The Financial Conduct Authority has backed down by allowing an adviser to refer to an effective long-stop defence in his client contracts, following a meeting held this month that brings to an end a five-year battle with the regulator.
FTAdviser previously reported that Kent-based Phil Castle, managing director of Kent-based Financial Escape, has included since 2008 a clause in client agreements that cites the Limitation Act 1980.
The then FSA said in 2009 the clause, which outlined the Act’s provision that complaints must be brought within six years or within three years of damages being recognised up to a maximum of 15 years, may not be applicable as complaints to the Financial Ombudsman Service are covered under the Financial Services and Markets Act 2000 (Fsma), which contains no long-stop.
Last year the FCA wrote to Mr Castle under section 177 of Fsma, stating that the clause should be removed as his terms and conditions which imply there is doubt over whether Fos can consider a complaint about regulated advice in excess of 15 years are “misleading and inaccurate”.
The long-stop has long been an issue of contention within the industry since a previous time-bar was removed when Fsma came into force.
However, it now appears the FCA has backed down on its view following a meeting with Mr Castle and his regulatory consultant in June. He said it has allowed the clause to remain, with some minor changes to the wording.
The FCA has asked Mr Castle to insert three new headings: ‘claims in the courts for negligence’, ‘complaints to the Financial Ombudsman Service’ and ‘ our approach in respect of all claims’.
Under the first new heading, Mr Castle’s revised document still states Financial Escape Ltd only “remains liable for any negligence associated with professional advice provided to you... as laid down in the Limitation Act (1980)”.
It continues to specifically reference the time limits of six years from sale, three years from damages being recognised and the maximum of 15 years, which it states explicitly is “known as a ‘long-stop’”.
Under the second and third headings, the contract clarifies that the actual rules will vary depending upon the nature of the claim and the ‘forum’ in which it is pursued. It states clearly that Fos “believes it can” consider complaints after 15 years, but that the firm will contest such complaints.
It says: “Whilst the Financial Ombudsman and the FCA believes it can consider complaints about FCA regulated advice in excess of 15 years, this is contested by both trade bodies such as the Association of Professional Financial Advisers and IFA Centre.
“In all claims made 15 or more years from your ceasing to be a client, where we have not upheld your complaint, we will always plead a defence of ‘limitation’ regardless of your choice of forum, and believe that this defence will succeed other than in ‘exceptional circumstances’.”
The FCA concluded its letter to Mr Castle by stating that if the three headings are added to the contract, along with some minor changes, the firm’s case will be closed.
At the end of March, the FCA confirmed in its business plan that it will consult on “prudential requirements for personal investment firms” and that it will specifically examine the case for re-introducing a long-stop for financial services.
In particular, it said: “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.”
Last month, the Association of Professional Advisers met with the FCA to discuss what shape the proposed long-stop may take.
Apfa, which has been campaigning for a limit on the liability period on advice for financial products, has received significant support from the industry for the campaign, including from providers such as Zurich.
A spokesperson for the FCA said: “There is at present no provision for a ‘long-stop’ in respect of complaints to a firm made under DISP and the FCA would not expect a firm’s terms and conditions to include anything to the contrary.
“It is for each firm to write their own terms and conditions. However, firms must ensure they communicate with their clients in a way which is clear, fair and not misleading.”
