The Financial Conduct Authority and its watchdog have clashed over a clone entry on its regulated firms register that contributed to an investor losing thousands of pounds after being duped.
It was the second time the regulator had found itself in front of the Complaints Commissioner as a result of an Austrian investment firm which appeared as authorised on its register in 2018 but in reality had been fraudulently cloned.
In a decision published in April 2019 the FCA was told to compensate an investor for 50 per cent of the £13,000 they lost through the clone company, which the commissioner warned had been facilitated by "failures of the regulator".
Now, in a decision published last month, the regulator has once again been asked to compensate an investor for half of the losses incurred as a result of investing £5,000 with the same clone firm when it was still listed back in 2018.
But this week the FCA said it was "unable to accept the commissioner's recommendation", arguing it could not be held liable for every loss arising from any error on its register.
This was despite warnings from Antony Townsend, the ruling complaints commissioner, that the register was "seriously inaccurate" and had "facilitated criminal activity".
Mr Townsend said: "I agree with the FCA’s point that consumers have a duty to undertake their own checks to avoid scams: there are many cases of scammers using the names of properly authorised firms to dupe investors, and the FCA cannot be held responsible in such cases.
"Furthermore, the FCA cannot be held liable for every loss which arises from any error in the register.
"Against that, consumers are entitled to expect that the register will be kept competently."
The commissioner said whilst he accepted the regulator should be protected from general liability for consumer losses, this case had seen the FCA, and its predecessor the Financial Services Authority, show de-authorised Austrian company as registered for 12 years - despite having information that it should not be.
He added: "While I do not consider that the FCA should be held responsible for the totality of your loss, my preliminary view is that it contributed to your loss of your first investment into [the firm] in 2018."
It is not the first time the Complaints Commissioner has highlighted these concerns, upholding a complaint in June 2018 in which a clone firm was able to take advantage of the FCA's "woefully inaccurate" register.
But Mr Townsend did welcome changes made by the FCA in the last couple of years to "review and correct" register entries for passported firms, whilst acknowledging this action came "too late" for the investors involved.
Scott Gallacher, chartered financial planner at Rowley Turton, said: "In this case I think the client should be compensated as the error was serious, the client has suffered and I suspect if an IFA firm was responsible for a similar error the FCA would expect the IFA firm to compensate that client.
"However, for most people it would be difficult to prove that the FCA error was the result of their loss and I’d be cautious about creating another potential feast for the CMCs whereby any current or historic error on the FCA register was then used to claim for any subsequent loss by the client on the grounds of ‘Well, if I had known X I wouldn’t have used that firm’."
He added: "Also, as the FCA is funded by providers and advisers, rather than general taxation, then any FCA compensation ultimately comes out of the pocket of providers and advisers and isn’t necessarily the same incentive for the FCA to avoid similar errors in the future as there would be if an IFA firm had made a similar mistake."
rachel.mortimer@ft.com
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