23rd September 2011

IFAs would be a lot more worse off?

Putting to one side the ‘gramatics’ I was quite taken aback by this statement as it would imply that IFAs are already at the “worse off” starting block under the investigative eye of the FOS. On what quantative scale “a lot MORE worse off” is found, is unknown but clearly not good news.

Ms Ceeney can sometimes appear to take a less than neutral position and although it is important that consumer rights are well protected, those it investigates have rights too. The FOS is meant to be impartial, investigating complaints fairly, taking into account the evidence available and/or considering the balance of probability.

The removal of the longstop was a quite calculated, not too well consulted upon result of the process of implementing FSMA 2000. There are many who consider the removal unlawful and it really is only a matter of time until someone takes this to a judicial review to see how the courts react.

As Julian Stevens observed in August-, “For a long time now the regulator appears to have an agenda of stirring up trouble where none existed before, an agenda that the FSA seems more than ever determined to pursue, despite a catalogue of failures to get to grips with problems that really have needed tackling”. The removal of the longstop was at the start of that agenda.

As Peter Hamilton said earlier in the year in Money Marketing, “there is so close a structural connection between the FOS and the FSA as to cast doubt on whether the FOS can be regarded as independent of the regulator. Thus, for example, the FSA appoints and may dismiss the chairman and directors of the FOS. The chief ombudsman and the FOS must report to the FSA on the discharge of their functions and the FSA must approve the budget of the FOS”.

Ms Ceeney says in an interview with FT Adviser “the main issue is that financial products are often bought many years before an individual needs them, such as a pension plan. The longstop would mean there is no way of coming back if sold an investment product for many years down the line. The problem is the nature of financial services is very different to other industries because you won’t find out until many years later – that was the case with mortgage endowments."

The point that seems to be missed by all those in Regulation Street opposed to the re-instatement of the longstop is that the removal flies in the face of the protection the laws of the land bestowed upon UK citizens and now it would seem afforded to all except IFAs.

Regulation may not always be fair in the eyes of those who fall under its ‘spell’, but one cannot simply disenfranchise one business community or indeed any community from another in such a way.

The problem with investigating claims so long after the event is that the recollection of circumstances, aims and aspirations has a tendency, especially if documentary evidence is scarce or non-existent, to be inconsistent at best and manipulative at worst, and that goes for both sides.

That is why the Limitations Act came about, to protect against the effects of “Stale Claims” where the passing of time and lack of evidence makes it difficult to make a judgment.

However, the FOS operates on the ‘Merricks’ principle - that they can and do make the law with the cloak of protection the FSA offers to it.

Some other ill informed or ill-judged points Ms Ceeney makes:

• “That the courts do not have a six-month deadline like the FOS does”. True, but the complainant can revert to the Courts and rerun the case if they are unhappy with a FOS decision. The courts do have a six-year cut off tied in with a fifteen-year absolute stop. An IFA firm can only make a request for a Judicial Review- at huge cost and the decision is not guaranteed.
• "We don't have a long-stop but we have lots of restrictions around. Complainants only have six months to go the FOS once the complaint has been raised with the firm, which the court doesn't have”. True in practice, but I think that many IFAs will have had experience of this not actually being a reflection of what actually happens. The FOS has been seen in the past to actively assist complainants by creating new or further complaints not actually made at the time of the initial complaint to the FOS or the indeed the firm.

And:

• "The 6 month deadline is there to ensure this doesn’t go on indefinitely: Correct, but although the Limitations Act was set up to deal with the passing of time, she seems to have overlooked the fact that complaint rules change often and apply retrospectively.

The timescale you have to complain is six years after the date of advice given or three years from when you could have become reasonably aware that you may have a problem. So that is in fact nine years. The six-month deadline applies to making a complaint after receiving a firm’s final decision letter.

We have as an industry seen complaint rules change and the problem is that with FSA and FOS rules today, everything is applied retrospectively and it is the adviser firm that carries the can for the rest of their life in many cases as a result.

This retro protection makes PI markets difficult for firms, compensation can often paid for events that did not actually happen and what was accepted as right for a client a decade ago can be found wrong today with the benefit of hindsight.

Peter Hamiliton sums up the whole position in MM very well as follows. “Thus, under the law, I know in advance where I can and cannot park my car. But if I could park only where some official specified after the event, I would have no right to park at all. Similarly, if my right to my possessions is watered down to mean only a right to hold them until the FOS decides it is fair and reasonable for me to pay them to somebody else, then I have no “right” in a true sense to my possessions at all.

This conclusion is reinforced by the fact that there is no appeal and the fact that any judicial review of a FOS decision on the merits of a case is, for all practical purposes, impossible because of the vagueness of the subjective (“in the opinion of the ombudsman”) fair and reasonable criterion”.

So  should we, to paraphrase the words of Hector,  be a “lot more “very afraid” because the world as IFAs know it today will not get better until the laws of the country are recognised by a regulatory ‘Junta’ as applying to all.

Regulation, Panacea Comment