Complaints Commissioner Antony Townsend has called on the FCA to upscale protection of vulnerable investors, despite siding with the regulator over a complainant’s allegations that poor transparency around unregulated products and investments led them to lose £125,000.
Townsend says there is no case against the watchdog in the three part complaint, but has again criticised its lack of clarity on investor communications.
Part one of the complainant’s allegation says the regulator failed to supervise the complaint’s financial adviser, resulting in the loss of the £125,000 and jeopardising the integrity of the financial services industry.
The complainant contacted the FCA’s customer contact centre on multiple occasions between July and November last year in an attempt to communicate concerns about their financial adviser and their firm.
The adviser, who formerly operated within a national firm, is now directly authorised and running their own practice.
The complainant was a first-time engager with financial advice and seeking advice on retirement planning and investments.
The complainant followed advice to take out two loan agreements with a lump sum amount from their pension.
The loans were with a third-party company and were communicated to the complainant as being low risk and within their best interests, Townsend says.
The third-party company subsequently declared insolvency and the adviser was found to have held a conflict of interest with the company that had not been declared to the complainant.
Townsend says: “[The complainant] approached the Financial Ombudsman Service but was told that there was no redress against the adviser, only the firm he worked for, which by that time had also gone into liquidation.”
Regarding part one of the complaint that the FCA failed to supervise the adviser, Townsend says: “The FCA’s complaint response said this was not upheld because CCC passed on the information you provided to the relevant supervision team who had acted appropriately.
“Further details could not be provided to you because of confidentiality restrictions and the FCA’s policy approach to its regulatory work.”
Part two is an allegation that the FCA continues giving approval to advisers without auditing their portfolios and giving specific attention to their selling of unregulated products.
Part three of the final report is the allegation that the FCA’s rules around the Financial Services Compensation Scheme made the complainant unable to obtain compensation for the losses.
The complainant had approached the FSCS on discovering that their former adviser’s firm had entered into liquidation.
The claim was denied as the third-party company in which the complainant’s loans had been invested was not registered. The products in which the money was placed were also unregulated.
Townsend says neither part two or three of the complaint was formally investigated by the FCA, as the regulator considered them to be outside its complaints scheme.
He says: “[The complainant] is dissatisfied with the FCA’s response to the situation as it does not provide a remedy for losses experienced after trusting an FCA-approved firm and financial adviser.
“[The complainant] also had no awareness of the wider situation when agreeing to take out the loans and has lost substantial funds and been left without redress.”
The FCA did contact the FSCS with regards to the case. Townsend says the lifeboat fund failed to respond in “a timely manner” leaving decisions on the redress to the CCC.
In his final report, the commissioner says confidentiality restricts communication of certain materials seen in order to make the conclusion on the case.
He says: “Most of the FCA’s regulatory activity is not disclosed which can sometimes mean that any action the FCA may be taking is not apparent to complainants.
“I cannot give [the complainant] any information about the FCA’s ongoing investigation of the adviser, however I expect the FCA to take note of this experience and ensure proper steps are taken to avoid any repetition.”
Townsend also called on the FCA to ensure it has stronger communication with the FSCS and to provide the case complainant with further information on the clarity of its communication around redress availability.
He says: “[The complainant] has made a forceful point that the nature of the investments was irrelevant to those who are victims of unscrupulous practice.
“It is only reasonable in the circumstances that the FCA provides further information and I have raised my concern on several occasion that people may be under the false impression their investments are protected when firms are regulated by the FCA.”
The FCA presented a Dear CEO letter to firms in January warning about the importance of ensuring financial promotions make it clear where products are not regulated.
Despite this, Townsend concludes: “The FCA clearly needs to do more work to reassure consumers and the public that it is fulfilling its consumer protection mission.
“The publicity surrounding recent high-profile cases has exacerbated this [and] the FCA also needs to consider what more it, and the regulatory system as a whole, can do to stamp out abuses and the exploitation of inexperienced investors unfamiliar with financial services products.
“It should also consider what steps can be taken to mitigate the risk that unscrupulous firms and advisers can escape responsibility in the way that you have experienced, leaving no safety net for victims.”