I’ve always been a sceptic of regulatory scope extension. The only exception I can recall is the FSA's decision, in 2010, to turn on its conduct powers in relation to banks. These had effectively been delegated to the self-policing Banking Code when the FSA was formed, a decision whose reputation didn’t improve with time.

There are several sorts of scope extension of course...

  • Some bring in more firms and new sectors – the FSA took on Mortgage & General Insurance regulation in 2005 (c. 14,000 new regulated firms, doubling the number), and Consumer Credit (2014), which more than doubled it again.
  • Others involve bringing previously unregulated activities (of regulated firms) within scope – Benchmarks is an obvious example.
  • And then there are instances where standards become higher and/or more detailed – almost all areas qualify for this, but MiFID II is the most obvious recent example.
  • There are also instances where broad changes in regulation have a particular impact in financial services – GDPR
  • And areas where the political mood of the times produces an additional statutory objective – in FSMA 2000, this was public awareness/financial capability; in FSMA 2012, it’s competition.

However, CMCs (Claims Management Companies), for which the FCA will assume regulatory responsibility next year, seems to fall into a category all of its own. Yes, it will involve regulating new firms and new activities, but CMC regulation will stretch the FCA’s role in at least four ways:

  1. CMCs hit the headlines about five years ago, when they jumped on the PPI redress programme, persuading large groups of consumers that it was better to claim via them, at the cost of 20-30% of their entitlement, than to use the free existing complaints process. Their profitable existence therefore challenges the effectiveness several established parts of the regulatory universe – firms’ complaints’ process, the Ombudsman, the FCA’s own prioritisation.
  2. Even beyond this, part of the purpose of CMCs is to identify areas where the regulator isn’t succeeding, This will create a potential conflict of interest for the FCA in how it regulates them.
  3. There is also a good deal of noise around whether the CMCs operate in an ethical or even legal way. How the FCA pursues these claims will be heavily scrutinised.
  4. Finally, like it or not, the fact that so many consumers are happy to give away future redress rather than go through the free system raises a raft of related wider issues, from a patent lack of trust in the integrity of the system as a whole to the growing debate whether firms should owe their customers a more specific duty of care.

What is evident, and I don’t know if the FCA has yet published its view on this, is how CMC regulation is going to be funded. One thing is clear, however – regulating them well will cost a lot more than CMCs themselves can afford to pay.