FCA orders IFA to remove long-stop from client contracts

The Financial Conduct Authority has ordered an IFA to remove a reference to the statutory long-stop of up to 15 years from client agreements, stating that it is “inaccurate and misleading” to imply complaints to the Financial Ombudsman Service cannot be brought after this time.

FTAdviser previously reported that Kent-based Financial Escape has for five years included a long-stop reference in client agreements that cites the Limitation Act 1980 and its provision that complaints must be brought within six years of a transaction occurring or within three years of damages being recognised, up to a maximum of 15 years.

The FCA recently wrote to the firm’s managing director Phil Castle under section 177 of the Financial Services and Markets Act, stating that 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”.

Article continues after advert

The then Financial Services Authority previously implied that Mr Castle could not include the reference in 2009 as complaints to Fos are covered by the Financial Services and Markets Act 2000 and the Consumer Credit Act 1974, neither of which contain a long-stop provision for complaints to the ombudsman.

At the time, Financial Escape was a member of the Trading Standards ‘Buy with Confidence’ scheme and was the first IFA nationally to become such, “but the firm chose to resign” from the scheme following the FSA’s refusal to approve the client contract, Mr Castle said.

Mr Castle refused to remove the reference unless the regulator wrote to him detailing any legal advice they had obtained confirming him that the terms could not be used.

In response to its most recent letter, Mr Castle refuses again to remove the clause and states that it is “relevant” to clients as the long-stop does apply in particular instances.

He lists a number of examples “where the Limitation Act would be pertinent”, including when the advice in question is an unregulated activity such as tax advice, where the quantum of redress is in excess of the Fos maximum award of £150,000, or where the advice in question is the subject of an “industry-wide review”.

A spokesperson for the Financial Ombudsman Service said: “Effectively The Limitation Act applies to action in civil courts. There will be some instances where the Fos can’t look at issues as it would be more suitable to go to court.”

She added that an example of this would be where the Fos is asked to look into aspects that fall outside of its jurisdiction or where final decision is rejected and it is then taken to court.

In an at-times terse telephone conversation with the regulator that was recorded following receipt of the latest letter, an FCA employee from the ‘investment advisers and platforms’ department warned Mr Castle that “you cannot use the long-stop or any reference to the long-stop”.

Mr Castle replied that it was “incumbent” upon the firm to “make clients aware that a long-stop could be a problem for them”, to which the employee responded that it was “misleading” to state to a client “that after 15 years, they have not got the right to complain and the ombudsman may not look at your complaint”.