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Law firm warns new rules will increase advice liability

The FSA is seeking to force financial services firms to provide 100 per cent redress to customers who have suffered losses even if the loss was not caused by the firm’s faulty advice, according to law firm Reynolds Porter Chamberlain.

Currently, if a financial services firm breaches FSA rules when providing advice they are only liable to compensate their customer for any losses that can be directly attributed to the faulty advice. Firms can currently decline to pay compensation if they are satisfied that their breach did not cause the loss.

But RPC says the regulator is seeking the power to disregard the law of “causation” and if Parliament accepts the FSA’s request, firms will be liable to compensate customers for all losses when their actions breach the FSA rulebook.

The FSA invited Parliament to consider the law in its memo to the joint committee on the draft financial services bill, saying: “Our experience is that members of the public and Parliamentarians have been of the view that – as a matter of public policy – the breach of the FSA’s rules should in all cases entail the consumer receiving 100 per cent redress.”

The memo continues: “However, the FCA’s ability to ensure that consumers receive redress is constrained by the general law, in particular by questions of causation. If the breach of rules either did not cause the loss, or was merely a contributory factor, the FCA will not be able to require firms to pay full redress.

“If society expects as a matter of public policy that the regulator should be in a position to require greater levels of redress to be paid then the FCA needs to be given a clear mandate and powers to do so in the new legislation. This is a difficult issue that gives rise to real questions as to how far the regulator’s powers should extend and we would very much welcome the Committee debating this matter, in particular to achieve further clarity as to the FCA’s mandate in this area.”

RPC partner Simon Laird says: “Regulated firms will be very disappointed if they find themselves forced to compensate customers for losses that may be unrelated to a minor technical breach of the rules.

“Small technical breaches in documenting advice, such as failing to send the customer a suitability report, rarely impact investment decisions but could mean the firm is liable for the customer’s total losses from a financial product if the FCA is granted this power.”

The FSA says the proposal included in the memo to the committe is only a suggestion to be considered by MPs and should not be taken as firm FSA policy.


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There are 24 comments at the moment, we would love to hear your opinion too.

  1. Thats fine I have no problems with this as long it goes across the board and affects all professionals (who deal with life and death) and solicitors, accountants, civil servants, FSA ……….the list goes on.

    A level playing field please FSA.

  2. Scott Taylor-Barr 5th October 2011 at 11:25 am

    I think this sounds just plain scary! Who’s going to want to give advice when you may have to redress a client for a minor technical breach, when it’s had no impact on them financially? It sounds like the claim firms will have a field day and even the very best advisers will see their costs rocket. All of which will mean less advisers, charging higher fees (to cover higher costs) – leaving the vast majority of the Britich public without access to quality advice; just the Banks and MAS – hummmmmm…

  3. Is this another case of Do as I Say………..not as I do?

  4. On this basis does not all “advice” effectively become a guarantee. Given Mr Cameron wants us all to pay off debt and save, would this not finally destroy any concept of saving. Perhaps the FSA don’t think Mr Cameron is anyone important or that they should pay any attention to him?

  5. At last – though I agree with the principle that it should be linked to the advice given.

    Perhaps this would stop firms trying wriggle out of their liabilities to consumers and try to argue section 39 of FSMA when their agents do something wrong.

    If your agent starts advising on regulated products claiming authorisation but your firm hasnt authorised him to be able to, and a client loses money, it is your firms fault for not stopping him, NOT the clients for not knowing the details of his authorisations with your firm.

    And please FSA – make it retrospective and automatic. There are any number of legal cases currently out there where firms are attempting to depocket claimants who are forced to sue over perfectly legitimate claims.

  6. Er, Yes
    And what Anonymous at 11:25 omits to mention is that this edict will presumably equally apply if there is an FSA inspired retrospective change in legislation which means that ALL advice is then liable for 100% loss, even though it may have been A1 at the time.
    You just couldnt make this stuff up – woops, that’s what the FSA is for, silly me!
    And since when has the FSA ever compensated 100% for unintended consequences or for non-directly attributable actions, eh?

  7. Madness. Given the way the rule book has been retrospectively changed in the past to suit the regulators agenda I cannot see why any adviser would stick around to be abused again. I thought the regulator was ment to support markets not undermine it?

  8. So the FSA now wish to change common law in their favour – is there no limit to their arrogance.

    If this report is correct, then the FSA should immediately rescind its agreement with Capita, HSBC and BNY Mellon in respect of Arch Cru liabilities; where it has limited these companies liabilities for their clear failings – as well as restricted clients’ right of recourse to the FOS.

    Really, you couldn’t make this up.

    I support the FSA in many areas, but this is just unacceptable. I trust that Parliament will hold them to account ……..

  9. If this becomes policy — my prediction is that there will ne no industry

    but then again we have the Money Advice Service — or will that be liable as well if something no matter how small goes wrong

    Over to you FSA have you got PI cover or should we pay for it before we go ???


