FCA will assess business models, funding structures and consumer outcomes across FCA-regulated claims firms and SRA-supervised law firms
The Financial Conduct Authority (FCA) has launched a wide-ranging market study into the claims management sector, focusing on financial services and housing disrepair claims amid concerns over consumer harm, business incentives and regulatory fragmentation, with the review covering both FCA-regulated claims management companies and law firms primarily regulated by the Solicitors Regulation Authority (SRA).
The review will examine how claims activity operates across different regulatory regimes, alongside wider questions around competition, consumer understanding and the incentives embedded within claims-driven business models. It will also consider business structures, litigation funding arrangements and the extent to which “regulatory arbitrage” may be emerging between overlapping supervisory frameworks.
The FCA acknowledged that claims management services can play a legitimate role in supporting consumers, noting they may be useful “where processes are perceived to be complex, consumers face barriers to engagement, or confidence, time or capability is limited”.
However, it added that despite previous supervisory intervention by both the FCA and SRA, “our supervisory work continues to identify behaviours that raise significant concerns about consumer outcomes and how competition operates in these markets”.
These behaviours include “aggressive marketing leading to nuisance complaints”, misleading or unclear advertising, weak controls over customer acquisition, and the progression of high volumes of speculative or weak claims. The regulator also highlighted persistent weaknesses in consumer understanding around fees, likelihood of success and alternative routes to redress, as well as limited disclosure of potential conflicts of interest.
The FCA said such practices were most commonly seen during periods of large-scale claims activity, including the payment protection insurance market, suggesting they may reflect incentives to compete on volume rather than quality or consumer outcomes.
While noting that lessons may apply across other areas such as personal injury, the FCA said the focus of the review will be financial services-related claims and housing disrepair claims, which it said offer different business models and pricing structures that provide a broader basis for analysis.
The regulator also confirmed it will work closely with the SRA during the review. Data from 2024 indicates that around 75% of leads generated by FCA-regulated lead generators are ultimately passed on to law firms.
There are currently 395 firms authorised to carry out claims management activities, down from around 900 when the FCA assumed regulatory responsibility in 2019. Of these, 207 are lead generators, while 137 firms pursue financial services claims. Most firms remain small, with median income from regulated activity of around £94,000, and only a small minority generating more than £1m.
The FCA said it will examine how claims-related activity sits within broader business models, including firms that combine claims management with other legal or commercial services, and how this affects financial performance and operational incentives.
It will also consider the impact of artificial intelligence and other technological developments on firms’ operations, including whether efficiency gains are being passed on to consumers. The regulator suggested AI tools may reduce the time and cost associated with processing claims, particularly in relation to research, drafting and review functions.
Funding structures will also form part of the review, including the use of external debt financing, private equity and private credit, as well as third-party litigation funding and portfolio funding arrangements. The FCA said it will explore how such funding models influence firms’ growth strategies, operational behaviour and, in some cases, offshore financing activity.
The review further highlights concerns around the fragmented regulatory landscape covering claims-related activity, which spans the FCA, SRA, Bar Standards Board, CILEX Regulation and the Law Society of Scotland.
The FCA said regulatory obligations can differ for firms undertaking economically similar activities depending on which body has primary oversight, adding: “As part of our work, we will explore whether this fragmentation may create scope for regulatory arbitrage and/or uneven compliance costs.”
It also said it would assess whether harmful practices are emerging at the boundaries between regulatory regimes, particularly in relation to advertising, data use, pricing and conduct, and whether such gaps may be affecting competition and consumer outcomes.
The market study runs to 19 June, with a final report expected by next May. An interim report is expected in December.