Following a proposal by the Solicitors Regulation Authority (SRA), the Legal Services Board has approved the introduction of fee caps on SRA regulated law firms undertaking financial services claims management activities. The introduction should bring consistency with the fee caps already in existence for Financial Conduct Authority (FCA) regulated firms undertaking claims management activities. The cap is based on the percentage of the redress achieved by the consumer.
CMCs have historically undertaken mass financial claims such as PPI mis-selling, unfair relationship, unaffordability of credit, and claims relating to non-disclosure of commissions. In anticipation of a significant further wave of claims attributable to the FCA's review into motor finance commission arrangements, the timing of the new fee cap is important. The apparent drive behind the cap is the SRA's desire to replicate the FCA’s banding framework of maximum charges, to prevent excessive charges for consumers and to provide new information transparency requirements of the fees to be charged.
In response to the SRA's initial consultation on fee caps, some firms asserted that caps would make it unviable for SRA registered CMCs to undertake high-volume-low-value financial claims. However, this was rejected by SRA, who said based on analysis of claims management activity, CMCs would be able to operate profitably. We expect CMCs will continue to create a viable business model for mass financial services claims. Indeed, FCA regulated CMCs continue to operate following the introduction of fee caps. Notably, there is provision for firms to apply to the SRA for exemption to the caps for complex or novel cases which concern an important point of law and have potential wider ramifications.
The changes, which are contained in the SRA Regulatory Arrangements (Claims Management fees) Rules 2024, will come into force on 26 July 2024.
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