The claims management reckoning: FCA puts a business model on trial

The FCA has opened a comprehensive review of the claims management market, and the framing leaves little doubt about direction of travel. Alison Walters, the FCA's director of consumer finance, writes that since January 2024 "over 1,000 misleading car finance claims adverts have been removed or amended," three CMCs have cut unreasonable fees "protecting over half a million people," and "four firms cannot currently take on new clients" with enforcement investigations under way (FCA). The regulator is not asking whether intervention is warranted. It is asking how far to go.

A redress industry under the microscope

The scope is broader than the motor finance flashpoint that triggered it. The FCA will examine whether current price caps "remain fit for purpose," whether "business incentives and funding models, including opaque offshore funding structures, are driving poor conduct," and whether firms are "financially resilient enough to continue supporting the thousands, or even millions of customers, they claim to serve" (FCA). Each of those four questions is a different threat to the prevailing CMC business model. Tighter caps compress unit economics. Scrutiny of offshore funding pierces a structure many litigation funders rely on. A resilience test imports prudential thinking into a sector that has largely escaped it. Together they signal that the FCA intends to reshape, not merely police, the intermediary layer between consumers and regulated firms.

What it means for defendant firms

For lenders, insurers and asset managers that face complaint volumes routed through CMCs, the review is double-edged. On one side, the FCA acknowledges that when claims firms "behave badly or collapse completely, they don't just harm the people they're supposed to represent" but also "heap unnecessary cost and uncertainty on those on the receiving end" (FCA). That is the closest the regulator has come to validating what defendant firms have argued for years about spurious volume, fraudulent signatures and duplicate sign-ups. On the other side, the joint taskforce with the SRA, ICO and ASA, and the explicit decision to look at law firms alongside CMCs, means cross-regulatory coordination is now the operating assumption. Boards that have treated complaints handling as an operational matter need to elevate it. The pipeline of claims, the conduct of counterparties feeding it, and the firm's own root-cause response are about to be visible to four regulators at once.

The strategic read for senior leaders

Three implications follow. First, the cost of redress is no longer a one-sided variable. If caps tighten and weaker CMCs exit, complaint volumes may fall but the quality of the surviving book will rise, meaning higher hit rates and potentially higher per-case payouts. Modelling provisions on historic CMC behaviour will mislead. Second, the housing disrepair angle, which the FCA has chosen as its second focus alongside financial services (FCA), signals that the regulator is testing a template it intends to apply more widely. Firms in adjacent sectors should expect contagion. Third, the financial resilience question creates a new counterparty risk: a CMC collapse mid-claim leaves consumers stranded and defendant firms holding the reputational bag.

The FCA has stopped treating CMCs as a conduct nuisance and started treating them as a market in need of redesign. Senior leaders who built redress operations around the assumption of a permanent, fragmented, lightly-regulated claimant industry are working from an out-of-date map.