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Claire Williams: Why advisers shouldn’t put long-stops in contracts

Claire Williams

In its 2014/15 business plan, the FCA says it plans to consult on the introduction of a 15-year time limit for complaints to the Financial Ombudsman Service. 

The previous position under the FSA was that the regulator would not consider a long-stop unless it could be shown to provide a clear consumer benefit. Such a criterion was unlikely ever to be met and it is good news for advisers if the FCA is moving away from this mentality. That said, so little detail was provided in the business plan that it is difficult to tell either way.

Since not having a long-stop is the exception rather than the rule with professional advice, a far more salient question than why financial advisers should benefit from a long-stop is why they should not. The long-term nature of financial advice is often trotted out as the reason behind the removal of the long-stop but many professional advice services have long-term consequences such as  inheritance tax planning. What, then, is the justification for treating financial advisers so differently from other professional advisers? Answering this question ought to be central to any FCA consultation on the issue.

The actual implementation of a long-stop is, unfortunately, a long way off. In the meantime, there have been reports of advisers attempting to include a long-stop on complaints within their terms of business. While this is a natural reaction to the current lack of a long-stop, it is likely to be ineffective and inadvisable for two reasons.


The Conduct of Business Sourcebook prohibits a firm from seeking to exclude or restrict any duty or liability it has to a client under the regulatory system. So it is not possible to exclude or limit a firm’s liability for a breach of the FCA rules and principles.

For example, firms have a regulatory duty to provide their clients with suitable advice; any liability arising as a result of the firm’s provision of unsuitable advice cannot be excluded or restricted as it is a liability which has arisen under the “regulatory system”. If a firm included within its terms of business a contractual long-stop on all complaints, this would be an attempt to restrict its liability under the regulatory system, which does not itself provide for such a long-stop. The inclusion of such a term, as well as seeking to rely on it at a later date, would be a breach of Cobs.

It is possible to limit any liability which arises other than under the regulatory system but in the case of retail clients this is subject to the exclusion/restriction of being honest, fair and professional. In practice, however, for regulated advice, such a limitation is likely to be of little value as a firm’s liability under the regulatory system will be pretty comprehensive.


The FOS decides complaints on the basis of what it considers to be “fair and reasonable in all the circumstances of the case”. While it must “take into account” relevant laws, regulations, rules, codes of practice and good industry practice, it is not bound to apply them if it does not consider it fair and reasonable to do so. 

In other words, the FOS does not have to follow legislation or common law when deciding complaints, nor does it have to apply contractual terms. Therefore, even if a long-stop clause was not a breach of Cobs, the FOS would not be bound to act in accordance with it and could, if it considered it fair and reasonable, ignore the clause and allow the complaint to continue notwithstanding a contractual limitation of liability.

An attempted judicial review brought against the FOS in recent years confirmed that it was entitled to ignore the 15-year rule in the PIA Ombudsman Rules even where the FOS explicitly acknowledged that had the complaint in question been brought under the old PIA Ombudsman Rules, it would have been time-barred. The FOS will not therefore entertain the enforcement of a contractual 15-year clause in a firm’s terms of business.

It is small comfort to note that the Limitation Act 1980, and therefore the 15-year long-stop, will apply to court proceedings. A client may issue court proceedings if they believe their loss to be in excess of the FOS maximum award of £150,000. So in that respect a firm’s liability is limited to £150,000 for any complaint more than 15 years old.

In summary, a contractual long-stop on complaints is likely to be a breach of Cobs and the FOS is entitled to ignore contractual terms if it considers it fair and reasonable to do so. It is not easy to get around the long-stop (or the lack thereof) and at least for the time being advisers must plan and account for there being no time-based limitation on their liability.

Claire Williams is a solicitor at Foot Anstey


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Well written article Claire. Some light shed on the issue of retirement and winding-up of a limited liability company would I am sure be very helpful if possible.

    That is, does liability continue for former directors of companies that have been wound-up (sale/retirement), who have legitimately exited the industry some year prior to a claim?

  2. I am afraid the analysis here misses the point.

    Claire is right in the sense that a clause to the effect “You agree to waive your right to go to the FOS now / after X years” is likely to be a breach of COBS 2.1.2R. That however is not the point or the rationale for why advisers *should* consider writing the Limitation Act into their documents.

    Firstly, in determining his ‘fair and reasonable’ conclusion for the purposes of s.228, the Ombudsman is obliged to consider the law [Para.14, Sch.17, FSMA; DISP 3.64 R(1)]. That there is no long stop in the DISP rules does not alter the law that the FOS needs to have regard to. Either the Ombudsman considers the law of England & Wales, complete with long stop, or he considers some unique system of law (as Lewison J put it). It may indeed be that the Ombudsman can depart from the law (‘run ahead’ per Stanley Burton LJ), but under what circumstances might it be reasonable for the FOS to stick by the law? Well, it would help if advisers mentioned it upfront and regularly in their disclosure documents and terms of business!?!

    Secondly, the reality of small financial advisory firms is that they are simply not perpetual institutions. They are authorised and deauthorised all the time, often in the quite ordinary course of events as advisers change their business model, their service providers, buy or sell books or whatever. The reality is that the bundle of rights acquired by clients of such firms is incredibly complex. There is a positive case for arguing that one does not comply with Principle 7 if one does *not* mention the Limitation Act.

    To consider just a few instances where the Limitation Act comes into play: where the advice in contention was not regulated activity (e.g. tax advice, advice of wills & trusts, advice on certain cash deposits) and not otherwise falling within DISP 2.3.1 R; where the client was not an eligible complainant within DISP 2.7.3 R e.g. a company other than a ‘micro-enterprise’, a client per DISP 2.7.9 R(2); where the quantum was likely to be in excess of the maximum FOS award specified in DISP 3.7.4 R; where the firm had advised on or arranged any investment subsequently subject to an industry-wide review: s.404(1)(b), FSMA and CONRED 2.4.2 R(4) refer; once the firm has ‘departed and the obligations fall onto- whereupon FSCS would be bound only to meet civil liabilities.

    Incidentally, for advisers who operate a servicing model, I would also suggest they emphasise the importance of satisfying themselves as to suitability on an ongoing basis and regularly taking ongoing advice.

  3. Claires argument is the same one the FSA and the FCA in its turn tried to use to threaten me to withdraw mention of the Longstop in our contracts. We are a Ltd Company and as Jonathan Purle says, there are NUMEROUS instances where a long stop DOES apply. We don’t have to insert a term, we simply need to mention it in order to be CLEAR, FAIR and NOT Misleading.
    If and when the F-pack finally accept they cannot treat one section of society any different to another, then it is important to have been mentioning the existence of longstops so that they CAN be claimed when or if the rule is respected by the FOS. Otherwise they could argue the reverse. i.e. as we did not claim it back and dispute the abuse of the rulebook by the F-pack, we have tacitly agreed. I and my peers agreed nothing of the sort.
    I make it clear to all new clients if I can rely on a longstop I will do so, but that is based on when they last took advice from me, s if they keep having reviews, the clock will not stop ticking until I retire )probably age 67 and I am 49 now). After age 83, if they try to make a claim, then on THEIR heads be it and the heads of those who chose to make us outlaws. The F-pack have NO right to infinite judgement.

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