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FSCS and FOS in confusion over Harlequin IFA compensation

Collapsed firm won against FOS complaints, but FSCS then orders more than a quarter of a million in compensation

A collapsed adviser firm that gave advice to Harlequin investors has defended a number of Financial Ombudsman Service complaints, only to fold with more than £250,000 in compensation payouts to investors.

The history of Yorkshire-based Stuart Black Limited throws up questions around what criteria the FOS and the Financial Services Compensation Scheme use to judge when redress is due.

Stuart Black was an investment adviser at St James’s Place from 2001 to 2004, according to his FCA register entry, before setting up his own firm.

According to FOS decision notices passed to Money Marketing, Black had at least four similar complaints regarding investments into unregulated overseas property scheme Harlequin dating from September 2015 and through 2016.

One of these involved two clients who had been introduced to Harlequin by timeshare broker Regal Consultants. The clients were looking to sell their existing timeshare and thought Regal would buy it from them if they invested £50,000 in another off-plan property.

50/50 Finance, another firm, told the clients to speak to Black for the remortgage they would need to release funds for the property investment, and the clients thought Harlequin would pay the monthly mortgage payments.

Harlequin administrators leave investors in limbo over claims

The clients complained Black mis-sold them a lifetime mortgage, and they would not have put money in the Dominican Republic property scheme, which was never built.

The fight between the FOS and the FSCS

All four complaints were rejected by the FOS, which defended Black’s “detailed” suitability letters, and noted Black did not actually sell the investment but only provided mortgage advice.

The FOS says Black also advised the clients to take legal advice on the investment’s risks, and that the clients had decided to invest in Harlequin before they met him.

Stuart Black Limited was declared in default by the FSCS in October. In FSCS rulings against Black, more than £255,000 has been paid out in compensation.

The FOS operates on what is fair and reasonable by adjudicators, while successful FSCS claims must pass a civil liabilities test, that is, whether a court would have awarded damages where contractual or legal duties were breached.

Payments from the FSCS are funded out of the adviser funding pool, whereas FOS compensation is paid directly by the firm that loses the complaint.

Adviser views

Michael Saunders
Managing director
Kent Carlyle Wealth Management

It is very unfair on the fee-paying IFA community and everybody else who contributes. It seems those without a moral compass are happy to swan off into the sunset and not worry about paying for the damages they left behind.

Our customers as a proxy pay for that. It is so easy for companies to say they do not like the look of that and fold. It seems the FCA allows too many tainted operations to phoenix. I do not know what the solution is but the funding is a thorny issue.

Boyle-JeannieJeannie Boyle
Executive director
EQ Investors

It’s not a great position to be in, but from a consumer perspective they need to know that that last line of defence is there.

The Claims Bureau chairman Peter O’Donnell has written to FOS chairman Sir Nicholas Montagu to highlight the discrepancy.

O’Donnell says: “This disparity needs to be understood and tested to affect change. Otherwise victims will be subject to the risk that if the defendant remains in business and a complaint is considered by the FOS, compared to the FSCS, the chances of it being upheld is probably 98:1.”

Montagu wrote in response: “You say that senior members of staff at the ombudsman service have conceded that complaints we have handled are too complex to be appropriately assessed. I have to say that I completely disagree with this interpretation. It is misleading to compare our handling of individual cases with those being handled by another body with a quite different remit, or to attempt to draw general conclusions from doing so.”

A FOS spokeswoman says: “While both the FSCS and the ombudsman service were set up under the Financial Services and Markets Act 2000, we were given different rules and powers to reflect our different roles. This means that it is quite possible that we can come to different answers on the same cases.”

An FSCS spokesman says: “The FSCS assesses cases individually and the civil liability test is applied to our decisions which, in summary, means we need to be satisfied that the firm owes a legal liability to the consumer before paying compensation. The FOS is a separate and independent statutory body and has its own set of rules.”

Black did not respond to a request for comment.



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

  1. I’m not confused at all – I can see quite easily that our FSCS fees have increased!


  2. Alasdair Sampson 5th July 2017 at 2:06 pm

    The headline to this article is very misleading and Money Marketing and Mr Cash really ought to know better.

    The article quotes spokespersons for each of FOS and FSCS who set out their respective organisations’ positions.

    FOS and FSCS not only operate by different rules but they do fulfil entirely separate functions.

    I do not say that it is right that their functions and rules are so very different, often leading to very different outcomes, but that is how the law has been framed and passed by Parliament. So it must therefore have been Parliament’s intention that there be such differences.

    If that is to be changed then it is not something that either FOS or FSCS can effect themselves and primary legislation will be needed.

    What is or should be MM’s and Mr Cash’s focus of concern is that members of the public are expected to be able to know and understand that there are differences, to know what those differences are, and to be able to negotiate their way through any conflict between them.

    Both FOS and FSCS make very clear to investors that they do not need to hire a lawyer or claims manager to make a claim as both their services are free. Indeed, CMC’s are required by their rules to draw to prospective client’s attention that they do not need to hire a CMC.

    And in very many if not most cases that is probably entirely correct and valid – the investment and its loss are less than £150,000, the investment is relatively straight forward in construction and operation, there is only one likely respondent being the IFA and because the IFA is still alive and trading in which case it is a complaint to FOS, or if the IFA has ceased to trade or is otherwise “in default” then it is a claim to the FSCS.

    But in complex investments cases where the investment may have exceeded the FSCS cap of £50,000 or even the FOS cap of £150,000, there can often be two or even more potential respondents, one or more of which may be still be live, or one may be “in default”, where respondents may have differing responsibilities and hence potential liabilities and there can often be differing jurisdictional relationship and time bar issues. And the investor is supposed to be able to pick his/her way through the interplay of the FOS’s and the FSCS’s jurisdictions, roles, applicable rules and applicable caps on redress/compensation.

    Added to that with many investments which fall into the UCIS/NMPI category there are statutory and regulatory issues between financial promotion and suitable advice – lawful promotion of such investment does not automatically mean it was suitable – which sometimes even FOS and FSCS do not appear to know or to understand.

    From what I know of it the Harlequin claims/complaints are what I would call “complex” – complex by reason of the nature of the investment and the construction of its set up and also of its management, complex because of the rules that applied to its promotion and advice, complex because of the number of parties involved such as the IFA and often multiple parties operating the scheme, and complex by reason of the procedural rules applied to the making of a claim or complaint.

    With respect, Mr Cash, it is this that you should be focusing on.

  3. Robert Milligan 5th July 2017 at 2:45 pm

    This is the problem, obfuscation created by the Compliance Regime we now suffer, and some hide behind!!! If the Advice was wrong then its is irrelevant what documentation you provide to negate your regulatory accountability. From the contents of the above article the Advice was flawed from out set, so the complaint should have been up held by the FOS,, the problem is adjudication retrospectively based on documents provided by the Advisor allow for scurrilous advice being fabricated, Networks come to mind,,, if you know what should be seen to cover up what you know to be wrong, remains wrong

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