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The case for a sensible long stop

Revelations regarding a letter sent by the Chairman of the joint committee on human rights to Lord Myners about the 15-year long stop shine a timely light on the issue.

But if we move away from the legal rows and concentrate simply on fairness and the type of IFA sector the FSA says it wants to encourage, I think there is a compelling argument the regulator needs to listen to.

The fourth chapter of the FSA’s RDR story is due to be published towards the end of this month and so far the regulator has refused to budge on the long stop.

The FSA’s November 2008 RDR paper rejected widespread calls for IFAs to be brought in line with the statute of limitations afforded to other professions, which sets a 15-year long stop on complaints to avoid indefinite liability.

In typical regulatory jargon the FSA stated it was unable to justify offering financial services firms the same rules as other professions as the costs/benefits could not be properly quantified.

The paper read: “To justify the introduction of a ‘long stop’ time limit on the period within which complaints must be brought, we needed to identify benefits to firms or consumers beyond the savings for firms in compensation payments. This is because the savings in compensation payments are the same as the costs to consumers from the introduction of the long-stop.”

The regulator went on to say that although it received strong representations on the issue, no-one was able to demonstrate the net benefits to consumers.

The trouble is it is very hard to quantify the benefits to consumers in the way the FSA wants. Aifa and others tried in their representations to provide this evidence but it really is not an easy thing to do.

I can’t help but think that in asking for this sort of elusive evidence the FSA has found a convenient excuse to park the long stop and not upset the consumer lobby.

Rather than asking for the industry to produce evidence that they should be treated the same as every other profession, should it not fall on the regulator to provide firm evidence why IFAs should not be afforded this right?

Let’s look at the evidence the FSA provided in its November paper. The Financial Ombudsman Service estimates a 15-year long stop would time bar 2,000 cases a year, excluding endowment mortgage complaints which are set to fall dramatically. The FSA says its research shows a further unquantified number of complaints over 15 years are upheld by providers.

Recently, the FOS revealed that 3 per cent of new complaints were against IFAs and of these around 30 per cent are upheld.

It is too clumsy to simply read these figures across to the 2,000 time barred cases a year- the current figures are skewed by PPI and all the other recent misselling antics from the banks.

But it is clear the FSA is holding the Sword of Damocles above the heads of the whole IFA profession for a small number of complaints.

The FSA’s argument only looks at the broad question of should a long stop be introduced across financial services. What about just considering it for IFA firms, or debating as part of the RDR whether it should be introduced for smaller firms under a certain size? Providers can fight their own battles.

Establishing the 15 year long stop for advisers would encourage new investment into the IFA sector, creating a more vibrant, professional and stable industry to serve consumers.

The absence of a long stop makes it much harder to attract new sources of investment or sell on an IFA business. Potential investors are wary of open-ended liability.

With the FSA apparently focused on increased consumer responsibility, the introduction of a 15-year long stop would encourage consumers to take more care of their financial affairs.

In cases of suspected fraudulent activity the 15-year long stop could be over-ruled, addressing concerns that it would be used by the unscrupulous as a wall to hide behind.

With responsibility being one of the buzz-words of David Cameron’s Conservative party, implementing the long stop for IFAs should be high on their financial services agenda if they are elected and the FSA continues to refuse it.

As part of the RDR, the FSA says it wants to encourage a more sustainable advice sector, based on increased professionalism and more transparent remuneration strategies.

Advisers are already showing their willingness to move in this direction and by introducing a long stop the FSA can show it is serious about supporting professional IFA firms into the future.


Barry O’Dwyer

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There are 9 comments at the moment, we would love to hear your opinion too.

  1. cost benefit analysis
    And of course the FSA do have the cost benefit analysis for the withdrawal of the long stop (by FIMBRA,SIB, PIA or FSA whenever it was withdrawn)

  2. Consumer benefits
    To say that “the savings in compensation payments are the same as the costs to consumers from the introduction of the long-stop” doesn’t seem strictly accurate. If a long stop were to be introduced, surely the cost of the industry’s complaint handling and insurance would fall accordingly? I would have thought that these savings could be quite substantial, and would ultimately (though indirectly) be passed onto the consumer?

  3. Nope…..
    But IFAs aren’t the same as every other profession. The suitability of the advice they give is often only apparent, or disputed, after several years. Had there been a 15-year long stop in place, how many valid endowment claims would’ve been denied? Can’t see how letting bad advisers off helps anyone. Perhaps being held to higher standards, the reputation of IFAs would improve.

  4. Above the law?
    David Kenmir (representing the FSA) told me that the FSA couln’t override statute and neither could anyone else or any other body. Statute, which has NOT been repealed, provides for a 15 year long stop, it therefore follows that the FSA and the FOS are acting ultra vires which I have no doubt is what their legal advice says and it is patently obvious why it will not disclose said advice.

  5. Longstop
    An excellent summary of a problem that has been allowed to roll on unchecked, destroying the lives and business of many honest, caring and hard working IFAs. It would be interesting to know what Lord Myners reply was to the Chairman of the joint committee on human rights and if was delivered by the 4th June as required. A head of steam is building and one would hope that the efforts of everyone involved in trying to rid the industry of this injustice will bear fruit. The longstop does not fit with the principles of “fair and reasonable”. If it is withdrawn, will all those IFAs who have suffered financial loss and stress – beyond measure in many cases – since the FSA re wrote the rule book (ignoring reasonable consultation), by removing the protection of the longstop that existed with the PIA Ombudsman rules before their demise and reflected in the FSA/ FOS Transitional Rules, be compensated?

  6. Response to Nope
    suitability of advice is often apparent or disputed after several years: Yes but no clear evidence of products in the past becoming toxic which did not happen within a 15-year period.

    On the endowment mortgage point your views are backwards looking- the RDR needs to focus on the future and creating a sustainable profession that will benefit consumers. The long-stop will do that.

  7. Julian Stevens 12th June 2009 at 1:47 pm

    The case for a sensible long stop
    The key point which the FSA should be compelled to answer is why it declines to provide firm evidence as to why it refuses to allow IFA’s the same rights afforded by law to all other professional sectors. Why does the FSA consider it acceptable for IFA’s to be singled out for harsher treatment than any other profession? Surely, this is malicious selection against IFA’s?

  8. FSA Rejects long stop for IFAs
    A 15 year long stop for complaints is more than reasonable, and it is absolutely preposterous that the FSA has rejected it. This must be completely cotrary to human rights. What would happen, for example, if a complaint was made after 25years against a former IFA aged 80 who had been retired for 15 years. Would the FSA expect that pensioner to deal with it? Would they be able to force him to deal with it, even though he may not be physically or mentally able to do so? What would they do if he just ignored them, or told them to clear off?

  9. RE: Above the Law
    Regarding Evan’s point first…

    …if I understand correctly, the Limitation Act still applies to any action brought before the courts for breach of duty e.g. the Sedwick case being a prime example of limitations being applied.

    But FSA/FOS are then working in a whacky parallel jurisdiction outside the ordinary Courts (“alsatia in England where the Kings writ does not run”) – and this is provided for in Statute (i.e FSMA). The Court of Appeal in the HME case, in particular, made the point that according to Statute, the FOS jurisdiction is not bound by the ordinary law and indeed could “run ahead” (unless you’re a Bank levying illegal charges).

    Turning to the substantive point, if a 15-year long-stop ordinarily applies, isn’t it for FSA to provide a rationale (and cost benefit analysis) as to why it should not apply instead of insisting on the reverse?!?

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