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In recent years, some independent HR consultants have reported increasing demand from individuals for advice and representation in situations where there is a conflict between them and a current or former employer. This may at times involve advising on a potential settlement and/or a claim which means they unintentionally become a ‘claims management company’.
Claims management companies are firms that act on behalf of individuals to help them make a variety of claims, representing them and dealing with whatever body it is that they are claiming against. Until 1 April 2019 they were regulated by a unit of the Ministry of Justice. Since then, regulatory responsibility has transferred over to the Financial Conduct Authority (FCA). Claims management companies need to be authorised by the FCA in order to undertake such activities (you can find a definition of what’s covered by this in the legislation). In their regulation of these activities, the FCA aims to ‘boost consumer protection and the professionalism of the sector by driving up standards in the industry’.
Does an independent HR consultant need to be authorised by the FCA to advise on claims?
In short, yes. If anyone is acting for or advising an individual - and charging for it - regarding an employment-related claim then they would need to be authorised by the FCA to do so, as they are acting as a claims management company by acting as an intermediary between the employee and their employer. There are a number of exclusions that can be found in the FCA’s Regulated Activities Order – but these are unlikely to apply in most cases when an individual is consulting with you regarding their employment rights. However, providing services like coaching or CV support would be unlikely to fall within this scope.
What if I am just supporting individuals to raise a grievance or negotiate a settlement?
If you are charging for your advice, this would still require you to be authorised as there could still be a potential claim against the employer.
What is involved in becoming authorised?
To become authorised as a claims management company, you will need to submit an application to the FCA, including a detailed business plan. You will also need to pay an application fee (£1,200 for smaller companies) and then an annual fee to maintain your authorisation. These fees are to cover the FCA’s regulatory activities on claims management. Full details of the business plan requirements, application process and fees can be found on the FCA website. If you fail to gain authorisation and continue to support individuals in making claims, you risk enforcement action from the regulator and would be committing a criminal offence.
Can I still advise companies regarding potential claims against them?
Yes, the regulation covers representation and advice to claimants only. If part of your business involves advising companies on employment tribunal claims against them, you do not need to register as a claims management company.