Chris Hannant: FOS decisions are at odds with FCA rules


Last week, Money Marketing reported on the recent Financial Ombudsman Service ruling against Kevin Neal Associates in relation to an investment in unregulated collective investment schemes. The case gives rise to some more general concerns.  

First, advisers would do well to take account of the FOS ruling and make sure they understand it. While they may not agree with it, it is an indication of future judgments and so it would be rash to ignore it. 

Clearly, in future advisers will need to take great care in deciding whether someone is either a high-net-worth individual or a sophisticated investor.  The FOS is taking a stringent view – from the Kevin Neal Associates case, the client certainly seemed to tick many of the boxes. Furthermore, with rising number of Ucis cases and recent reviews from the FCA, advisers should think twice about whether such investments are right for their clients and balance this with the regulatory risk in terms of potential compensation. We will be seeking to better understand the ombudsman’s thinking to help provide greater clarity for advisers. 

But the case also echoes a number of long-standing concerns about the FOS which need to be addressed, the first being that yesterday’s cases should not be judged by today’s standards. The FCA has conducted a number of reviews about the sales of Ucis and tightened the rules in response. It is to be hoped that such action has not coloured judgments about advice given in 2010, when the FSA started to look at this issue more closely but before it reached any conclusions.

Second, there is a gap between what the FCA rules say and what the ombudsman says. The judgment is not crystal clear in this respect but it alludes to substantial income and £500,000-worth of non-property assets. The other assets may not all be investable but it seems they may well have met the definition of high-net-worth set by the FCA.   

There is a huge challenge for the FOS to ensure consistency at the front line. Senior management often gives a reasonable position on the guiding principles for decisions, yet this does not seem to match experience. 

The FOS outreach team that attended our recent series of member seminars was keen to emphasise that their purpose is to resolve disputes and bring both parties to a fair outcome, and that advisers should try to discuss issues with the adjudicators. But I am told that when advisers try this, they are pretty much stonewalled – receiving monosyllabic responses and encountering a defensive mindset. 

More needs to be done to address the gap between the professed standard of behaviour and approach and what many experience as the reality on the ground. I acknowledge that the payment protection insurance scandal has been a huge distraction for the ombudsman, and one which has grown massively over the past few years. 

Advisers, by and large, support the existence of an alternative dispute resolution service, free at the point of use for consumers. But if they are to continue to do so, they need confidence that they will be treated fairly and consistently. 

Ensuring this treatment is delivered must be a priority for the new FOS chief executive and is something Apfa will be taking up with them.

Chris Hannant is director general at Apfa



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. The FOS was created out of the FSMA 2000.

    I suspect the objective at that time was for the FSA (FCA) to regulate its baby rather than the FOS to create its own rules of interpretation and engagement. Otherwise, the statute is what drives the jurisdiction within which the FOS operates.

    If not, then surely it is the Treasury which is accountable ultimately. Therefore the question is – what form of guidance and regulation in these matters (and indeed larger ones, like its publicity and marketing campaigns) is being given or is such oversight falling between all the stools and not happening at all? That can’t be right and indeed, for an individual adviser afflicted with what may be an inequitable outcome, the matters of Human Rights might really enter the fray as well.

  2. Wrong. The FCA COBS rules say that firms have to use reasonable care to recommend suitable investments. The Ombudsman decision in question concluded perfectly reasonably that the firm did not do so by recommending to this customer the investments concerned. This decision contains an interpretation of the rules that the FCA would use if you read the relevant materials on UCIS.

    Parliament has had two chances to change the way FOS works since 2001 and it has declined to do anything. The industry has to get used to this. Defending sales of UCIS as a point of principle is not the way to do this.

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