One of the questions in the first Money Marketing compliance clinic generated significant interest from readers and is worthy of more detailed discussion.
In the last clinic, a reader asked whether a complaint received in respect of an endowment policy sold in January 1988 had to be dealt with in accordance with FSA requirements. The response that it did not need to be seemed to come as a surprise to some readers so I will now look at this area in more detail.
Because the Financial Services Act 1986 only became law in April 1988, any sales before that are not automatically covered by the Financial Ombudsman scheme (or one of its predecessors). Sales before April 29, 1988 were not regulated since the legislation to create regulated advice (the so-called Big Bang) occurred then.
Advisers who advised upon endowment policies after April 29, 1998 have a regulatory obligation to consider the complaint and deal with it under the rules of the Financial Ombudsman Scheme.
It is unlikely that the average IFA would have voluntarily joined the PIA Ombudsman Service in respect of pre-April 29, 1988 advice. While most of the high-street banks and insurance companies gave in to political pressure and did so, few IFAs would have done so. Given that the mid-1980s was a boom time for the sale of endowment policies, IFAs should look very carefully at the timing of sales around then as the claims may not be valid.
The Consumers' Association campaign to instigate complaints for endowments may be against them. Anyone visiting their website should look at the Faq section where (at the bottom of the page) this point is acknowledged – and is even supported by a letter from Howard Davies which states: “Under the Financial Services and Markets Act 2001, the FSA has no power to compel firms to subscribe to the Voluntary Jurisdiction of the Financial Ombudsman Service.”
Given the extreme lengths some potential claimants will go to in order to try and create a claim, IFAs are perfectly entitled to say no to claims if they are invalid. If you offered advice before April 1988 and you have not voluntarily subscribed to the PIA Ombudsman Bureau's voluntary jurisdiction, do not be afraid to say no.
Correct consideration of endowment complaints is extremely important now as the vast majority of IFAs effectively have no PI cover for endowment claims due to the very large excesses being applied to their policies. It is highly unlikely that PI underwriters would appoint lawyers to assist in the defence of endowment claims but the use of specialist compliance assistance in protecting an IFA practice from claims should have significant benefits attached to it.
Q: I have heard that the FSA is changing the way that applications for authorisation are dealt with. Is this the case and, if so, what are the ramifications?
A: During March 2003 the FSA restructured the divisions through which it processes applications for authorisation under the Financial Services and Markets Act 2001. The first point of contact for new applications is now the enquiries & applications department, which is headed by Jeff Thomas.
The intention is that new applications in respect of standard IFA businesses will now be dealt with solely by this department, with no need to refer each individual case to the authorisation committee. This is intended to provide an efficient, streamlined approach for the straightforward, high-volume cases that are received. No longer are individual and corporate forms processed separately. They will now both be dealt with by the same people. It should only be the case that more complex applications (such as firms involved in new or innovative products, individuals with previous disciplinary actions against them etc) which would require non-routine, more detailed consideration will be dealt with by the new 30-strong team within the authorisation corporate cases department.
The FSA is examining closely the application process for small firms since it has acknowledged that it could be both simpler and more speedy. The vast majority of small firms' applications are incomplete when received by the FSA, leading to delays in processing. The FSA is on record as stating that it does not wish to create unnecessary barriers to entry for small firms.
So an exercise to develop a more tailored application pack for small firms with an aim to approve them within six weeks of submission is being undertaken. The development of an electronic submission pack is now being addressed as an acknowledged way forward.