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CMCOB 5.2 Fee restrictions for financial services and financial product claims other than payment protection insurance claims

Application

CMCOB 5.2.1 R

1This section applies to firms in relation to:

  1. (1)

    FS claims management agreements entered into by a customer; and

  2. (2)

    charges provided for in or imposed on a customer under such an agreement or a connected agreement.

CMCOB 5.2.2 G
  1. (1)

    1This section applies to financial services or financial product claims. However, as a result of the definition of FS claims management agreement, this section does not apply to a claim to the extent that the PPI claims management fee cap applies to it (for PPI claims see CMCOB 5.1).

  2. (2)

    The terms in bold in this section (other than in headings or in titles) are defined in CMCOB 5.2.19R.

Statutory context and purpose

CMCOB 5.2.3 G
  1. (1)

    1Section 137FD of the Act (FCA general rules: charges for claims management services) places a duty on the FCA to make rules in relation to all regulated claims management agreements and all regulated claims management activities, which concern claims in relation to financial products or services.

  2. (2)

    The rules must be made with a view to securing an appropriate degree of protection against excessive charges for the provision of a service which is, or which is provided in connection with, a regulated claims management activity.

  3. (3)

    In accordance with that duty, the purpose of this section is:

    1. (a)

      to restrict the charges for claims in relation to financial products or services; and

    2. (b)

      to secure an appropriate degree of protection against excessive charges.

  4. (4)

    Firms are reminded of their obligations to treat customers fairly under PRIN 2.1.1R(6) (Customers’ interests) and CMCOB 2.1.1R (client’s best interests rule) which also apply where this section applies. Accordingly, as well as complying with the rules in this section, firms should ensure that their fees comply with PRIN 2.1.1R(6) and the client’s best interests rule.

Fee cap for financial services and financial product claims within scope of complaints resolution rules or statutory ombudsman or statutory compensation scheme, where customer is awarded redress

Application of the FS claims management fee cap

CMCOB 5.2.4 R
  1. (1)

    1Subject to (4), the FS claims management fee cap applies to charges for any of the activities in (2) which are payable by customers who are awarded financial redress for their claim, provided the claim, if made, would fall:

    1. (a)

      within the scope of complaints resolution rules; or

    2. (b)

      within the scope of any statutory ombudsman scheme or any statutory compensation scheme.

  2. (2)

    Subject to (3), the activities referred to in (1) are as follows:

    1. (a)

      FS claims management activities carried on in relation to the claim which is the subject of the relevant FS claims management agreement; and

    2. (b)

      services provided in connection with the activities in (a).

  3. (3)

    Where the charge is provided for in or imposed under a connected agreement, the reference to FS claims management activities in paragraph (2)(a) includes activities which would be FS claims management activities but for the exclusions in articles 89N to 89W of the Regulated Activities Order.

  4. (4)

    Where:

    1. (a)

      the FS claims management activities carried on under an FS claims management agreement or a connected agreement are carried on for the purposes of actual or potential court proceedings; and

    2. (b)

      one or more of the conditions in (5) is met,

    the FS claims management fee cap does not apply to the extent that the charges are for activities carried on for the purposes of those proceedings.

  5. (5)

    1The conditions in this paragraph are:

    1. (a)

      there are reasonable grounds to believe that the limitation period for issuing court proceedings may be about to expire and that it is therefore necessary to issue court proceedings;

    2. (b)

      the customer is unable to pursue the claim through any statutory ombudsman scheme or any statutory compensation scheme because:

      1. (i)

        the claim has already been determined under the relevant scheme; or

      2. (ii)

        the operator of the relevant scheme has determined that the claim cannot or should not be considered under the scheme;

    3. (c)

      there are reasonable grounds to consider that the value of the claim may exceed the maximum redress which can be awarded by:

      1. (i)

        the Financial Ombudsman Service or by the FSCS (where the claim falls within the scope of those schemes); or

      2. (ii)

        (where the claim does not fall within the scope of the schemes in (i)), other statutory compensation or statutory ombudsman schemes; or

    4. (d)

      the time limit for referring the complaint to the Financial Ombudsman Service has already elapsed and:

      1. (i)

        there are reasonable grounds to believe that the Ombudsman may not conclude that the failure to comply with the time limits was the result of exceptional circumstances in accordance with DISP 2.8.2R(3); and

      2. (ii)

        where relevant, the respondent has not consented to the Ombudsman considering the complaint in accordance with DISP 2.8.2R(5).

