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FSA creates long stop for redress schemes

An effective 15-year long stop has been introduced by the FSA on advice that is investigated as part of a consumer redress scheme.

The FSA was given new powers earlier this year to create consumer redress schemes to deal with specific market failures.

In a guidance note on the new schemes, the FSA says: “The power is limited so that the only failures a scheme can address are those a court or tribunal would find to have been failures at the time the activities were carried on rather than a subjective assessment by the FSA of the reasonableness of a firm’s actions.”

Aifa says this means that advice reviewed through consumer redress schemes would have to be measured against legal standards rather than those of the FSA or the Financial Ombudsman Service and therefore the statute of limitations would apply, which gives all professionals a long stop. Advice that does not fall under a specific consumer redress scheme would not be subject to a long stop.

Aifa director of policy Andrew Strange says: “Because this is based on a court situation rather than the FOS powers through FSMA, there is a statute of limitations – there is a long stop. So anything over 15 years is out. I think this is the first time we have achieved some element of a long stop within financial services.”

It is up to the Treasury to decide to enact the new powers that have been granted to the FSA before the regulator can make a consumer redress scheme. The long stop would apply to advice under specific consumer redress schemes where there has been widespread or regular firm failures.

Highclere Financial Services partner Alan Lakey says: “To get back a long stop in any form would be marvellous. The long stop was never mentioned in the Financial Services and Markets Act, therefore it did not exist.”

The FSA looked at introducing a 15-year long stop for IFAs as part of the RDR but said that the industry could not come up with compelling evidence to support its introduction.

The joint Parliamentary committee on human rights launched an investigation into the lack of a 15-year long stop for IFAs in March 2009 but this was dropped last November.


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There are 16 comments at the moment, we would love to hear your opinion too.

  1. “therefore it did not exist”

    This is a popular misconception, as Simon Mansell often says “a lie told often enough becomes the truth”, in this case the lie was told by Gordon Brown and slavishly followed by the regulators who appear to have no humanity whatsoever, just another box to tick.

    As I have been told many times “when you get close they pull the rug out from under your feet”. Look to the ECtHR.

  2. I and many others (including Evan Owen and particularly those of us at the helm of Adviser Alliance) have fought for a longstop for many years so – A Long stop at last – The FSA (not Government) deciding when and if to follow the law of the land again !!

    Whilst this is great news and long overdue I have to say that this smacks of the FSA just ticking boxes and deciding unilaterally to conform with the law – let us remember it is not for the FSA to decide when and if they follow law it is for the government and the courts.

    Is this an admission of wrongdoing on the part of the FSA and indirectly their masters the Treasury at last ??

    AND – lets not forget the damage its omission has done to the industry and particularly those that have been in it since the day dot.

    This is both a good and a bad day for the industry – a stroke of an FSA pen and the longstop exists – not right really is it however welcome it may be.

  3. paolo standerwick 29th July 2010 at 10:46 am

    Another failure of the FOS/FSA is SI2326. Policies sold under previous regulatory Ombudsman are being ignored and we are being billed for this under FOS’s own law. This is another area that needs to be sorted as retrospective regulations are not acceptable in any democracy.

  4. I agree with Evan – there is a flaw in Alan’s logic.

    If we follow it, then we might argue that the Financial Services and Markets Act does not impose a speed limit on advisers going to see their clients so they can drive as fast as they like.

    The fact that an Act does not speak on a matter covered by other Acts does not mean that they are repealed by it.

  5. Are they just trying to fiddle with the RDR to make it a little more palatable?

    It does not detract from the fact that the FSA is pursuing a policy t to ADD “professionalism” to the channel of Retail Financial Services that garners the least complaints (see most recent Financial Ombudsman Services Annual Report 2008/09 page 86).

    Now the FSA is close to the end and in it’s final death throws they going to hand over the RDR as a poisoned chalice to sow the seeds of the end for the new regulator before it has even taken breath.

  6. “I think this is the first time we have achieved some element of a long stop within financial services.”

    Having been through every hoop, loop and turn on this regulatory rollercoaster since 1985 I can only declare that this is indeed a strange thing to say because what Paolo mentioned above (SI2326) cemented what governed the previous regulator (PIA) and Ombudsman scheme (PIAOB), namely “THE LAW” and in particular the 15 year long stop. This has been argued tiem and again and a recent JR against the FOS highlighted what HM Treasury described as the ‘legitimate expectation’ of firms not to have to face retrospection.

    If I am wrong could someone tell me?

    Are you claiming a victory here with “we have achieved”? Many IFAs wonder what AIFA has been doing all these years, the ones on the Council who don’t worry about it are either unable to comprehend all this or they think they can offload all their liabilities on their ARs.

  7. My comment was not correctly related in the above article. I stated, “The long stop was never mentioned in the Financial Services and Markets Act, therefore ACCORDING TO THE FSA it did not exist.”

