The Financial Conduct Authority has taken action against just five firms in five years for failing to pay out redress which has been demanded by the Financial Ombudsman Service.
A Freedom of Information request submitted by FTAdviser revealed the FCA had enforced action against five companies between 2012 and 2016 for non-payment of Fos redress awards.
These figures simply relate to instances when the FCA enforced against individual firms and does not account for how many times the Fos had referred issues to the regulator against each company.
Figures from the ombudsman showed over this period the ombudsman had referred a total of 195 cases to the FCA for enforcement.
While the Fos figures account for all referrals to the regulator, FTAdviser understands the vast majority of these cases were referred because firms had failed to compensate consumers.
Firms which fail to comply with ombudsman decisions are notified that they have been reported to the FCA.
According to the FCA handbook, where a firm fails to comply with requirements it is sometimes appropriate to deal with the issue without the need for formal disciplinary or other enforcement action.
The FCA states that supervision and monitoring of firms, as well as a cooperative relationship between firms and their supervisors, will in some cases lead the City watchdog to decide against taking formal disciplinary action.
“However, in those cases, the FCA will expect the firm to act promptly in taking the necessary remedial action agreed with its supervisors to deal with the FCA's concerns."
Data from the ombudsman also showed that it only refers a very small number of cases to the FCA, having reported 195 cases to the regulator out of nearly two million cases which have been resolved between 2012 and 2016.
Tobias Haynes, trainee solicitor from Waterside Legal, said he was surprised by the figures, suggesting it raises questions about why the regulator is not doing more to punish businesses when they don’t comply with a final decision from the ombudsman.
“It doesn’t deter businesses from bad practices if the regulator is not being seen to take action,” he said, adding the figures make the FCA seem “toothless”.
But he also questioned whether some firms might get spooked once they are told they have been referred to the regulator, which prompts them to dish out compensation payments before the FCA has to take formal action.
Mr Haynes said this apparent lack of enforcement could have a knock-on effect on the industry as consumers completely steer clear of financial services because they are not reassured that the FCA will enforce action if firms fail to comply.
“The regulator needs to be seen to be making sure justice is done and that firms are being made an example of,” he said.
The FCA declined to comment.
Tony Catt, compliance consultant at TC Compliance, said the small number of enforcement cases indicates that referral back to the FCA appears to have had the desired effect of making the firms pay.
“The Fos awards are binding and firms need to realise that they will have problems if they do not make the payments; enforcement becomes the only option in this respect.”
Mr Catt said he was “a little puzzled” that some firms are not paying up, pointing out that most claims would be paid by the professional indemnity (PI) insurers after the initial excess, which would normally be in the region of £5,000 to £10,000.
He therefore said any non-payment shows weaknesses in the firm from a capital adequacy perspective.
Claire Walsh, chartered financial planner at Brighton-based Aspect8, said she thought it was “pleasantly surprising” that there were only five firms who had not settled their Fos liabilities over this time.
“Cases that are referred to the regulator presumably mean the Fos thinks this is deliberate bad behaviour and not merely an isolated error.
Blair Cann, certified financial planner at M Thurlow & Co, suggested the firms that are referred to the regulator might resent the ombudsman’s decision, pointing out that there is no appeal against an ombudsman verdict.
He also said the small number of enforcement actions would indicate that firms eventually paid up after having made their feelings known.
katherine.denham@ft.com
