6th February 2009

TIFAF, (treating IFAs fairly) and FOS

One hears many horror stories from IFAs about the actions and methodologies of the FOS, that it is not operating a level playing field, that it operates more along the lines of a sales targeted call centre with the sole aim seeming to be the generation of revenue from case fees.

Well based on the following experience, it could be that blackmail and/or intimidation are now part of its remit too.

Chris Binks, Principal of Sterling Investment Services is not only a valued compliance client but a friend. So, when he came to me to with a query about a FOS final decision, I was keen to help. The issue, as far as he could see it, was that the complainants had signed the acceptance letter after the final date to do so, given by the Ombudsman's decision.

Not a problem, I said. It's not binding and you don't have to worry about it. I wrote to FOS on behalf of Chris to inform them accordingly, and lo and behold, we got a reply from a nameless assistant casework manager which included the following statement:

'As matters stand, I recognise that we have no power to compel your firm to honour the Final Decision. Having said that and in light of the more principle-based regulation being championed by the Financial Services Authority under their 'treating customers fairly' banner, I am sure that they will want to hear from us about a firm which is not prepared to honour an Ombudsman's award in circumstances such as these.'

Now, unlike all you smaller IFA firms who may often be cowed and bound by the rules of the system (confined to within an inch of your livelihoods and made to give up your freedom of speech, privacy, right to defend yourself and all for the greater good - well, okay then, so as to 'Treat Your Customer Fairly') I have no such confines.

Furthermore, if I were to say something that the FOS considered to be a punch below the belt, I would presume that they would not seek to take any action against me 'using the law of the land' because, surely, an organisation who proudly proclaims that it 'does not pretend to find the law' instead it 'makes new law', it should have absolutely no need for the rules and laws that it, as an organisation, feels it is both 'above and beyond'.

I digress; back to the topic. Well, ladies and gentlemen, comments like those above are, to me, simply speaking, the equivalent of a red rag to a bull. Here's why!

S.21 of the Theft Act 1968, states that:

1)  A person is guilty of blackmail if, with a view to gain for himself or another or with intent to cause loss to another, he makes any unwarranted demand with menaces; and for this purpose a demand with menaces is unwarranted unless the person making it does so in the belief

a) That he has reasonable grounds for making the demand; and

b) That the use of the menaces is a proper means of reinforcing the demand.

2) A person guilty of blackmail shall on conviction on indictment be liable to imprisonment for a term not exceeding fourteen years.

Clearly Mr. X at FOS has sought to cause Chris a loss on behalf of the complainants - even though he admits in the same letter, that the complainants did submit the letter late, and he even then ignored this and tried to insist that Chris abide by the decision.

This demand with menaces e.g. threatening to report the firm to the FSA would be unwarranted, and thereby illegal, unless Mr. X can justify it. As you can see, the only way to justify his conduct is if:

1.   He knows that the FSA have a policy of automatically finding a firm in breach of TCF principles where a complainant forgets to accept an FD within the legal timeframe, because it otherwise has no legal means of asserting itself against the firm.

For the FSA to admit this is the case would, of course, confirm what firms have thought for years; that if they can't get you one way, they'll get you some other way. The reality of this being true would effectively be that the FSA would be giving TCF principles greater weight than the substantive and procedural law that governs its own operation, and that of FOS. C'mon chaps, what did I do next? You guessed it... I wrote to the FSA and asked them to confirm whether this was true.

What did they say?

If they say yes, then they confirm that their policy is as Mr. X at FOS states e.g. that if you don't abide by a final decision even though the client gets his acceptance in late, then the FSA will get you for breaching TCF principles, and Mr. X's 'demand with menaces' is absolutely justified. If not, he could be in a world of trouble unless FOS back him up which is the only other way I can think of for justifying his conduct. Anyway, guess what? The FSA promptly wrote back stating:

'The FSA cannot comment on individual complaints nor the way in which the Financial Ombudsman Service deal with a complaint'.

C'mon folks, they couldn't really do anything else now could they?

Then what did I do?

Yep, you guessed it. I wrote back to FOS, to inform Mr. X that the FSA had not, as expected, backed Mr. X, stating:

I am well aware that FOS employees are immune from suit unless they are found to be acting outside the scope of their employment. It would appear clear, from the FSA's comments, that your comments and actions were 'unwarranted'. As such, and before my client decides whether to take this matter further, I would like you to confirm, via your employer, whether your comments and actions in the handling of this case were sanctioned by FOS itself or, indeed, whether you have abused your position and, in doing so, acted outside the scope of your employment.'

Was I just winding FOS up?

FOS-ites are immune from suit..  UNLESS... an employee commits some act or omission that takes him or her outside the scope of his remit. There is case law on this, but I won't bore you. As above, I specifically asked FOS to comment, on behalf of their employee's conduct, as to whether it was undertaken with their consent, or whether this gent had stepped way over even FOS' line.

The response? Deafening silence, until....

Chris, not I, received a letter a considerable time later. Did Mr. X write back? No. Did they answer my very specific question? No! What did they say? Well, Mr. X No.2 said that he 'broadly agreed' with what Mr. X No.1 had said, but irrespective of what I say, it's not really blackmail unless the CPS considers it blackmail. He then confirmed that as was policy at FOS he would be reporting that Chris would not be paying compensation as per the decision, but nothing more. Funny that!

What now?

The lovely Nicole Blackmore at Money Marketing has just run a piece in the paper about this subject - click here to read the story. However, as you can all imagine, nobody wants to get into a fight they might lose with the big boys so distinct care has been taken.

I, on the other hand, whilst not being reckless and throwing caution entirely to the wind in writing a more 'warts and all' rendition of this story, am becoming emboldened by the worsening state of affairs that is FOS and FOS decision making, and the quagmire of misery from which, using a large portion of my working week, I help firms escape.... as unscathed as possible.

As to what to do with Chris' 'blackmail' threat. As yet, if you'll pardon the pun, the jury is out. But I'm sure we'll keep you posted. Before I go, however:

There are scores of you with these problems. I want to help all of you properly defend yourselves but.. I can't do it, unless you get in touch.

Panacea is your perfect forum.

Jane Sanders is an ex FOS adjudicator. To contact Jane, and to ensure that these issues are brought to light, post to the forum, or e mail help@panaceaadviser.com and she will contact you if you prefer to stay below “radar”.

Adviser Letter of the Week