What the FCA’s market study means for claims management companies

In May 2026 the Financial Conduct Authority (FCA) opened a market study to examine the extent to which the conduct of claims management companies (CMCs) is having an adverse effect on consumers and competition. Working closely with the Solicitors Regulation Authority (SRA), the market study covers CMCs, the lead generators that supply them, and the law firms that handle a large share of this work. 

CMCs can play a genuinely important role for consumers seeking redress. But longstanding concerns about poor practices, including aggressive marketing, misleading advertising and speculative claims brought with little merit assessment, have prompted the FCA to take a closer look at whether the market is working as it should. The regulator estimates that unsolicited texts and emails from CMCs have driven around six million complaints to the Information Commissioner's Office (ICO) alone. 

Why is the FCA reviewing CMCs now?

Regulated financial services firms and their industry bodies have been raising concerns about CMC conduct for a number of years. The financial and operational burden of responding to poorly evidenced, speculative claims is material, diverting significant management time and resource and eroding profitability. 

This market study has therefore been welcomed by regulated firms as it addresses a problem the industry has long been calling on the regulator to tackle. It forms part of the FCA’s stated objective, together with the Financial Ombudsman Service (FOS), to create a fairer, more proportionate and predictable redress system. 

While this is the most significant intervention since CMCs came within the FCA regulatory perimeter in 2019, it comes against a backdrop of increasing regulatory action in the sector: 

• In March 2026 a joint regulatory task force with the SRA, ICO and the Advertising Standards Authority was established to tackle the poor handling of motor finance claims
• The same month, the FCA and FOS jointly published a consultation on modernising the redress system, which acknowledged concerns around poorly evidenced complaints
• In April 2025, the FOS started charging CMCs £250 (reduced to £75 where a complaint is upheld) to refer a case due to concerns around the quality of professionally represented cases and that there was no commercial incentive for CMCs to bring complaints that were well-founded or have merit.  This followed findings that between April and December 2024, 26% of cases brought by CMCs were found in favour of the consumer, compared to 38% of those brought directly by consumers for free, raising significant questions around the quality and value provided by CMCs
• Since January 2024 the FCA has removed or amended over 1,000 misleading motor finance adverts, three CMCs have been required to reduce unreasonable fees, and four firms currently cannot take on new clients while enforcement investigations continue
• In 2022, the FCA introduced a fee cap for FCA regulated CMCs to prevent them from charging excessive fees to consumers owed compensation from financial services firms. 

What the market study will examine

The study focuses on two sub-sectors: financial services and financial product claims, as well as housing disrepair claims, focussing on the following five themes: 

• Consumer journey: The level and nature of lead generation and advertising activities and the extent that it leads to poor consumer choices and other consumer harm. Whether consumers are supported and informed throughout the consumer journey.
• Pricing-related harms: How price levels and structures are set, the impact of price caps, and whether pricing is contributing to poor outcomes for consumers.
• Business model incentives: Whether business models, including funding arrangements, create incentives for poor conduct or drive market dynamics that are not in the interest of consumers.
• Risks created by low financial and operational resilience: The extent to which firms are financially and operationally resilient and the risks that firm failure would present to consumers.
• Incentives created by the regulatory landscape: How current differences in the way firms in the same market are regulated impact firms’ incentives. While CMCs are FCA regulated, law firms are regulated by the SRA. The FCA notes that 75% of leads from FCA regulated lead generators are actually delivered to SRA regulated firms, raising questions around regulatory arbitrage and how that affects consumer outcomes.

Potential impact on business models

Pricing, fair value and claims quality sit at the centre of the study. The FCA will test whether existing fee caps remain fit for purpose, particularly where consumers could pursue the same claim for free through the FOS. Layered on top is the Consumer Duty, whose fair value requirement means the total price a consumer pays must be reasonable relative to the benefit they receive. 

For example, the FCA wants to understand how AI and other innovations affect firms' business models — and whether any efficiency gains are passed on to consumers. AI tools are increasingly being deployed across the claims lifecycle: from automated lead qualification and complaint triage through to document generation and case assessment. Under the fair value test, if the cost of the work falls, the regulator may reasonably ask why fees have not.

The FCA will also explore whether funding structures, for example where firms are funded by private equity, private credit or third-party litigation funding, are influencing firm’s operational and growth strategies, impacting the quality of claims. 

For firms whose economics depend on high claim volumes and current fee levels, and for the lenders, private equity and private credit funders that support them, this study could reshape the revenue model the capital structure was built on.

What this means for CMCs

The FCA has said that it will use the full range of actions available to address any concerns concluded by this study. If the regulator concludes that pricing structures are driving poor outcomes, the consequences could include tighter fee caps or restrictions on fee types such as exit or termination charges.

CMCs will be aware of how quickly a regulatory intervention can impact the market. For example, the FOS’ decision to charge professional representatives £250 per referral from April 2025 significantly reset claims volumes with represented cases falling from 47% of referrals to 6.8% almost overnight. 

CMCs should prepare for a materially different operating environment and the potential challenges this poses to their business model. CMCs will need to ensure they evidence their compliant conduct, from lead sourcing and advertising through to claims handling and client communications, and ensure their operational resilience planning, mapping and scenario testing specifically account for the range of outcomes this market study could produce. 

Wind down planning a priority 

The study is due to conclude in 2027, but CMCs need to act now to understand what the impact could be on their business. 

Granular cash flow forecasting, stress-tested against realistic scenarios including lower fee caps, a drop in claims volumes or tighter funding terms from lenders will allow management to understand potential pinch points in the business and how resilient the business would be under each possible outcome.

Firms must also update their wind-down plans (WDPs) to fully account for both the financial and operational implications of a materially changed market. A WDP that was adequate 12 months ago may not account for the regulatory environment now taking shape. 

The direction of travel is clear, and CMCs must prepare for a more assertive supervisory environment. We help firms stress-test their business models, develop financial resilience to withstand a shifting regulatory landscape, and review and strengthen their wind-down plans to ensure they meet regulatory expectations. 

For more information, contact Chris Laverty or Will Stagg.