Claims management companies will be forced to pass a ‘fit and proper test’ and record all client calls if they want to continue practising, Whitehall announced today.

In a joint response to an independent review of the sector, the Ministry of Justice and Treasury agreed on the need for a tougher regulatory regime that does not have a disproportionate impact on society as a whole.

Chancellor George Osborne (pictured) said the government wants to clamp down on the rogue CMCs that provide bad service and 'bombard' customers with nuisance calls.

He added: 'The new regime will be tougher and will ensure CMC managers can be held personally accountable for the actions of their businesses.'

He also confirmed the government will transfer responsibility for regulating CMCs to the Financial Conduct Authority.

The review, published after today’s budget, says despite improvements to the system there remains a ‘widely held perception’ of ‘widespread misconduct’ by CMCs.

The government acknowledged the importance of CMCs for access to justice and said it did not wish to ‘regulate them out of existence’.

Common conduct issues identified by the review included CMCs offering poor value for money, misrepresentation of service, nuisance calls and texts and speculative or fraudulent claims.

The review recommends that all people working in CMCs will be required to pass a fit and proper persons test and be held personally accountable for rule breaches for which they are responsible.

The review adds: ‘Authorisation alone is not sufficient to deter or prevent unscrupulous business or individuals operating in the CMC sector.’

CMCs will also be mandated to record all calls with clients, and retain the recordings for at least 12 months after the conclusion of a contract with that client.

Other recommendations include:

  • Appointing an independent chair of the claims management regulation unit;
  • That the unit’s website publish all information on enforcement activity;
  • Smaller fines or mandatory training to penalise for more minor conduct breaches; and
  • A proportion of receipts from enforcement activity to subsidise regulation.

The review was noncommittal on who should regulate CMCs in future, suggesting that the least disruptive option would be for regulation powers to remain with the MoJ, but that if the government wants a step change in regulation of the sector, it should favour moving to the FCA.

The MoJ established the claims management regulation unit in 2007, originally as an interim measure.

Turnover from personal injury claims in the sector was £309.7m in 2015, compared with £238.2m in 2014 and £354.1m in 2013.

Around 900 CMCs were operating in the personal injury market by the end of December, the smallest the sector has been since regulation began in 2007.

The review was led by Carol Brady, a non-executive board member of the claims management regulation unit.

Huw Evans, director general of the ABI, backed Osborne's plan for the CMC sector, suggesting the public had previously been 'at the mercy of unscrupulous firms'.

He added: 'It should go a long way in driving the cowboy operators out of town and helping to ensure honest customers don't end up footing the bill for their dodgy practices.'