit Act 1974", so a wide variety of claims are covered. 

    Other specified kinds of claim are personal injury claims; housing disrepair claims; claims for specified benefits; criminal injury claims; and employment-related claims.

    The third condition for a regulated claims management activity is that it is carried on 'by way of business'.

    There is little guidance on how this test might apply to claims management activities, but it isn't necessarily the case that an activity carried out for free is not a business activity. We discuss in more detail in our next article. 

    The fourth condition is that the activity is carried on in Great Britain. Essentially, if the adviser or the client is ordinarily resident in Great Britain or subject to its laws, the adviser is treated as carrying business on in Great Britain regardless of where this actually takes place. 

    What help can advisers give their clients?

    The reality is advisers cannot safely do much in connection with their clients’ claims without obtaining the relevant permissions.

    Although it is possible to argue an activity is not being carried on by way of business and is therefore outside the scope of regulation, this is a risky strategy. Again, we discuss this further in part two. 

    The most important thing advisers can do is make clients aware as soon as possible of any circumstances that might give rise to a claim. This alone is not a specified activity.

    Making the client aware early will maximise their chances of bringing a successful claim – and minimise the risk of blame if they fail to meet a limitation period or other time limit.

    Another thing advisers can do is refer the client to a legal practitioner or claims firm, provided that the referral meets certain conditions. It is important in doing so to choose carefully.

    Beyond that, giving advice, carrying out investigations or making representations in relation to a claim will be very likely to amount to specified activity, and if done in Great Britain it will be regulated.

    The only significant exception to this is advisers are permitted to provide evidence (whether lay or expert evidence) in connection with a claim. But advisers must take care to ensure they don’t cross the line, so the safest course is only to provide evidence on instructions, ideally where the client is formally represented by a third party.

    It is worth emphasising of course that advisers can still give normal advice to clients with claims or potential claims, including in relation to the underlying failed or missold investments.

    The key thing is not to advise in relation to the claim or potential claim itself.

    In our next article, we will cover the 'by way of business' test in more detail, as well as the circumstances where advisers can refer their clients for help with claims

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