Judge Alison McKenna, principal judge of the First Tier Tribunal, said UK 4 Legal was, by its own admission, conducting “no business of its own” when the Claims Management Regulator (CMR) intervened.
She said that all of UK 4 Legal’s work was being carried out by marketing company Lumen.
Judge McKenna said the evidence suggested that Mohammad Shahid, director of UK 4 Legal, had “effectively ‘rented’ his authorisation to Lumen in exchange for a monthly payment, whether he recognised it or not…
“By his own admission, he did not monitor Lumen’s activities in any meaningful way. Such an arrangement seems to us to strike at the very heart of the CMR’s relationship with an authorised business and to undermine a regulatory framework in which the public expects, and is entitled to have, confidence.
“It is difficult to see how any sanction other than cancellation of authorisation would be appropriate in these circumstances.”
The First Tier Tribunal heard in UK 4 Legal v The CMR  UKFTT CMS 2016 0001 (GRC) that the CMC was authorised to provide services in January 2015.
A senior officer in the CMR’s direct marketing team told the tribunal that Mr Shahid had previously been involved in providing regulated claims management services through another company, which surrendered its authorisation in 2013.
She said that from June 2016, the CMR began receiving complaints from members of the public who said they had been “cold-called” by RK Legal, a trading name of UK 4 Legal.
“Some of the complainants had registered with the Telephone Preference Service (TPS), as a result of which the CMR also received complaints from Ofcom.”
In correspondence about an audit visit, the CMR was told by UK 4 Legal that it was not “currently doing any business except a marketing arrangement we have with another firm”.
UK 4 Legal said it had entered into an agreement with Lumen in March 2016. The CMR said Lumen had contacted it “for authorisation to ‘rent’ the appellants’ authorisation” in December 2016.
Judge McKenna said: “The CMR advised that such an arrangement would constitute a criminal offence, as whilst agency arrangements were permissible, this could only take place where the agent operated in the name of the principal authorised business.”
The CMR launched a formal investigation in January 2017 and sent UK 4 Legal a cancellation letter in August 2017, explaining that the CMC had breached the rules in a variety of ways, including failing to carry out due diligence on Lumen’s operating methods and failing to ensure it was aware of complaints about calls to TPS-registered customers.
Mr Shahid appealed to the tribunal on the grounds that the CMR “had not considered its representations adequately or at all” and had failed to give weight to “Mr Shahid’s unblemished reputation during 17 years in the industry”.
Mr Shahid said UK 4 Legal “was not responsible for Lumen’s failure to comply with its legal obligations”, and the CMC had ended the agreement with Lumen as soon as it knew of the concerns.
However, the judge said he only did so when the CMR sent a letter saying it was “minded to” cancel the CMC’s authorisation.
Mr Shahid said “difficult personal circumstances”, including illness in the family, had caused his failure to conduct sufficient due diligence into Lumen. He apologised for this lapse, and said the CMC had been “treated too harshly by the CMR in all the circumstances”.
Judge McKenna said that in fact there had been “a very serious breach of the Conduct of Approved Persons Rules”.
The tribunal found that UK 4 Legal had breached the terms of its authorisation by “admittedly failing to act with due diligence in relation to its arrangements with Lumen, failing to ensure that Lumen acted in accordance with the rules in relation to its data and failing to maintain appropriate records, including in relation to complaints”.
The CMC had broken the rules by “Mr Shahid’s evident lack of competence and his failure to demonstrate appropriate awareness of the rules and legislation relevant to the claims management business, for example in relation to the handling of complaints from TPS-registered customers”.
UK 4 Legal had also failed to ensure that Lumen’s staff had “appropriate training and competence for their duties” on its behalf and that its publicity complied with the rules.
The First Tier Tribunal concluded that cancellation of the CMC’s authorisation was warranted.
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