CMCOB 5.2.5 G
  1. (1)

    1Within the scope of complaints resolution rules is defined in CMCOB 5.2.19R.

  2. (2)

    The statutory schemes in CMCOB 5.2.4R(1)(b) include the Financial Ombudsman Service, the Pensions Ombudsman, and the compensation scheme (see CMCOB 3.2.8G).

  3. (3)

    The FS claims management fee cap applies to FS claims management activities (and related services) carried on in relation to a claim. The cap applies to the entire claim even where the where the claim is based on various different grounds.

Guidance on the application of the FS claims management fee cap: activities which are covered by the cap

CMCOB 5.2.6 G
  1. (1)

    1The FS claims management fee cap:

    1. (a)

      restricts charges provided for in or imposed under an FS claims management agreement or a connected agreement (see CMCOB 5.2.11R and CMCOB 5.2.12R); and

    2. (b)

      applies to charges for any of the activities specified in CMCOB 5.2.4R(2), namely, FS claims management activities carried on in relation to the claim which is the subject of the relevant FS claims management agreement and services provided in connection with those activities.

  2. (2)

    When assessing whether the fee cap has been exceeded, a firm must therefore include all charges, for FS claims management activities and related services carried on in relation to the claim, which are provided for in or imposed under:

    1. (a)

      the FS claims management agreement; and

    2. (b)

      any connected agreement.

  3. (3)

    A firm to which this section applies must therefore consider not only its own charges when assessing whether the cap has been exceeded, but also the charges imposed by other persons under a connected agreement (where the conditions above are met).

  4. (4)

    Where charges are imposed under a connected agreement, the exclusions in articles 89N to 89W of the Regulated Activities Order should be disregarded when determining whether an activity is an FS claims management activity (see CMCOB 5.2.4R(3)).

  5. (5)

    Accordingly, the cap applies to charges for FS claims management activities (and related services) carried on in relation to a claim by an unauthorised person relying on an exclusion under the Regulated Activities Order (such as services provided by legal professionals).

  6. (6)

    Hence, while this section does not impose obligations on unauthorised persons themselves, any charges for the activities above which are imposed under a connected agreement must be included by firms when assessing whether the fee cap has been exceeded.

Guidance on the application of the FS claims management fee cap: activities which are not covered by the cap

CMCOB 5.2.7 G
  1. (1)

    1The FS claims management fee cap only applies to charges which are for the activities specified in CMCOB 5.2.4R(2), namely:

    1. (a)

      FS claims management activities carried on in relation to the claim which is the subject of the relevant FS claims management agreement; and

    2. (b)

      services provided in connection with those activities.

  2. (2)

    This is explained in the examples below.

    1. (a)

      A firm performs FS claims management activities under an FS claims management agreement but also provides debt or probate advice under the same agreement and that advice does not relate to the claim. For instance, the advice is general advice about how the customer could reduce their debts, as opposed to specific advice about how that customer’s debt would affect the level of redress which the customer could obtain under the claim. In that scenario, the cap does not apply to the debt or probate advice. That is because the advice does not relate to the claim and it is therefore not:

      1. (i)

        advice in relation to a financial services or financial product claim (see the definition of FS claims management activity) carried on in relation to the claim; or

      2. (ii)

        a service provided in connection with the above activities.

    2. (b)

      However, if the debt advice was about how the customer’s debts would affect the claim which was being handled by the firm, then the cap would apply to that advice. That is because the advice would be advice in relation to a financial services or financial product claim and it would therefore be either an FS claims management activity carried on in relation to the claim or a service provided in connection with that activity.

