---

Compensation (Exemptions) Order 2006

rose to move, That the draft order laid before the House on 29 November 2006 be approved. The noble Baroness said: My Lords, this order was laid before your Lordships’ House on 28 November 2006, and a correction slip was issued on 13 December 2006 to correct two errors in that draft. One was a formatting error and the other the date for issue of the trade union code of practice, which I confirm was28 November. The order specifies the classes of persons and organisations that are exempted from the statutory requirement to be authorised to provide a regulated claims management service under Part 2 of the Compensation Act 2006. Other related instruments setting out the scope of regulation and detailed regulations that underpin the framework were debated in your Lordships’ House on 5 December and came into force on 14 December. The conduct rules for authorised persons were published in December and the authorisation process was commenced. The definition of claims management services in the Act is deliberately wide to ensure that there are no loopholes. The aim of the regulation is to target those who provide claims management services in certain specified sectors: personal injury, financial products and services, criminal injuries compensation, housing disrepair, unemployment and industrial injuries disablement benefits on a commercial basis. Individuals working in a voluntary capacity—for example, in citizens advice bureaux or legal advice centres, or where claims management advice is given to a friend—are therefore specifically excluded from the scope of the Act. The order, which was debated in the other place on 22 January, is made under the power in Section 6(2) of the Act. The Government consulted on the order and discussed the proposals with a range of key representatives to ensure that the definitions accurately described the persons or classes of persons to be exempted. The order exempts legal practitioners, provided they act in the normal course of business permitted by the professional rules to which they are subject; the exemptions will apply only in so far as those concerned are already regulated in the provision of claims management services. Those providing a regulated claims management service are regulated under the Financial Services and Markets Act 2000. This covers the handling of insurance claims by insurers, including where the insured deals directly with a third party who has a claim against its policyholder, often referred to as third-party capture. I am aware that there are concerns around this issue. The FSA has made it clear that it will take very seriously any allegations of impropriety over the handling of third-party capture claims by insurers. The activity of referring uninsured losses for a fee to a legal practitioner or an authorised person, however, is not covered by the FSMA and any person carrying out this activity will need to be authorised under the Compensation Act. The order also exempts independent trade unions. The exemption for trade unions was debated at length during the parliamentary passage of the Act. We took seriously the concerns raised and have limited this exemption to trade unions that are certified as independent by the certification officer under the Trade Union and Labour Relations Consolidation Act 1992 in providing regulated services to members and members’ families. The strict criteria set out in this Act qualify a trade union, and the added requirement of a certificate of independence will help prevent a claims management business attempting to set itself up as an independent trade union and thus avoid regulation. The exemption for trade unions does not extend to any subsidiary company, whether owned wholly or partly by a trade union, and any such company will be required to seek authorisation to provide a regulated claims management service. A condition of the exemption is that trade unions are required to act in accordance with a code of practice issued by my noble and learned friend the Secretary of State on28 November. The code sets out some key standards that exempted trade unions will need to apply in the provision of regulated claims management services to their members. My department will work with the Trades Union Congress and the certification officer on monitoring the operation of the code of practice. A requirement of the code is that individual trade unions have an effective means for members to pursue a complaint. Clear breaches of the code can be reported to the TUC or to the Secretary of State. These will be investigated and appropriate action taken against individual trade unions. Very serious breaches of the code could lead to the exemption being withdrawn from an individual trade union, which would then have to apply for authorisation or cease providing claims management services. The order also exempts: charities and not-for-profit advice agencies; the independent complaints reviewer; students’ unions; the Motor Insurers’ Bureau; the Medical Protection Society and the Medical Defence Union; and individuals who refer or introduce a claim but only if they meet the strict criteria set out in the order. This exemption may apply to garages and body-shops that pass on referrals for fees, reward or gain, but only if they meet the tests I have outlined today. The order provides for an exemption from the need to be specifically authorised and does not imply exemption from the rules of conduct. The primary aim of claims management regulation is to protect consumers by regulating the conduct of those who provide these services for commercial gain. We recognise that the regulation of the claims management sector alone is not enough to ensure consumer protection. It is vital that all aspects of claims handling are effectively regulated to ensure proper safeguards for consumers, and my department is working closely with the Law Society, the Financial Services Authority and others to achieve this. I beg to move. Moved, That the draft order laid before the House on 29 November 2006 be approved. 5th Report from the Statutory Instruments Committee.—(Baroness Ashton of Upholland.)