The High Court has rejected an application by three financial advice firms for the Financial Ombudsman Service to halt decisions on Keydata advice worth hundreds of thousands of pounds.
The court rejected the advisers’ argument that the complaints should be stayed until the outcome of the Financial Services Compensation Scheme’s legal battle with advisers over Keydata is known.
Westscott Financial Services, CBHC and DTE Risk & Financial Management applied for a judicial review of the FOS’s refusal to stay complaints brought against them by five former clients relating to advice to invest in Keydata.
The claims are thought to be worth several hundred thousands of pounds.
The advisers argued the FOS had failed to appreciate the FSCS litigation was directly relevant to the complaints and both sets of proceedings raised the same key issues.
But the court ruled the FOS is designed to resolve disputes quickly, and had it stayed the complaints, the investors would have been tied to the uncertain timetable of the FSCS litigation.
The court concluded the FOS had neither erred in law nor acted irrationally in not staying the complaints. It said it could not be argued that possible future contradictory decisions should outweigh the need to determine disputes quickly.
The FSCS litigation is expected to go to trial late next year following the selection of new lead defendants in October.
The long-running saga between the FSCS and Keydata advisers originally required lead defendants to have insurance and legal representation. Firms also had to meet a set of technical requirements based on the claims against them, including having a certain number of both Lifemark and SLS-backed product sales.
But following a large number of settlements, including with the original lead defendants, the criteria was widened to those with claims of over £100,000 against them. The requirement for lead defendants to have insurance and legal representation was also removed.
There are around 60 active defendants remaining in the case.
Expert view: Why should consumers have to wait?
If the court makes a decision in the FSCS case to say Keydata was low or high risk then clearly that is useful information for the FOS to have.
However, it does not determine whether the advice in these cases was suitable, as each case depends on its own specific facts. So the court decision would inform the FOS decisions but it would not settle them one way or another.
On the one hand, I can see why the advisers have argued the FSCS case is relevant and the FOS should wait until the outcome is known, but on the other hand the FSCS case is much smaller than it was originally and there is still a chance it will not go to court.
A large number of advice firms in the case have settled, and the remaining firms may well still decide to settle. If that happens, the FOS complainants would be waiting a very long time only to not get a decision.
There is a need to balance the FOS having the best information available, and the time it would take to reach a decision.
The FSCS trial is not expected until the end of next year and Keydata failed in 2009. Why should the complainants have to wait another 18 months? It is understandable that the FOS wants to get on with making these decisions.
Harriet Quiney is partner at national law firm DWF
Principal Financial Solutions
The balance between protecting the needs of the consumers involved in Keydata and ensuring advisers who have recommended them have been giving an opportunity to state their case fairly is a tough one. However, in an environment where many advisers are working hard to ensure the perception of our profession is improving any evidence to support that, such as an early resolution for consumers when products fail, must be supported.
Thameside Financial Planning
It was the regulator and the manufacturer of the products which was at fault in the collapse of Keydata, not advisers. So while we all have sympathy for consumers, equally it is important to have consideration and sympathy for the advisers. And I do not think it is fair for one to be given precedence over the other.