    3. (c)

      Where a firm provides or obtains accountancy or actuarial advice for a customer in relation to a claim, the cap would apply to that advice because it would be advice in relation to a financial services or financial product claim and it would therefore be either an FS claims management activity carried on in relation to the claim or a service provided in connection with that activity.

  3. (3)

    Firms are reminded of their obligations under:

    1. (a)

      CMCOB 4.2.5R(7) (obligation to explain to customer where charges will fall outside the cap);

    2. (b)

      CMCOB 6.2.1R(4) (obligation to explain and include charges outside the cap in the itemised bill);

    3. (c)

      CMCOB 6.2.4R(2) (a firm must not impose charges on a customer who is unable to pay fees and charges to the firm when they fall due unless the charges are no higher than necessary to cover the reasonable costs of the firm); and

    4. (d)

      PRIN 2.1.1R(6) (Customers’ interests) and CMCOB 2.1.1R (client’s best interests rule).

  4. (4)

    In particular, where a firm provides some services under an FS claims management agreement which fall outside the cap, it would not be in the best interests of the customer for the firm to increase the charges for those services in order to recoup revenue lost as a result of the cap.

Guidance on the application of the FS claims management fee cap: court proceedings

CMCOB 5.2.8 G
  1. (1)

    1CMCOB 5.2.4R(4) provides that, in certain circumstances, the FS claims management fee cap does not apply to steps taken by the firm to enable the customer to pursue the claim through court proceedings.

  2. (2)

    The exclusion above is limited to the circumstances specified in CMCOB 5.2.4R(4)(a) and (b) and only applies to the extent that the charges are for activities which are carried on for the purposes of actual or potential court proceedings.

  3. (3)

    Hence, the exclusion will not apply to charges for activities which are carried on for the purposes of:

    1. (a)

      making a complaint to a firm in accordance with the complaints resolution rules or DISP 1.1A.20R to 1.1A.22R; or

    2. (b)

      submitting a claim to any statutory ombudsman scheme or any statutory compensation scheme.

  4. (4)

    Firms are still able to provide advice to customers about the merits of issuing court proceedings in circumstances which are not covered by CMCOB 5.2.4R(4)(a) and (b) (but the cap will apply in those circumstances).

  5. (5)

    CMCOB 5.2.4R(5)(b)(ii) refers to circumstances in which the operator of the relevant scheme has determined that the claim cannot or should not be considered under the scheme. Examples of where this might occur are:

    1. (a)

      the claim has been referred to the Financial Ombudsman Service after the time limit for referring it has elapsed and none of the exceptions in DISP 2.8.2R(3) or (5) apply;

    2. (b)

      the Ombudsman has determined that the complaint should be dismissed without consideration of the merits in accordance with DISP 3.3.4A; and

    3. (c)

      where the claim has been referred to the Financial Ombudsman Service and the Ombudsman proposes to cease to consider its merits so that it may be referred to a court to consider as a test case in accordance with DISP 3.4.2R.

  6. (6)

    When providing advice about commencing court proceedings, firms should consider their obligations under the client’s best interests rule and under CMCOB 2.1.7R (obligation not to make or pursue a claim on behalf of a customer or advise a customer to pursue a claim if the firm knows or has reasonable grounds to suspect that the claim does not have a good arguable base or is fraudulent, frivolous or vexatious).

FS claims management fee cap: level of the cap

CMCOB 5.2.9 R

1The FS claims management fee cap for a claim is the lower of:

  1. (1)

    the maximum percentage rate of charge, or

  2. (2)

    the maximum total charge,

in the table below applicable to the redress awarded for that claim.

Band

Redress awarded for a claim (£)

The maximum percentage rate of charge

The maximum total charge (£)

1

1-1,499

30%

420

2

1,500-9,999

28%

2,500

3

10,000-24,999

25%

5,000

4

25,000-49,999

20%

7,500

5

50,000 or above

15%

10,000

CMCOB 5.2.10 R

1The FS claims management fee cap for a claim:

  1. (1)

    includes expenses and any other charge provided for in or imposed under the FS claims management agreement or connected agreement; but

  2. (2)

    excludes VAT.

