Compensation (Claims Management Services) Regulations 2006

rose to move,That the Grand Committee do report to the House that it has considered the Compensation (Claims Management Services) Regulations 2006. First Report from the Statutory Instruments Committee and2nd Report from the Merits Committee. The noble Lord said: The statutory instruments, which were debated in the other place this morning, underpin the legislative framework needed to regulate the activities of claim management companies, which is contained in Part 2 of the Compensation Act 2006. The Compensation Act received Royal Assent on25 July. Part 2 provides a detailed framework for the regulation of claims management services. Claims farmers have remained unregulated for too long. Some encourage frivolous claims through aggressive marketing techniques, mislead consumers about the options for funding their claim, and provide poor-quality advice and service. Consumers have been suffering and there is an urgent need to tackle these abuses and raise standards across the industry. The delivery of the Act was a major achievement. Work has progressed at a remarkable pace and the regulatory framework is now being implemented. Under the current arrangements, the Secretary of State will be the regulator. Mark Boleat has been appointed as the DCA’s head of regulation and Staffordshire County Council trading standards unit has been contracted to carry out the DCA’s monitoring and compliance function. The unit will process applications for authorisation, monitor compliance with the rules and support the DCA’s regulatory efforts by seeking out any business that attempts to evade regulation. Regulation by the Secretary of State is intended as an interim measure. The Legal Services Bill, which was introduced on 23 November, will establish a new framework for legal services regulation, including a legal services board and an office of legal complaints. It is intended that claims management regulation will become integrated into the new structure. When the Compensation Act was debated Ministers made it clear that the Government wished to see a major change in the quality of service and an improvement in the behaviour of claims management businesses to help improve safeguards for consumers. The orders and regulations which are before the Committee today will help achieve this aim. A wide-ranging consultation exercise on the orders and regulations took place. The Government’s response to the consultation was published on 30 November. The regulations are made under the powers in Section 8(8) of, and the Schedule to, the Act. These set out the requirements that service providers should meet to obtain authorisation and other details relating to the operation of regulatory mechanisms. The regulations are necessarily detailed and technical. I will outline the key provisions relating to the authorisation process, rules, complaint schemes and enforcement. The regulations set out a range of matters to which the regulator may have regard in making a decision about an applicant’s competence and suitability. The regulator can impose conditions on an authorisation. Some conditions are imposed directly by the regulations. Examples include the requirement that the authorised person complies with the rules made by the regulator, and that if the person accepts referral of potential clients from an unauthorised person, the former takes reasonable steps to ensure that the unauthorised person complies with the rules. The application form for authorisation will require details about directors, partners and anyone else capable of having a significant influence on the policy or management of the business; regulatory action against both the business and the individuals involved and all claims management businesses in which those involved with an applicant have been involved in the past five years; and self-certification that the business complies with the regulator’s rules of conduct. The regulations will ensure that only those who meet the criteria for authorisation and agree to comply with the rules are authorised. Applicants will have the right of appeal to the Claims Management Services Tribunal established by the Act against a decision of the regulator concerning an application, and an appeal from the tribunal to the Court of Appeal. Tribunal rules will be made in February 2007 when the relevant provisions of the Act are brought into force. Under the Act, in paragraph 8 of the schedule, the regulator must prescribe rules for the professional conduct of authorised persons. The regulations set out the procedures for doing so. The rules clarify and expand on the requirements that all authorised persons must comply with. The rules focus on a few key points: prohibition of high-pressure selling including cold calling in person; transparent contracts and disclosure of referral fees; complaints procedure; and clients’ accounts if clients’ money is held. Key stakeholders and claims management businesses were consulted on the rules, which have now been approved by my noble and learned friend the Secretary of State. Consumers also need protection when things go wrong. The regulations create powers for the regulator to require an authorised person to have professional indemnity insurance. The rules require authorised persons to have a clear mechanism for dealing with complaints. The regulator can review the handling by an authorised person of a complaint and can give directions in regard to complaints handling and related matters. When an authorised person has failed to comply with the rules, the regulations provide for a limited power to require redress. This is a significant part of the regulator’s power to protect consumers from unsatisfactory work or other improper practices by those providing claims management services. The regulator may direct the repayment of unjustified fees—that is, a fee that should not have been charged. It cannot order a cash payment for redress; that will follow when complaints handling comes within the Office of Legal Complaints proposed in the Legal Services Bill. It is imperative that regulation can be enforced effectively. The regulations therefore create powers for the regulator to investigate breaches of the rules to require the provision of documents and to enter and search premises and take copies of documents. The regulator’s investigatory powers are exercisable in relation to an allegation or a suspicion that a person is providing a regulated claims management service without being an authorised or exempted person or having the benefit of a waiver of the obligation to be authorised or that an authorised person is acting in contravention of the rules. The regulator must first seek information from the person or authorised person by serving a notice requiring the provision of specified information or documents. If the information or documents are not provided, or they reveal further grounds for investigation, the regulator may apply to a judge or justice of the peace for a search warrant. The regulator will also be able to impose sanctions, including suspension, or, ultimately, cancellation of authorisation. There is a right of appeal to the Claims Management Services Tribunal against a suspension or cancellation, and from the tribunal to the Court of Appeal. I am sure that noble Lords will agree on the importance of regulating claims management services and putting in place safeguards for consumers. Regulating claims management services is a necessary step for protecting consumers. The arrangements under the regulations I have briefly outlined will help to achieve that aim. The Compensation (Specification of Benefits) Order 2006 is made under Section 4(5) of the Act and will bring claims management services provided in relation to industrial injuries disablement benefits within the regulatory net. These are compensatory benefits and include reduced earnings allowance, retirement allowance and industrial death benefit. This order will ensure that consumers seeking such benefits and engaging the services of a claims management business will be protected by regulation. I shall speak to the Compensation (Regulated Claims Management Services) Order 2006 and shall refer to it as the scope order. It is made under the power in Section 4(2)(e) of the Act. The definition of claims management services in the Act is wide to ensure that there are no loopholes. Such services are regulated only if they are prescribed by order. The scope order sets out the range of activities that are to be regulated as claims management services and in relation to what kind of claim. It will cover, for example, advertising for or otherwise seeking out persons who may have a claim, advising persons on the merits of a potential claim, referring details of such claims and investigating the circumstances or merits of a claim. The types of claim for compensation in relation to which the above activities will be regulated initially include claims relating to personal injury, criminal injuries compensation, employment, housing disrepair, claims in relation to financial products or services, including the emerging area of excessive bank charges, and, finally, industrial injuries disablement benefits. We are targeting these areas because we believe that they are where there is the greatest risk of firms engaging in claims handling practices that are against the public interest and lead to consumer detriment. Any person providing a regulated claims management service in those areas will need to be authorised, exempted by order or have the benefit of a waiver. The Compensation (Exemptions) Order 2006 was laid on 28 November and specifies those who will be exempted from the obligation of authorisation. I look forward to a full debate on that order in the new year. Defining sectors to be regulated by order provides flexibility to allow new areas to be brought within the scope of regulation when problems surface and for areas to be removed from the scope if no longer in need of regulation. I should make clear that services provided to a defendant are outside the intended scope and are not regarded as being within the definition of claims management services in the Act. I commend the orders and regulations to the Committee. Moved, That the Grand Committee do report to the House that it has considered the Compensation (Claims Management Services) Regulations 2006. First Report from the Statutory Instruments Committee and 2nd Report from the Merits Committee.—(Lord Evans of Temple Guiting.)