    Adviser Alliance and the iFADU have fought with tooth and nail for the return of a human right that was unilaterally removed without the permission or even knowledge of Parliament and whilst a welcome return it continues to leave an unsavoury taste regarding the complete failure of the FSA to give succour to the laws that apply to all UK citizens.

  8. paolo standerwick 29th July 2010 at 4:42 pm

    By the way both myself and Derek Gair went to see Chris Cummings 4 years ago on this specific subject and he assured us he would look into it. Nothing ever happened until the momentum took place elswhere. It’s not fair that AIFA get any credit for this as no investigation was brought to task at the time on the subject, remember Derek?

    Also I should like to remind everyone of the Davis Kenmir/Evan Owen/Anderw Kerr meeting wish happened and was recorded in 2008. All fell on deaf ears at the time.

    Claiming other organsation and peoples victories ring hollow to many. Hence AIFA haven’t got the following they should have!

  9. Quote: “The FSA was given new powers earlier this year to create consumer redress schemes to deal with specific market failures.”

    So where would you expect what are called “market failures” to arise?

    As I understand it, the new powers were introduced to address problems at the FOS when they were faced with high numbers of complaints.

    Maybe that leads you to think about where the largest numbers of complaints have been recorded as occurring?

    And that in turn might lead you to think about who would therefore stand to accrue the most benefit from the use of a long stop.

    Shakespeare summarised it thus:

    Polonius: Though this be madness, yet there is method in’t.

    Hamlet Act 2, scene 2.

    Who might benefit most? I suspect you don’t think that it will be the small IFA firm who will benefit most – true?

    However as other posters have made clear we now have a clear and marked line in the sand over whether the FSA do or do not recognise the Statute of Limitations – what are the implications, if any?

    Well, for me, there is one clear and immediate implication and it involves the OFT. The OFT have a continuing duty to observe and adjudicate upon the decisions and actions of the FSA for anything which may prove to be anti-competitive.

    If, as I am suggesting, it can be put forward that some sectors of the market are being granted a benefit, which will not apply to other sectors of the market, then prima facie that is anti-competitive.

    So, rather than welcome this move as some seem to have done, for me it should be the cause of a complaint to the OFT – not least because ironically what the powers as currently construed by the FSA will produce is – a “specific market failure”.

  10. Why do we need the law when we have the fsa?

  11. Yeah, it’s Friday afternoon, and I had nothing better to do.

    Anyone better this anagram for the “Financial Services Authority”?

    >> ‘Hairy, evil, cretinous fanatics.’ <<

  12. lol | 30 Jul 2010 2:32 pm

    Didn’t you mean to say that we don’t have the law because we have the FSA?

    LOL, or is it LMAO? Anyway, lol is Welsh for nonsense.

  13. Sorry evan,
    I think you misunderstand me.
    I was referring to the fact that we do not have the protection of the law because of the fsa acting ultra vires.
    Maybe welsh people do not share the same sense of humour as me.
    where I come from LOL stands for laugh out loud.

  14. I’m afraid that this story is incorrect. The new section 404 is not in force and will only be brought into force if the Treasury decides (see section 26(3) of the 2010 Act). So this story is irrelevant.

    It is also incorrect. The new section 404(8) if it ever comes into force says:

    (8) A relevant firm is required to take the above steps in relation to any particular consumer even if, after the rules are made, a defence of limitation becomes available to the firm in respect of the loss or damage in question.

    The issue of limitation is a matter of fairness, not law and certainly not human rights. The cause of restricting the length of time that small IFAs can be exposed to complaints for has been badly hampered by inaccurate statements of law and in particular human rights law. The correct approach would be to argue that micro-enterprises should as a matter of fairness be protected from claims made many years after the event.

  15. Adam Samuel | 30 Jul 2010 7:03 pm

    Your comments duly noted!

    If you have the time and inclination, may I ask how you view the relevance or not of:

    404ARules under s.404: supplementary

    (2) The only examples that may be set out in the rules as a result of subsection (1)(b) are examples of things done, or omitted to be done, that have been, or would be, held by a court or tribunal to constitute a failure to comply with a requirement..

    (3) Matters may not be set out in the rules as a result of subsection (1)(c) if they have not been, or would not be, taken into account by a court or tribunal for the purpose mentioned there.

  16. I suppose we can be ever so grateful that Adam Samuel mentions ‘fairness’ when discussing the plight which afflicts only one profession in the UK.

    If he had always thought that the argument has been hampered by the ‘inaccurate statements of law and in particular human rights law” why has he not said something long ago, ten years in fact?

    I would suggest that he needs to read what the FSA thinks are valid reasons for their failing to recognising the law which has not been repealed?

    Of course I am not as clever as he is, neither is anyone else.

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