Law firm Waterside Legal, which is dealing with a number of clients in this position, has argued the Financial Conduct Authority needs to have more power to ensure firms pay up.
Waterside Legal told FTAdviser it has dealt with an increasing number of complaints over the past two years against firms which delay redress payments, and currently has around 18 clients who still have payments outstanding, despite complaints against these companies having been upheld by the Fos more than six months ago.
According to the law firm there had been no cases of firms failing to pay redress prior to 2014.
It has been pursuing a number of payments against one firm, several months after the Fos upheld complaints against it.
In one case, the complaint had been upheld by the Fos in December last year, but the client is still yet to receive compensation from the advice firm, which has still not calculated the redress amount despite being ordered by the ombudsman to do so.
This prompted Waterside Legal to take the issue to the Financial Conduct Authority in July, and in a letter, seen by FTAdviser, the company said the adviser was “acting in a manner that is, at best, obstructive and at worst seeking to deliberately avoid the decision of the Fos”.
The firm also accused the Fos of failing in its regulatory obligations.
A spokesman from the Fos admitted that in a few cases, the business either doesn’t respond to a final decision, or has refused to comply with it, but said where this happens, the Fos refers the business to the FCA.
“While we don’t have powers to enforce decisions ourselves, businesses that are regulated by the FCA are required to cooperate with us. This includes complying with our ombudsmen’s decisions.
“The FCA can – and does – take action against businesses they regulate that refuse to do what the ombudsman has instructed, but this kind of regulatory action is separate from our own work.
“We can tell a business to put things right for a consumer – but we don’t make the rules for financial businesses, or punish them when they break them. That’s the job of the FCA."
The Fos spokesman also pointed out that consumers can enforce Fos decisions in court.
But Waterside Legal said in some cases it was unable to enforce the decision through the court because it still needed the compensation to be calculated by the firm.
Responding to the firm’s complaint, the FCA told the law firm the next step is to seek guidance from the ombudsman on what to do now.
“If the ombudsman has exhausted all the powers they have for dispute resolution, they will be able to provide guidance about taking this through the courts and if this can be done with or without the pension values,” the regulator said.
Tobias Haynes, trainee solicitor at Waterside Legal, said one advisory firm was almost “de-railing” the process, simply by not doing the calculations, and suggested some clients could be so fed up with the process that they might lose the will to keep pushing for their compensation.
He said the Financial Conduct Authority should have wider enforcement powers to ensure firms are disciplined for failing to comply with the ombudsman’s decision.
“We urge the FCA to do more to protect consumers from firms who are frustrating the regulatory system to the detriment of consumers,” he said, adding the regulator needs to take a more proactive and consistent approach to disciplining non-compliant firms.
The FCA declined to comment.
Mr Haynes said one problem is where the ombudsman has not been clear on how the calculations need to be worked out, which he claimed means there is scope for confusion and delays.
“If there is any ambiguity in the final decision itself, then it leaves it open to exploitation.”
Mr Haynes also claimed the increase in delays over compensation payments was largely due to a crackdown on unregulated schemes back in 2014, which had a knock-on effect as professional indemnity insurers refused to pay out for these types of investments.
Damon Parker, partner at law firm Harcus Sinclair, said the way IFAs are often insured, means they can be vulnerable to insolvency, or have to spend their own money to compensate their clients.
Mr Parker said that he could see that firms that are concerned they will go bust anyway might stall the process by delaying payment until they can completely avoid paying compensation.
“Going through the process of enforcing an ombudsman decision is something which a person cannot easily do without legal advice,” he said.
Mr Parker also argued the Fos should be required to work out redress payments because it is in a better position than the client to work out the calculation, while the firm has a motive for giving a smaller figure.
He also agreed the FCA should be able to step-in and do more to enforce decisions, claiming there are inconsistencies over which firms it takes action against.
However, Robert Morris, a partner at law firm RPC which acts on behalf of companies and their insurers, said this was not an issue he had encountered.
“It’s fair to say there are cases where the methodology for calculating redress can be very complicated and sometimes firms have to obtain independent input from actuaries, so there can be delays in calculating loss,” he said, adding this would be the only legitimate reason for a delay.
But he said this should not disadvantage the complainant, who are usually granted interest on their redress payment anyway.
Claire Walsh, chartered financial planner at East Sussex-based IFA Aspect 8, said: “These delays don’t surprise me; I imagine some firms procrastinate over payments while they deliberate over whether to shut the company down and avoid paying the fines altogether.
“Historically there has been incidents of people doing this, and then simply setting up a new company often leaving the Financial Services Compensation Scheme to pick up the tab,” she said, adding this means the good firms which remain in business are meeting the costs of those who fail through the FSCS levy.
Ms Walsh said she was angered by the current system, adding: “I think the regulator does need to go further to chase individuals, rather than just companies.”