The Financial Ombudsman Service poured cold water on proposals for a variable longstop but offered to work with the Financial Conduct Authority on the issue, documents show.
In the run-up to the publication of the Financial Advice Market Review, the Financial Ombudsman Service told the FCA its introduction would introduce “operational complexity”.
But documents released under the Freedom of Information Act show the ombudsman offered to work with the FCA on the issue.
In an email sent just over a week before the FAMR was published an employee at the Fos, whose identity has been redacted, warned of possible confusion for consumers.
The Fos employee raised three issues: the possible confusion to consumers caused by time limits for products, the complexity of defining a long-term product and the delay caused by spending extra time resolving “complex jurisdiction issues”.
The Fos employee said: “It is likely that the ‘term plus three years’ longstop will, in effect, act in a similar way to our current rules – so it may not satisfy the concerns of those respondents who feel strongly about this issue.
“The only cases which are likely to be caught by the new limit are those where the consumer did not have knowledge that they had a complaint until it was too late.
“Of course, the policy question is not for us, and we stand ready to work with the FCA on the details as they prepare to consult.
“We just thought that it might be helpful for you to be aware of some of the practical difficulties which this approach may present for us.”
This email was sent on 3 March 2016 and the FAMR was published on 14 March, coming to the conclusion that a longstop should not be implemented.
According to the information released under FOI, the decision to not introduce a longstop for advice was taken jointly by the then-chief executive of the FCA Tracey McDermott and HM Treasury’s director general for financial services Charles Roxburgh.
In the final report the FCA said it was sympathetic to firms’ concerns about the issue but said it would not be in the interests of consumers to introduce a longstop.
On the issue of how to define a long-term product, the Fos letter said: “Some products do not have a time-specific term, such as ‘whole of life’ policies.
“Other products are bundled together which may create additional challenges. We have seen this recently with the proposed PPI time limit.
“It is possible that a product bundle could contain both long term and short term products - would they be caught by the 15 year limit or the longer limit of a longer-term product? Or would each product from the same sale be treated differently?”
The FAMR report stated the Treasury and the FCA would review the data on complaints about advice on long-term products again in 2019.
A Fos spokeswoman said: "It’s the role of the FCA to set our rules –including which cases we can and can’t look at.
"We identified a number of potential complexities if a variable longstop was introduced, but noted that the product term plus three years was, in practice, likely to exclude similar complaints to those excluded under our current rules."
Data released under FOI last year showed complaints to Fos which could have been prevented by a longstop made up nearly a sixth of all complaints about advisers.
In 2013 to 2014 there were 3,599 complaints about advisers, making up 0.5 per cent of total complaints.
Of these, 538 related to advice which was given 15 years ago or more and of these 28 per cent – or about 150 - were upheld.
This means 4 per cent of all complaints about advisers related to advice which was 15 years’ old or more and were upheld.
Graeme Inglis, director of Kirkcaldy-based Create and Prosper Financial Services, said: "I would imagine you could make a longstop reasonably straight forward. After all, compensation limits are different depending on the type of product sold.
"I would like to see a longstop introduced but also have appropriate timescales for clients who have been badly treated."
Last week trade body the Association of Professional Financial Advisers stated the longstop issue has not been settled and called for a full investigation.
It has expressed concern about the position of retiring advisers, with its recent Cost of Regulation survey showing 85 per cent of advisers said the lack of a longstop creates concerns for their personal finances when planning retirement.
A quarter indicated they were likely to defer their time of retirement in order to pay professional indemnity insurance.
damian.fantato@ft.com