  10. I see that plonker anonymous is at it again.
    Take no notice.

  11. @Patrick Schan

    If you are going to be offensive, at least make your comments urbane, witty, clever or, at the very least, informative.

    While you may disagree with anonymous posts, the option is there and it is my option to use it.

    Judge my post on the value of my comments, not my identity.

  12. To anonymous 11.35.
    What are you talikng about? If the businesses I’ve been involved in have advisers who are authorised only for life and mortagage business, they cannot advise and execute investment business. The same applies the other way. Explain yourself or shut up.

  13. Anonymous | 5 Oct 2011 11:35 am – are you an FSA employee?

  14. This is fine if the regulator imposes this on all professions as mentioned by the first reply to this article.

    The problem that is starting to happen within financial services is people giving financial advice without actually giving a recommendation around regulated product therefore successfully not needing FSA registration. Many solicitors and accountants have been operating under this system for a number of years and only referring to an IFA when setting up a contract. If this change comes about and surely we will see an increase in complaints from solicitors and accountants who have been flouting the regulations for a number of years.

    It’s interesting if you check the register of a solicitor who offers a wealth management services but isn’t registered even under the professional register section.

  15. To all

    For clarity, please note that all anonymous comments are labelled the same, and may be from several different authors.

    My linked comments were sent at 12.07 and 1.05.

  16. Peter Herd @ 1.22

    You hit the nail on the head – anyone with any sense is moving rapidly towards guidance and facilitation rather than advice. Full financial advice is heading for near extinction – the PI implications of this article don’t bear thinking about.

  17. This is of course totally out of order and definitely not in keeping with how other professions are treated. Why should IFAs be singled out, when soliticitors, for example, also deal with people’s wealth (arguably through propery and wills to a higher value than IFAs) but are treated more leniently?

    So do what I have done this morning, before reading this blog, and write to your MP asking them to vote against this, as the vote has not yet happened. And do it now!

    As regards some of the anonymous entries above, whilst I accept it is allowed, it is extremely difficult to follow multiple anonymous entries, so I share the view of Patrick Schan. If you wish to remain anonymous, at least make up a name, so we can follow which entries are yours and which are not.

  18. “Our experience is that members of the public and Parliamentarians have been of the view that – as a matter of public policy – the breach of the FSA’s rules should in all cases entail the consumer receiving 100% redress.”

    Do they have documentary evidence to back up these claims?

  19. yes sean, they do
    Mark Hoban is the parliamentarian in question and Which magazine the members of the public.

  20. @Sean – The FSA didn’t say the MAJORITY of the general public or parliamentarians and hence they could be referring to just two people, Mark Hoban MP and Hector Sants (as a member of the public). They don’t have to abide by true, fair and NOT misleading, nor the truth the whole truth and nothing but the truth. Telling a part truth as above is worse than a lie….
    As the first poster said. if they do this for lawyers, accountants and everyone else at the sametime, maybe that woulkd be OK, but this practice of just looking at one section of society is exactly what Hitler and Stalin did. Gypsies, jews, homosexuals, communists all at different times. Divide and conquer….

  21. Utterly appalled by the suggestion.
    Floodgates will open and the cost of PII will drive most of us out of business

  22. Philip Westwood 7th October 2011 at 8:22 am

    This article really has pressed the panic button hasnt it!

    To An Old IFA – no I don’t work for the FSA, but neither am I an IFA so I can look at the proposals with an objective and independent mind rather than the one-eyed self-interest that a lot of these posts have.

    And to Richard Brydon, I totally agree that is how the regulatory system should work and your life and mortgage authorised advisors cannot advise on investment business. However what if they do?

    Just saying they cannot doesnt make it true – unless you sit in on every client meeting they have which I doubt you do.

    If they go off and advise on investments and its goes wrong, at the moment there is no protection for the client. All this would do would be to ensure that the client is protected, which is after all, the primary purpose of regulation.

  23. No, “anonymous” at 0.822am, the fact you are from outwith the industry has allowed you to embarrass yourself. There is no way in which an adviser regulated for only mortgage and protection can go out, give advice on and recieve remuneration for advice on an investment product leaving the client unprotected. There are a myriad of checks and balances already in the advice system, such as suitability letters, where the adviser details the advice given so unsuitable advice is recorded and therefore the client is protected.

    You seem to hanker after a world where if BMW service my car then I wrap it around a lamppost three weeks later, I can sue them for complete redress if their service mechanic did not put the date on my copy of the service report.

  24. If the FSA did get this through and made it retrospective, maybe the members of the public who have lost out in the Arch Cru debacle could then pursue the FSA for 100% of their losses. As it was the FSA who approved Capita as an approved corporate body.

    Shh, don’t tell tham that just yet though!

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