FS claims management fee cap: prohibition on entering into agreements

CMCOB 5.2.11 R

1A firm must not enter into an FS claims management agreement that provides for the payment of one or more charges that, alone or in combination with any other charge under that agreement or a connected agreement, exceed or are capable of exceeding the FS claims management fee cap.

FS claims management fee cap: prohibition on imposition of charges

CMCOB 5.2.12 R
  1. (1)

    1A firm must not impose one or more charges on a customer under an FS claims management agreement for a claim that, alone or in combination with any other charge in relation that claim, under that agreement or a connected agreement, exceed or are capable of exceeding the FS claims management fee cap.

  2. (2)

    The prohibitions in (1) do not apply to charges imposed under a provision in an FS claims management agreement or connected agreement where the agreement was entered into before this section came into force except where:

    1. (a)

      the provision was varied, after this section came into force, to increase the charge;

    2. (b)

      the provision was added to the agreement after this section came into force;

    3. (c)

      the charge relates to a claim which was added to the agreement after this section came into force; or

    4. (d)

      the customer’s first authorisation or instructions to the firm to act in relation to claim to which the charge relates were given after this section came into force.

CMCOB 5.2.13 G

1A charge is provided for or imposed for the purposes of CMCOB 5.2.11R and 5.2.12R, respectively, regardless of how payment of a firm’s charge is made, including where a firm:

  1. (1)

    deducts payment from redress received by it on behalf of the customer;

  2. (2)

    arranges for or instructs another person to impose a charge on its behalf; or

  3. (3)

    (in relation to CMCOB 5.2.12R) varies the FS claims management agreement to provide for the payment of one or more charges that, alone or in combination with any other charge under that agreement or a connected agreement, exceed or are capable of exceeding the FS claims management fee cap.

CMCOB 5.2.14 G
  1. (1)

    1The FS claims management fee cap applies to charges paid or payable by a customer who is awarded financial redress. Such charges must not exceed the lower of the maximum percentage rate of charge or the maximum total charge.

  2. (2)

    For example, a customer who is awarded financial redress falling in band 1 must not be charged more than the lower of:

    1. (a)

      30% (plus VAT) of the redress (the maximum percentage rate of charge in band 1); or

    2. (b)

      £420 (plus VAT) (the maximum total charge in band 1).

  3. (3)

    Therefore, a customer who is awarded redress of £1,000 must not be charged more than £300 (plus VAT). This is the lower figure out of:

    1. (a)

      30% of the redress awarded (30% of £1,000 = £300); and

    2. (b)

      £420.

  4. (4)

    However, a customer who is awarded redress of £1,450 must not be charged more than £420 (plus VAT). This is the lower figure out of:

    1. (a)

      30% of the redress awarded (30% of £1,450 = £435); and

    2. (b)

      £420.

  5. (5)

    The fee cap applies where a customer is awarded financial redress, irrespective of whether charges are imposed on a ‘no-win-no-fee’ basis, hourly basis, or other basis.

Consequences of breaching FS claims management fee cap

CMCOB 5.2.15 R
  1. (1)

    1An FS claims management agreement is unenforceable against the customer to the extent that it provides for a charge that breaches or is capable of breaching the FS claims management fee cap.

  2. (2)

    If a firm imposes a charge in breach of the FS claims management fee cap, the firm must:

    1. (a)

      reimburse the amount of any overpayment promptly, irrespective of whether the customer has asserted the firm has breached the fee cap; and

    2. (b)

      pay interest to the customer, at a rate of 8% per annum simple interest, from the date of overpayment by the customer.

CMCOB 5.2.16 G

1 Firms are reminded of the need to take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements and standards (see SYSC 3.2.6R).

