Financial Guidance and Claims Act 2018

Policy background

Single Financial Guidance Body

5. The Financial Guidance and Claims Act 2018 builds on a Government commitment to ensure that members of the public can access good-quality, free-to-client, impartial financial guidance and debt advice.
6. Government-sponsored pensions guidance, money guidance and debt advice is currently provided by the Money Advice Service, the Pensions Advisory Service, and the Department for Work and Pensions under the ‘Pension Wise’ banner.
7. In October 2015 the Government launched a review of public financial guidance provision in the United Kingdom. The review, Public financial guidance consultation1, sought views on how publicly funded pensions guidance, debt advice and money guidance (including financial capability) could best be structured to help people make effective financial decisions.
8. In March 2016 the Government set out proposals to replace the Money Advice Service with a new, streamlined money guidance body, and to bring together the Pensions Advisory Service and ‘Pension Wise’ into a new pensions guidance body (Public financial guidance review: proposal for consultation2). Whilst stakeholders were generally supportive of the Government’s aims, concerns were raised over how the two bodies would work together, and whether a single body could provide a better, more streamlined service.
9. In October 2016, the Government took the decision to create one single financial body instead of two, and in December 2016 HM Treasury and the Department for Work and Pensions published a further consultation, Public financial guidance review: consultation on a single body3, setting out proposals for a single financial guidance body that could provide more joined up debt advice, money guidance and pensions guidance, support the development of a national strategy to improve financial capability and debt management, and co-ordinate the provision of financial education to children and young people. This consultation closed in February 2017.
10. The Financial Guidance and Claims Act 2018 includes provisions which will allow the Secretary of State to make regulations banning cold calling in connection with pensions and financial products and services. As part of its consumer protection function, the single financial guidance body will also have to consider the effect of cold calling on consumers and advise the Secretary of State whether to introduce bans on cold calling in respect of financial products and services.
11. The Act also requires the Secretary of State to seek advice from the body on the establishment of a debt respite scheme and allows the Secretary of State to make regulations to introduce such a scheme after receiving this advice. The Act will also require the Financial Conduct Authority to make rules which require members of personal and stakeholder pension schemes to be referred to guidance before they access or transfer their pension. It also requires the Secretary of State and the Department for Communities in Northern Ireland to make secondary regulations placing corresponding requirements on occupational pensions schemes.

Claims Management Services

12. Claims management companies are businesses which provide advice and / or other services in relation to the making of compensation claims for personal injuries, financial products and services, employment issues, industrial and criminal injuries and housing disrepair. There are currently around 1,400 authorised claims management companies in operation.
13. The Claims Management Regulation Unit was established in the Ministry of Justice in April 2007, and regulates claims management companies active in England and Wales. This was intended to be an interim measure.
14. However, there is evidence of malpractice in the sector and a number of complaints have been leveled at claims management companies. Common complaints included poor value for money, misrepresentation of the service offered to consumers, and reliance on nuisance tactics, such as unsolicited calls and texts. As a result, consumers have become distrustful of claims management companies, with 76% of the public having reported that they are not confident that the companies tell the truth to their customers.
15. At Summer Budget 2015, the Government commissioned an independent review, led by Carol Brady4, to examine claims management regulation and make recommendations to improve conduct in the sector. Following this review, the Government announced at Budget 2016 its intention to establish a tougher regulatory regime for claims management companies by transferring supervisory responsibility from the Ministry of Justice to the Financial Conduct Authority.
16. Part 2 of the Act makes amendments to the Financial Services and Market Act 2000 to enable the Financial Conduct Authority to regulate claims management company activity as a ‘regulated activity’ under the Act.
17. The Act also provides for the transfer of complaints-handling responsibility from the Legal Ombudsman to the Financial Ombudsman Service. This will allow the Financial Ombudsman Service to take over jurisdiction to investigate and determine consumer complaints about the service provided by the claims management companies.
18. The Financial Conduct Authority, and relevant legal services regulators (the Law Society of England & Wales, the General Council of the Bar and the Chartered Institute of Legal Executives) have been given the power to impose a cap on the fees that claims management companies can charge for their services, and the Financial Conduct Authority and Law Society of England & Wales a duty to exercise this power in respect of financial products or services.
19. The Law Society of Scotland has been given a power to make rules in relation to a financial product or service and the Treasury has been given the power, with the consent of Scottish Ministers, to extend this power to other claims management services.
20. The Act also provides for the introduction of an interim fee cap on services in relation to payment protection insurance (PPI) claims, in order to ensure consumers are protected against excessive fees before the Financial Conduct Authority and the Law Society of England & Wales implement their financial services fee cap. This is especially pertinent given the PPI complaints deadline in August 2019 and preceding communications campaign, during which time complaints volumes are expected to rise.
21. The Act provides for a ban on cold calling (unless prior consent has been given) by amending the Privacy and Electronic Communications Regulations. This will add to the Government’s package of measures to tackle unsolicited marketing calls.
22. The Act also includes a power for the Ministry of Justice to put into place a transfer scheme for assets and liabilities of the Claims Management Regulation Unit to the Financial Conduct Authority, and a scheme providing for the transfer of staff.