The emotive longstop issue will not go away any time soon. Why should it?
They were caught sneakily removing the longstop defence without prior consultation or advance warning.
Their argument for its removal revolves around their legal adviser’s belief that it was Parliament’s intention to do this, despite the fact that the longstop never was discussed within any Parliamentary debate.
Of course there are some who wish it would. Some advisers believe it to be inconsequential to their business and therefore they have little interest in the potentially ruinous impact on other advisers. The FCA and the Treasury would like it to go away because they have been embarrassed by the whole episode.
The logic that exists within financial services legislation received a further poke in the snout this week when I discovered that the various compensation bodies have terms of reference so far apart as to imagine Cyril Smith firmly implanted between them.
The FOS derives its rules from the FCA and the rules fail to incorporate a longstop defence within the jurisdiction wordings.
The FSCS derives its rules from the FCA and it does accept a 15 year longstop defence inasmuch as it is bound by the Limitation Act 1980.
This also means that, unlike the FOS, the FSCS will not be bound by the traffic light letters sent out on endowments. If it is shown that a complainant was aware of a potential shortfall in some way other than a red traffic light letter it will use the three and six-year rules within the Limitation Act to deny the complaint.
Joined up thinking here? Let us not beat around the bush, this area is a mess and one that is of the regulator’s own making.
Surely it is not too much to expect that the regulator – particularly one which, theoretically, can attract talented individuals with daunting salaries and other fringe benefits – has the capability to provide a consistency of treatment when it comes to consumer protection.
Consider the following scenario. Bert Bloggs has two endowment policies; both were arranged in the early 1990s but by different firms of advisers.
Now, some 20 years later, he decides to claim some compensation as both traffic-light projections have gone from green to red. One of the firms is defunct having closed down some years back so that complaint is directed to the FSCS, the other firm still exists so the complaint ends up with the FOS.
The FOS refuses to accept the 15 year longstop defence as its FCA derived rules do not allow such a defence.
Conversely the FSCS rejects the claim because the sale was over 15 years earlier and its FCA derived rules does allow such a defence.
So, for embattled advisers the situation is clear. At retirement, place all of your assets either in a trust or into your spouses name (as long as she was not a partner).
This enables the claim to be dealt with by the FSCS and not the FOS. As a consequence the longstop defence is applicable and the adviser does not risk losing his savings and/or property.
Of course, this is sneaky and contrived and against the spirit of things…but isn’t that exactly what the FSA did in 2000 when it removed a perfectly valid legal defence from the industry?
Alan Lakey is partner at Highclere Financial Services