Charges for financial products and services claims not within scope of complaints rules, or ombudsman or compensation schemes, or where customer is not awarded redress

CMCOB 5.2.17 R
  1. (1)

    1This rule applies to charges in relation to a claim:

    1. (a)

      for which the customer is not awarded financial redress;

    2. (b)

      where the claim, if made, would not fall:

      1. (i)

        within the scope of complaints resolution rules; or

      2. (ii)

        within the scope of any statutory ombudsman scheme or any statutory compensation scheme; or

    3. (c)

      which are excluded from the FS claims management fee cap as a result of CMCOB 5.2.4R(4).

  2. (2)

    A firm must not enter into an FS claims management agreement that provides for the payment of one or more charges in relation to a claim that, alone or in combination with any other charge in relation to the claim under that agreement or a connected agreement, exceed, or are capable of exceeding, an amount that is reasonable in the circumstances, in light of the work to be undertaken by the firm.

  3. (3)

    A firm must not impose one or more charges on a customer in relation to a claim under an FS claims management agreement or connected agreement that exceed, or are capable of exceeding, an amount that is reasonable in the circumstances, in light of the work undertaken or to be undertaken by the firm.

  4. (4)

    The prohibition in (3) does not apply to charges imposed under a provision in an FS claims management agreement or connected agreement where the agreement was entered into before this section came into force except in the circumstances described in CMCOB 5.2.12R(2)(a)-(d).

CMCOB 5.2.18 G
  1. (1)

    1The FS claims management fee cap applies to charges for the activities in CMCOB 5.2.4R(2) payable or paid by a customer who is awarded financial redress for a claim, in circumstances where the claim, if made, would fall within the scope of complaints resolution rules, any statutory ombudsman or any statutory compensation scheme.

  2. (2)

    In practice, the FS claims management fee cap is applicable to most cases where a customer is charged for a financial services or financial product claim. That is because such claims usually fall within the scope of complaints resolution rules, or a statutory ombudsman or statutory compensation scheme. Further, most firms which carry out regulated claims management activities do not charge customers who are not awarded financial redress.

  3. (3)

    The purpose of CMCOB 5.2.17R is to ensure that charges not subject to the fee cap are nevertheless reasonable.

  4. (4)

    A firm is expected to be able to demonstrate what services it has provided, how charges are calculated, and why the charges are reasonable. In assessing whether charges are reasonable, firms are expected to take into account, where possible, the applicable level of the FS claims management fee cap if the fee cap had applied.

  5. (5)

    Firms are also required to take into account charges imposed under a connected agreement including charges imposed for regulated claims management activity which are carried on in reliance on an exclusion under the Regulated Activities Order, such as services provided by legal professionals.

Interpretation

CMCOB 5.2.19 R
  1. (1)

    1The terms in bold in this section (other than in headings or in titles) have the meaning below.

  2. (2)

    An agreement (agreement A) is a connected agreement in relation to an FS claims management agreement (agreement B) if:

    1. (a)
      1. (i)

        agreement A enables a charge to be imposed on a customer in connection with a claim, and

      2. (ii)

        agreement B provides for regulated claims management activities in relation to that claim; or

    2. (b)

      agreement A provides for services in connection with the regulated claims management activities provided for in agreement B;

    3. (c)

      agreement A varies, supplements, novates or replaces agreement B (or vice versa); or

    4. (d)

      agreement A requires the customer to pay a fee to a lead generator in respect of the activities performed or to be performed under agreement B.

  3. (3)

    A claim is within the scope of complaints resolution rules where:

    1. (a)

      if received by the respondent, it would constitute a complaint subject to the complaints resolution rules; or

    2. (b)

      if received by the MiFID investment firm or third country investment firm, it would constitute a MiFID complaint subject to the provisions in DISP 1.1A.20R to 1.1A.22R.

CMCOB 5.2.20 G

1 Firms are reminded that complaint in the complaints resolution rules means any oral or written expression of dissatisfaction, whether justified or not, from or on behalf of, a person about the provision of, or failure to provide, a financial service, claims management service or a redress determination, which:

  1. (a)

    alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience; and

  2. (b)

    relates to an activity of that respondent, or of any other respondent with whom that respondent has some connection in marketing or providing financial services or products or claims management services, which comes under the jurisdiction of the Financial Ombudsman Service.