The number of regulated claims management firms has almost halved in the past seven years, financial consultancy Broadstone has discovered.
Since the Financial Conduct Authority (FCA) started regulating the sector in April 2019 the number of claims management firms has fallen in each year since.
In April there were 483 firms authorised to provide claims management services, down from 942 when the FCA replaced the Claims Management Regulator in policing the sector.
One notable period saw a 24% drop in the number of such firms to 704 from 923 in the year to April 2021. This was a period when the FCA introduced new rules and fees and there are anticipation of a fee cap.
The news comes as new rules could be on the way. This month the regulator announced that it will review the claims management sector on concerns that some consumers are being failed by the industry.
Phil Smith, head of redress at Broadstone, said: “The sharp decline in the number of authorised claims management firms since the FCA took over regulation reflects a market that has come under far greater scrutiny and regulatory pressure in recent years.
“Higher standards around governance, conduct and consumer outcomes have undoubtedly raised the bar for firms operating in the sector.
“While increased oversight has helped drive out some poor practices, the FCA’s decision to launch a fresh review highlights that concerns around consumer harm and poor behaviour have not gone away entirely.
“This has been reflected in the multiple warnings issued around the motor finance compensation scheme.
“The challenge for the regulator will be ensuring consumers remain properly protected without reducing competition and access to redress services too far.
“Firms operating in this market will also need to demonstrate robust controls, transparency and clear value to consumers if they are to remain sustainable under the FCA’s more intensive regulatory framework.
“From a consumer point of view, people should fully understand what they are signing up to, what fees may apply and whether free-to-access routes such as the Financial Ombudsman Service are available before entering into agreements.”