10th October 2011
Turn on, tune in, drop out.
The latest suggestion from the FSA is that firms should be responsible for losses incurred by clients even if they did not give the advice that resulted in the loss.
The devil it would appear is in the detail, as is always the case with the FSA.
Solicitors Reynolds, Porter Chamberlain claim that the FSA asked Parliament to consider in effect disregarding the law of ‘Causation” by making firms liable for all losses if the firm in question was in breach of FSA rules irrespecteive of whether the rule breach was a contributory factor to a loss..
They state that “As the law of “causation” stands, if a financial services firm breaches the FSA rules when providing advice they are only liable to compensate their customer for any losses that can be directly attributed to the faulty advice. The firm can currently decline to pay compensation if they are satisfied that their breach of the rules did not cause the loss. For example, they might be able to show that the customer would have proceeded to invest even though the adviser failed to document correctly the customer’s Attitude to Risk (ATR), in accordance with rules. RPC explains that if Parliament accepts the FSA’s invitation to change the law, firms will be strictly liable to compensate customers for all financial losses when their actions breached the FSA rulebook, no matter how small the breach”.
We could be heading for a very dark place if this type of ‘suggestion’ were to be taken seriously. I wonder who’s bright idea that was- does anyone out there know? Especially coming from an organisation that manifestly refuses to take responsibility for any of it’s own failings!
Sants reckoned at the TSC hearing in the summer that if FSA staff were obliged to take responsibility for their actions, nobody would want to work for the organisation. With ‘suggestions” like this one, nobody would ever want to work in an industry regulated in such a way.
I am not sure if ideas like this, linked with the impending arrival of the FCA, suggest that Messrs Sants and Co are living in a modern day version of “Downfall”-the last days in the bunker?
As Ian Mckenna observed in a post “on this basis does not all "advice" effectively become a guarantee”?
The late and somewhat controversial American psychologist Timothy Leary said “We are dealing with the best-educated generation in history. But they've got a brain dressed up with nowhere to go.”
In this case, has the FSA has found the route map to retrospective regulation on ‘acid’, a hallucinatory ride into regulatory oblivion?
Comments (5)
On the other hand at this time where the FCA is being set up under a new act of Parliament wouldn't this galvanise MPs and the House of Lords to reject this absurd proposition? Kill it of at birth I say.
callomon1 11/10/2011 09:27
Examples are lots: Arch Cru, Keydata etc. There were companies which didn't make it clear they act on a 'execution only' basis and not offering advice. The client thought he was given advice. Or advisers/ARs acting outside of their 'permited business' agreed with the principal and the principal is rejecting the complaint now on that basis.
I believe this won't be a problem for PI insurers, if the firm show it has good systems in place so every advisor follows the rules.
Eugen Neagu 11/10/2011 09:45
The issue here is that the FSA is suggesting a firm should pay compensation even if it is not at fault because it may have broken or be in breach of FSA rules, no matter how small in theory.
This is not the same as your argument over "execution only" status or acting without appropriate permissions, both of which carry penalties and compensation liabilities in their own right if proven correct.
And Keydata's Ford has just won a judicial review today that will no doubt impact greatly.
cortesin 11/10/2011 17:17
The client didn't receive a brochure about a Keydata product which is a breach of the rules. The firm argued the client would have invested anyway. Let me tell you what happen, the client didn't receive compensation from FSCS because he can't say he relied on the marketing material which was found misleading by the FSCS. Why, because he didn't have the brochure, so he can't say he relied on it.
There can be only a better result of this new rules, better procedures followed by advisors and well documented client files. These new rules will help us not to make more mistakes and follow better the rules.
If you say 'It is my job as a financial advisor to research the market and find the best product for the client' in the suitability report - another real case regarding Keydata - you need to show how you documented this in the client files, what research/due diligence you have done. In this case the research/due diligence documented was none. If not we need to say, we are not advisors but 'facilitators'.
Eugen Neagu 13/10/2011 09:41
But what this is saying is that in the above scenario, compensation should be paid because despite all the boxes being ticked surrounding the correctness of the Keydata transaction above, because you had not paid your FSA fees, in breach of the rules, compensation should be paid even though the lack of fee payment did not cause the loss.
cortesin 14/10/2011 09:25
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