The Ministry of Justice is to take action against unscrupulous claims management companies (CMCs) who target IFA firms, following a meeting between the regulator and support service PanaceaIFA.
According to Panacea CEO Derek Bradley (pictured), the MoJ, which regulates the claims industry, had been unaware of the "serious and unintended" impact of these firms on the IFA sector.
"There is no general compliance monitoring like IFAs have, and CMCs are really only investigated when complaints about them to the MoJ start to build up," he said.
"Investigations can be quite detailed but not in the same way that the FSA may investigate firms. In reality, the MoJ has little control over those CMCs that encourage fraudulent claims."
Bradley said he had been reassured by the MoJ's representatives, head of claims management regulation Kevin Rousell and principal compliance officer Antony Bolton, who promised to listen to the IFA sector's recommendations.
These include a CMC levy, similar to the FSCS levy, but to protect victims of unscrupulous firms who have been defrauded in some way.
He called for a declaration to be contained within the CMC documentation, signed by all CMC clients, that making a false declaration with a view to seeking or gaining compensation is considered a criminal offence that could result in prosecution.
"Amazingly, this is not a requirement," Bradley said
The basic cost of setting up a CMC, at £950, was also far too low, he added.
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