21st June 2011

“Too late mate, you're time barred”.

The battle to get the fairness for IFAs, especially within the regulatory complaints process continues as does the seemingly endless examples of do what I say not what I do with the regulator.

The FSA rules relating to timescales for firms handling complaints state that for a complaint to be considered, a client must bring a complaint to a firm within six years of the date the advice was given or up to a further three years after first becoming aware that there may be a problem or risk it being rejected. This is notwithstanding the fact that the client can still go to the FOS, get the same decision of rejection ( or not if the adjudicator has embarked on a fishing expedition) resulting in a �£500 cost to the firm.

The rules also make it clear that the FOS should consider complaints that could have been investigated under a previous Ombudsman scheme according to the rules of that previous scheme. Add to this the long stop issues and the outcome of our recent FOS survey and you have some very challenging waters to navigate through.

With this in mind then I am sure that all in the industry will be heartened to read the FSA report for 2010/11 and in particular appendix 5 - complaints against the FSA.

Complaint rules for those complaining about the regulator are VERY different to the rules that the regulator applies to you.

The section of the annual report 2010/11 relating to complaints against the  FSA states that complaints should be made within 12 months of the date on which the complainant first became aware of the circumstances giving rise to the complaint.

"If your complaint is to be investigated under the Complaints Scheme, it must:

• be an expression of dissatisfaction which is actively seeking a remedy, and you should let us know what you think the remedy could be;
• be directed against us rather than against any other organisation or firm;
• be about the way we have exercised, or failed to exercise, our functions under FSMA other than our legislative functions, (such as making of rules and issuing of general guidance); and
• be made within 12 months of you having become aware of the matters that cause it, unless you can demonstrate reasonable grounds for the delay.

The scope of the FSA Complaints Scheme is more fully explained in the Complaints against the FSA (COAF) sourcebook of the FSA Handbook. You can find here an online version of COAF.

Some complaints are excluded from the scope of the FSA Complaints Scheme. The scheme does not investigate complaints about:

• our relationship with our employees, contractual or commercial disputes involving us, our legislative functions; or
• the actions or inactions of the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS).

Complaints that we might not investigate under our Complaints Scheme include:

• a complaint that could or would be more appropriately dealt with in another way (e.g. at a Tribunal or through the courts); or
• a complaint expressing no more than general dissatisfaction with our policies or the exercise of, or failure to exercise, our discretion where no misconduct is alleged.

We might defer investigating a complaint if it arises from any form of continuing action (such as enforcement investigations). In such instances, we will normally wait until all other relevant procedures and remedies under FSMA have been exhausted".

 What period does the FSA Complaints Scheme cover?

“If the matters causing your complaint occurred after 1 December 2001 (when FSMA came into force and gave us full powers as the single statutory regulator), we will consider it under the main Complaints Scheme.

If we believe we can deal with your complaint satisfactorily within five working days, we will enter it into our Fast Track Scheme. This scheme requires the area of the FSA most closely connected with your complaint to resolve it promptly. If you are not happy with the outcome, you can ask us to enter your complaint into the main Complaint Scheme.

If the matters causing your complaint occurred before 1 December 2001, we will usually consider your complaint under the Transitional Complaints Scheme. However, we will consider complaints about our functions under FSMA which were brought into force before 1 December 2001, under the main Complaints Scheme.

The Transitional Complaints Scheme covers complaints about:

• our responsibilities under the Financial Services Act 1986;
• our responsibility under the Banking Act 1987 between 1 June 1998 and 1 December 2001 only; and
• the actions of the Personal Investment Authority, Investment Management Regulatory Organisation Limited and The Securities and Futures Authority (the previous regulators of investment business before 1 December 2001).

The Transitional Scheme does not cover complaints about the ‘prudential’ regulation (regulation of the financial soundness) of insurance companies, building societies and friendly societies between 1 January 1999 and 1 December 2001. Such complaints should be addressed to the Parliamentary Ombudsman, whose contact details are at the end of this leaflet”.

So, no complaint can be considered if it is after 12 months from when you first became aware of a problem, you cannot complain about the actions of the FOS to the FSA, even though the FSA are in fact giving them their powers whereby the FOS are obliged to consider a complaint relating to pre December 2001 under transitional rules yet the FOS, in practice, does not seem to do so.

For an organisation that is shrouded in much mystery, is highly secretive in disclosure of sensitive information that could perhaps lead to a complaint, is it fair that the rules made for their own protection offer a very limited window of opportunity?

Remember that FSMA gave the FSA powers that can only be removed or altered by Parliament and self protection is a cornerstone of the FSA rulebook, thus the 12 month complaint limit.

The TSC on the 9^th March 2011 threw some light on the accountability views of Hector Sants who was questioned on this matter by MPs, as can be seen below.

Q41 Andrew Tyrie, Chair: I’m 99.9% sure it is correct. Reckless behaviour was defined for me when I asked exactly this question when FSMA was going through Parliament. Recklessness was described as doing something really stupid knowing it’s really stupid. Do you think that you should retain immunity from redress in the courts for doing something really stupid knowing it’s really stupid?

Hector Sants: Of course, presumably the question is: who would pay? Would you then be suggesting, given our only revenue raising capacity is the firms, that in the event that you judge that the officials had breached the requirements you outline, we would then retrieve the money from the firms, or if you felt we should be paying, you probably would find you would have an issue as to who would want to work in the business?

Q42 Chair: That is not an answer to the question at all, is it? Of course, the fact that you may be subject to action in the courts will alter your behaviour. If you know that you might be held culpable for reckless behaviour-that is, doing something really stupid knowing it’s really stupid-you are going to be extremely careful not to do something really stupid knowing it’s extremely stupid.

Incidentally, an example of such recklessness was given, as I recall, in Committee, which is looking at something that you know has a very deleterious effect, has a negative bearing on the reputational risk of a firm, looking at it, knowing that it probably needs action, putting it in your pending tray and going on holiday for a fortnight. You are immune, as an organisation, from redress for action of that type, are you not?

Hector Sants: I believe so, yes.

Q45 Jesse Norman: A follow up point on this issue of accountability. I think it is fair to say that many other people in private companies operate as directors on a basis that involves the discharge of fiduciary responsibilities dealing with customers, without any concern as to whether they are being held on a gross negligence-free basis or not. They may have D&O insurance, but in many companies they won’t even have that. So it is not clear that the deterrent you describe would necessarily apply. That may just be needlessly alarmist.

Hector Sants: I take the point you are making and, as I have already indicated to the Chair, I think it is a fruitful area for discussion. I would certainly expect, when the new legislation goes through Parliament, that this whole question of accountability is one that should be properly considered. I also recognise that the climate around the accountability question has changed considerably, and indeed around the transparency question, since the original FSMA legislation and we see it as a very important point to recognise that society’s views on what is appropriate now in these sorts of spaces of transparency and accountability have changed dramatically.

Q46 Chair: It has a heavy bearing on issues where great reputational risk attaches to any action.

Hector Sants: I think it is a complicated subject and we do need to think carefully so that we do not end up with the situation in which people don’t want to be regulators-that wouldn’t really help us".

No, it would not Hector!

FSA/FCA, Panacea Comment