With an election now imminent, there is a danger that the Financial Services Bill, one of the most far reaching pieces of legislation introduced by the current Government, could be rushed through. The bill is hugely controversial and yet has slipped under the radar of many firms, given the state of the market, the focus on the retail distribution review and wider political discussions.
There may be merit in some of the bill’s proposals. For example, in seeking to assist consumers get fair recompense if let down by banking institutions, the principle of asking a regulator to be concerned with financial stabil ity and living wills for the biggest financial institutions. But its provisions on collective proceedings are worrying. All consumers of a particular product or service could be counted as joining a claim unless they individually say they want to opt out.
If passed in its current form, the bill would introduce, among other things, US-style class actions and potentially open the floodgates to unmeritorious claims against IFAs.
Proceedings could be brought by a “representative” with no other interest in the proceedings, allowing claim farmers to take actions in their own name and largely for their own benefit. The appar ently wide powers to alter or entirely rem ove limit – ation periods on advice would make the situation, where both the FSA and Financial Ombudsman Service refusing to allow IFA firms the protection afforded by the statute of limitations, intolerable.
Under the bill, the FSA will also gain wide-ranging powers to compel firms to compensate customers based on its own view of the law, not the view of a court.
We must see firms protected against unreasonable regulatory actions – and retrospection. Several clauses need addressing first, clarity is needed between (and potential overlap of) the collective proceedings’ mechanism, the new FSA-driven consumer redress schemes proposed in the bill and existing redress mechanisms, such as the FOS.
Second, a far closer scrutiny of the impact of collective proceedings, in particular, an opt-out basis, is essential. Third, the circumstances and
manner in which limitation periods may be suspended by HM Treasury needs full review. The proposals empower the latter unilaterally to expose firms to fresh liability for historic conduct that would otherwise be time-barred.
We must see the introduction of a statement which confirms that the statute of limitations would apply to financial services, as it does to other
My concern is that powers that were designed to combat problems in a small number of large institutions will be used across the board.
Regulation should be delivered in a manner proportionate for each specific market – and not simply cascaded from one sector to another. Each sector has its own risks and these need separate consideration.
This bill invests too much power with the current regulator. I want to see regu – lation that is proportionate and appropriate and which does not increase the costs or administrative burden on firms unfairly.
Chris Cummings is director general of the Association of Independent Financial Advisers