Many years ago at the FSA, I used to sit next to a phone (we had actual phones on the desk in those days) which the general public could call to air their grievances.
We took it in turns to answer because you were never quite sure who you would get on the end of the line. Most people were unhappy with something a regulated firm had done. Some people were unhappy with the regulator. Some people were just unhappy and wanted someone to talk to. And some people were convinced the regulator was staffed by space lizards*.
The point being, with thousands of firms, millions of consumers and hundreds of millions of transactions every year, there’s plenty of scope for things to go wrong and things for people to complain about. Which is why the Financial Ombudsman Service exists. Once you’ve exhausted the complaints procedure with your financial services provider, the FOS exists as an independent backstop – what, back in the days of EU regulation, we referred to as an alternative dispute resolution service.
All fine in principle, only the FOS isn’t operating in a vacuum but in a world where regulators also exist and over time there has been some conflict between the role of the FCA and the role of the Ombudsman. Which is why the government has recently consulted on what the future of the FOS should be – and whether it has drifted too far from being a ‘simple, impartial dispute resolution service’. One of the key issues is that FOS decisions sometimes appear to diverge from FCA rules, or to apply judgements retrospectively, making it in effect a quasi-regulator and confusing the regulatory landscape.
This week we’ve seen the government’s feedback from the consultation. The most radical solution, that the FOS should be made a subsidiary of the FCA, has been rejected. Instead there’s range of proposals with the aim of getting the two regulatory bodies to coordinate better.
Arguably the most significant change is that the government will legislate to adapt the Fair and Reasonable test (the basic principle on which the FOS works). If a firm has met its obligations under relevant FCA rules the FOS will be required to find that the firm has acted fairly and reasonably in relation to that element of the complaint. If you’ve followed the rules, in other words, you’re in the clear.
The other point that should make firms sit up and pay attention is the introduction of a regulatory longstop. It’s a principle of law that bringing a claim against a firm shouldn’t be possible in perpetuity. The FCA’s DISP rules say that the FOS can’t consider a complaint that is referred to it more than six years after the event complained of, or (if later) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that they had cause for complaint.
However, by their nature some financial products have a very long lifespan. Three years after discovering there’s a problem with, for example, your pension, could be a very long way down the line. Coupled with concerns that FOS decisions may at times diverge from FCA rules, this creates a persistent cloud of uncertainty even for firms confident they have acted properly.
Which is why the industry has argued for a longstop on complaints – as the FCA’s Practitioner Panel put it “retrospective application is one of the critical issues affecting investor confidence and risk appetite within firms”. And that’s exactly what the government now proposes – a legislative time limit to be introduced so that complaints concerning acts or omissions of a firm which took place more than 10 years ago would not be eligible to be considered by the FOS.
But, and there’s always a but, there is a substantial caveat to that. The rules for how this all works, including any potential exemptions, will need to be drafted by the space lizards at the FCA. Consumer groups, including the Financial Services Consumer Panel, consider it absolutely essential that all long-term financial products are exempt. Including, at a minimum, any products which are held – or expected to be held – for at least 10 years. Which could make it a longstop in name only. But the proposals are a shift in the direction of regulatory clarity, even if we’re not quite there yet.
*Mostly not the case.
I was going to share with you a musical genre suggested by my social media feeds, Forest Witch Bassoon Folk Metal, but nobody needs that on a Wednesday afternoon. So instead an offering from the setlist of David Byrne’s current tour, which I urge you to go and see if you get the chance.
