8th March 2012

FOS- fact or fiction?

IFA Paolo Standerwick has been engaged in a one-man fight with the FOS over receiving what he sees as unfair treatment relating to a complaint made against his firm. It has raised a number of issues that many of you may already be well aware of.

In particular, his campaign has focused on adjudicators being appropriately qualified, that cases are not pre-judged, that firms are not placed into an “Awkward Squad” unit for dealing with their complaint/s and firms having the right to a personal hearing.

Paolo has fought long and hard on this issue, in many ways fighting a Guerrilla campaign alongside the more structured approaches of AIFA, Adviser Alliance and other mutually interested parties.

His fight was also taken up by his MP, Paul Burstow and despite his best efforts I think a wall has been run into.

But how well structured is the wall? Natalie Ceeney has made a number of observations in her response to Paul Burstow.

She says that the FOS was “set up as a quick and informal alternative to the Courts- and subject to oversight by the Courts through judicial review”.

This is a little disingenuous; it is an alternative to the Courts for the Consumer but not for the firm. And, a judicial review is only available to the firm, at huge cost, and not the Consumer who is allowed to take action through the courts if dissatisfied with a FOS decision.

She touches on the subject of Hearings. Her view is that a hearing is to “help an Ombudsman get a clearer picture of events”. She states that” we do not take evidence on oath, summon witnesses or cross examine parties” and sees hearings as “being an obstacle that does not sit well with our statutory duty to resolve cases quickly”

That is as maybe but the process is biased toward the consumer irrespective of the validity of a claim and hearings should be granted where it is clear the Ombudsman has failed to show an understanding of the complaint to either party.

And then the Longstop.

She says that this is an FSA rule “not set by us” and quotes Lord Hunt of Wirral in his independent review of the FOS in 2008 as follows “the introduction of a 15 year longstop would be untenable in terms of TCF”.

It is odd how quotes to defend the indefensible can be relied upon by the FOS.

Ms Ceeney and indeed Lord Hunt seem to have conveniently avoided reference to the House of Lords judgment of Haward v Fawcetts 2006

“Parliament has had to strike a balance between the interests of claimants and the interests of defendants. It is a hardship and in a sense an injustice to a claimant with a good cause of action for damages to which, let it be assumed, there is no defence on the merits to be barred from prosecuting the cause of action on account simply of the loss of time since the occurrence of the injury for which redress is sought but it is also a hardship to a defendant to have a cause of action hanging over him, like the sword of Damocles, for an indefinite period. Lapse of time may lead to the loss of vital evidence; it is very likely to lead to a blurring of evidence of witnesses and to the litigation becoming more of a lottery than would anyway be the case; and uncertainty as to whether an action will or will not be prosecuted may make a sensible and rational arrangement by the defendant of his affairs very difficult and sometimes impossible.”

The problem with investigating claims so long after the event is that the recollection of circumstances, aims and aspirations has a tendency, especially if documentary evidence is scarce or non-existent, to be inconsistent at best and manipulative at worst, and that goes for both sides.

That is why the Limitations Act came about, to protect against the effects of “Stale Claims” where the passing of time and lack of evidence makes it difficult to make a judgment.

However, the FOS operates on the ‘Merricks’ principle - that they can and do make the law with the cloak of protection the FSA offers to it.

Some other ill informed or ill-judged points Ms Ceeney has made in the past:

“That the courts do not have a six-month deadline like the FOS does”. True, but the complainant can revert to the Courts and rerun the case if they are unhappy with a FOS decision. The courts do have a six-year cut off tied in with a fifteen-year absolute stop. An IFA firm can only make a request for a Judicial Review- at huge cost and the decision is not guaranteed.

• "We don't have a long-stop but we have lots of restrictions around. Complainants only have six months to go the FOS once the complaint has been raised with the firm, which the court doesn't have”. True in practice, but I think that many IFAs will have had experience of this not actually being a reflection of what actually happens. The FOS has been seen in the past to actively assist complainants by creating new or further complaints not actually made at the time of the initial complaint to the FOS or the indeed the firm.

And:

• "The 6 month deadline is there to ensure this doesn’t go on indefinitely: Correct, but although the Limitations Act was set up to deal with the passing of time, she seems to have overlooked the fact that complaint rules change often and apply retrospectively.

The timescale you have to complain is six years after the date of advice given or three years from when you could have become reasonably aware that you may have a problem. So that is in fact nine years. The six-month deadline applies to making a complaint after receiving a firm’s final decision letter.

We have as an industry seen complaint rules change and the problem is that with FSA and FOS rules today, everything is applied retrospectively and it is the adviser firm that carries the can for the rest of their life in many cases as a result.

This retro protection makes PI markets difficult for firms, compensation can often paid for events that did not actually happen and what was accepted as right for a client a decade ago can be found wrong today with the benefit of hindsight.

Peter Hamiliton sums up the whole position in MM very well as follows. “Thus, under the law, I know in advance where I can and cannot park my car. But if I could park only where some official specified after the event, I would have no right to park at all. Similarly, if my right to my possessions is watered down to mean only a right to hold them until the FOS decides it is fair and reasonable for me to pay them to somebody else, then I have no “right” in a true sense to my possessions at all.

This conclusion is reinforced by the fact that there is no appeal and the fact that any judicial review of a FOS decision on the merits of a case is, for all practical purposes, impossible because of the vagueness of the subjective (“in the opinion of the ombudsman”) fair and reasonable criterion”.

All of us at Panacea have supported and fought the Longstop cause for all, it is of course enshrined in UK law and should apply to all without discrimination or favour.

Alan Lakey’s Adviser Alliance has fought the battle too with a legal Longstop challenge by way of judicial review- and lost. Here is a transcript of the judgment.

Is an IFA’s regulated life expectation unfair?

How fair is the FOS - our survey was an interesting exercise in confirming the obvious, that 82% of IFAs see the FOS adjudications are unfair

Is Ms Ceeney’s view of her service one that you recognise?

Follow this link and you can see the correspondence and make up your own mind.

Regulation, Panacea Comment