Regulation  

’Fos’ handle on networks in conflict with FSMA’

’Fos’ handle on networks in conflict with FSMA’

The Financial Ombudsman Service has been accused of being a law unto itself when it comes to holding FCA-regulated networks responsible for advice given by their appointed representatives.

Regulatory Legal Solicitors, which specialises in financial services law, has claimed recent decisions by Fos where private contractual arrangements between the principal firm and ARs meant the principal was able to evade liability.

On 16 July 2015, the ombudsman rejected a complaint against a firm after one of its agents advised a client to invest in Harlequin Property, which was not on the firm’s list of approved products.

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The Fos decision stated: “It follows that the firm is not responsible for any advice about Harlequin that might have been given to Mr and Mrs M.”

According to Regulatory Legal Solicitors, Fos also decided to throw out a similar complaint the following day, on the grounds the AR was not authorised by the firm to give advice on investment products outside of the scope of the contract.

The ombudsman concluded the firm was therefore not responsible for the suitability of the advice.

The Fos annual review of 2014 to 2015 reads: “The complex relationships between businesses and their representatives can raise difficult jurisdictional questions for us.

“In some situations only after substantial and lengthy investigations does it emerge that the nature of the particular arrangement means we are ultimately unable to help.”

Tobias Haynes, trainee solicitor from Regulatory Legal, however argued: “It appears to us that this approach cannot be correct, and ultimately is not, and could not be, what the law intended.”

He pointed to Section 39 of the Financial Services and Markets Act (FSMA), which states that “the principal of an appointed representative, is responsible to the same extent, as if he had permitted it”.

Despite the Fos rejecting complaints against firms due to private agreements, in a number of earlier cases, the ombudsman decided a breach of agreement did not give grounds for a complaint to be rejected

In a case dated 3 April 2012 the ombudsman said: “If [the firm] believes that its position has been adversely affected if the adviser acted outside the terms of the appointed representative agreement, I consider this is an issue that [the firm] should address directly with the appointed representative.

“I do not consider this prevents this service from proceeding to investigate the merits of the complaint.”

In a case example dated 26 March 2014, the ombudsman even noted Section 39 of the FSMA, stating the principal was responsible for “anything done” [by the agent], which would cover all aspects of advice.

Fos also decided to uphold a complaint on 4 December 2014 where an agent used a regulated firm’s email address, despite trying to engage the consumer in unregulated activities to take the consumer outside of the scope of regulation.

In another example, dated 2 June 2015, the principal held no record of a recommendation given by a registered individual of the firm for a consumer to invest in the product, which meant the entire transaction had taken place outside of the principal’s knowledge.