The case for a time limit on claims against financial services firms going to the Financial Ombudsman Service is to be “re-examined” by the regulator as part of a consultation on firms’ ‘prudential requirements’.
The Financial Conduct Authority’s consultation will include re-examining the case for a 15-year long-stop on complaints to Fos.
In the FCA’s business plan 2014/2015, the regulator said: “We will consult on prudential requirements for personal investment firms.
“We will consider the case for a 15-year time limit on complaints to the Financial Ombudsman Service to review whether the current arrangements are delivering the best outcomes for consumers overall.”
The long-stop has long been an issue of contention within the industry since a previous time-bar was removed when the Financial Services and Markets Act 2000 came into force.
With no long-stop available, networks and nationals in particular are likely to run up large liabilities against historic advice activities, particularly in the light of higher suitability and due diligence requirements since the Retail Distribution Review.
Last week, national advisory business Lighthouse Group posted another year of losses in 2013, blaming restructuring costs and an additional £310,000 redress bill arising out of a past business review.
Rival network Sesame announced a week earlier that it had recorded losses of £19m for 2013, double the figure it was in the red in 2012, on the back of a past business review that focused on among other things past pension transfers.
Earlier this year, Tenet told FTAdviser it was offering adviser members the chance to pre-fund discounted run-off professional indemnity insurance that will cover them post-retirement at a cost of around 1 per cent of turnover per year for an average of six years.
Mike O’Brien, group brands director of Tenet, said this “offers advisers important peace-of-mind, particularly in the absence of any liability long-stop in our sector”.
In the wake of the announcement today, Helen Turner, group distribution and development director, said: “Tenet is delighted that the regulator has committed to considering the case for a time limit on complaints in its latest business plan.
“Uncapped liability for advisers is a serious issue for our industry and it’s time this was addressed.”
In May 2013, the Association of Professional Financial Advisers said it was going to renew its efforts to lobby for the introduction of a long-stop.
Following this, Chris Hannant, Apfa director general, said the trade body has “stayed true to its word”, as the previous regulator “promised it would investigate the case for a long-stop in 2014/15 and that is what we are going to get”.
He said: “We think a 15-year long-stop would improve the ability of advice firms to seek capital investment, leading to a stronger sector overall – which will ultimately be to the benefit of consumers.
“We look forward to responding to the FCA’s consultation in due course.”
Last year, FTAdviser revealed that IFA Financial Escape has had a long-stop clause in his client agreements for the last five years and as a result he had to leave a Trading Standards scheme as the then Financial Services Authority refused to approve the agreement.
Phil Castle, managing director of Kent-based Financial Escape, said that he has a clause in his client agreements whereby clients have to adhere to a 15-year long-stop as he believes it is unfair for his firm to be held “infinitely liable” for advice.
Advisers have also told FTAdviser that due to the lack of a long-stop, they do not wish to employ advisers who are already in business due the liabilities that may come with them.
Adrian Murphy, associate partner at Murphy Financial, previously said he is keen on growing the company but does not want to take on advisers who are currently in the advisory business.
He said: “We will have a growth in the client team but not the advisory team. Advisers bring risk, it’s a fact.”
