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Alan Lakey: Long-stop loss

Last week, Adviser Alliance disclosed it had failed in its attempts to secure a judicial review into the loss of the long-stop defence.

The underlying message within Lord Justice Burnton’s ruling is that the Financial Ombudsman Service is at liberty to interpret both primary and delegated legislation as best suits its own purposes.

There are two main arguments regarding the FOS ignoring the 15-year long stop. One relates to the reality that the law has never been amended while the other attaches to Statutory Instrument 2326.

Many contend that the long-stop defence still exists and that it was ignored by the FSA when drawing up the FOS dispute resolution rules. Certainly, the Limitation Act has not been repealed and some years back, ex-FSA managing director David Kenmir confirmed the FSA was not able to override statute. It seems that the FOS is not restricted when determining what is “fair and reasonable” and we now find that the judiciary favour upholding this freedom.

Lord Myners headed off the human rights committee by claiming Parliament had debated its removal and also that the FSA had consulted on its removal – both untrue. On these arguments alone, the long stop should be restored.

Let us look at the alternative, where we accept that the long stop has been lawfully removed and where the FSA has correctly removed its mention from the FOS jurisdiction procedures. In June 2001, the Treasury issued Statutory Instrument 2326. Section 5.2.(c), which deals with complaints about advice prior to December 2001, states that “an ombudsman is to take into account whether an equivalent complaint would have been so dismissed under the former scheme in question”.

This translates as an instruction that the FOS must look at what the PIA Ombudsman Bureau would have done when determining jurisdiction of a case. We are all aware the PIAOB worked within the law and accepted the long-stop defence. In such a relevant situation the complaint would have been eligible for time-barring.
Lord Justice Burnton contends that SI2326 merely demands that the FOS take into account what the previous ombudsman would have done.

It surely was the Treasury’s intention, in those pre-Mark Hoban days, for SI2326 to remove the blatant retrospectivity of the FOS accepting jurisdiction over such complaints. If not, then why issue the statutory instrument?

Lord Scott, in his judgement on the Haward v Fawcett case, explained it thus: “Parliament has had to strike a balance between the interests of claimants and the interests of defendants. It is a hardship, and in a sense an injustice, to a claimant with a good cause of action for damages to which…there is no defence on the merits to be barred from prosecuting it on account simply of the lapse of time since the occurrence of the injury…But it is also a hard-ship to a defendant to have a cause of action hanging over him, like the sword of Damocles, for an indefinite period. Lapse of time may lead to the loss of vital evidence, it is very likely to lead to a blurring of the memories of witnesses and to the litigation becoming even more of a lottery than would anyway be the case, and uncertainty as to whether an action will or will not be prosecuted may make a sensible and rational arrangement by the defendant of his affairs very difficult and sometimes impossible. Each of the various statutes of limi-tation that over the years Parliament has enacted, starting with the Limitation Act 1623 and coming down to the 1980 Act, represents Parliament’s attempt to strike a balance between these irreconcilable interests, both legitimate.”

Alan Lakey is partner at Highclere Financial Services


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Incorporate your firm into a Limited Company. Sole Trader status leaves you vulnerable forever.

  2. Hmm… SI 2326/2001, art. 5(2)(c) starts :”in deciding whether a relevant complaint is to be dismissed without consideration of its merits…”, so it’s hardly the generally applicable proposition you represent it as, Mr Lakey.

  3. :”in deciding whether a relevant complaint is to be dismissed without consideration of its merits…”, means that the FOS must consider the stance of the previous Ombudsman when determining whether complaint falls within their jurisdiction.

    The point of SI2326 is to provide guidance to the FOS on how to assess jurisdiction issues on pre 2001 advice where a complaint goes to the FOS.

    The Treasury recognised the retrospectivity of FSMA as it stood and felt it appropriate to guide the FOS to avoid the very situation we now all find ourselves in.

  4. Many thanks for tackling this issue on our behalf Alan. I am sure that most, if not all advisers appreciate your sterling effort.
    Do not give up.Our rights will be restored to us one day.

  5. Sorry to repeat the point, but why doesn’t Mr Lakey, and the others, simply take their firm into a Limited Company? Problem solved in one.

  6. @ IFA
    Not solved for those who failed to do so before they retired.

  7. @IFA 5.08 p.m.

    This would assist from this point onwards but does nothing to protect against advice given from 29/4/88 till today.

    Also, the Ltd Co will still have open-ended liability.

  8. Fair enough, but surely better to put a limit on your personal liability asap, and go Limited, rather than adding to it indefinately by remaining sole trader. And of course the Company will lose liability when its wound up, for retirement for instance. Sometimes the answer is the pragmatic, rather than idealistic, one.

  9. Ltd Co only gives partial protection moving forward you still have the legacy of existing business written. There is also a question mark over the fact that if you are a registered and authorised individual you MAY be deemed to give what is in effect a personal guarantee over the advice rendered (a network on the other hand is liable for the advice) in the same way as a Director gives a guarantee for a Co overdraft.

    Having said that the individual could always go bankrupt or ensure that he/she is a ‘man of straw’ as far as personal assets are concerned but what a state to have to get into.

    It is a simple fact that the limitation act and latent damages act are on the statute book and as such every individual should have the benefit of its protection INCLUDING those regulated by the FSA

  10. Are High Court Judges puppets of the State?

    Could they ever be allowed to overturn what has gone on since 2001?

    What is the point of a judicial review when all the Ombudsman has to say in writing is that he/she “took account of” SI2326? Even though the Treasury said IFAs had a legitimate expectation to be treated as they would have been under a previous scheme the fact is that they are not.

    The FOS needs to be challenged on Article 6 rather than a JR of the procedure. The FOS has been busy doing some research on the subject of late.

    As far as going Ltd is concerned the clever beggars have phoenixed over and over again, such behaviour causes grief for everyone else.

  11. Alan thanks for trying on this one. In effect, savvy advisers will take whatever action they required to protect their assets, but it is very unfair that they should need to do that. Your efforts are always appreciated.

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