Professional negligence

FCA concerns over lifeboat fund’s messaging and pension compensation
17 January, 2018

The Financial Services Compensation Scheme (FSCS) provides compensation when certain financial products fail or default.  Some pensions are protected by the FSCS, including annuities and drawdown schemes. The Financial Conduct Authority (FCA) oversees the FSCS.  The FCA’s October board minutes confirm its continued support of the scheme but highlight concerns regarding FSCS funding, messaging and consumer understanding of protection when pension products fail.

It is possible to invest all (or part) of a pension in an annuity product, a life insurance policy which guarantees a fixed (can be linked to inflation) taxable income for either a set number of years, or for life.  Another option is to invest in a ‘drawdown product’; the pension is invested in funds which are managed to produce an income for retirement – the income will depend on the fund’s performance and is not guaranteed for life.  Drawdown products are higher risk and therefore less expensive than annuities.  With flexibility to change pension arrangements, increasing numbers are moving to personal drawdown pensions rather than annuities; not all understand that in the event of pension products failing, the FSCS offers 100% uncapped compensation for failed annuities whereas compensation for drawdown products’ is capped at £50,000.

The FCA is considering increasing the cap for drawdown products, moving towards harmonising compensation which could simplify understanding of compensation implications when changing pension arrangements.

Consumer messaging regarding pension products is something the FCA values; the difference between products (and related costs) which guarantee income and those which do not should be more effectively conveyed to consumers. Another aspect of pension related messaging which the FCA aims to improve is ensuring consumers understand changes can occur during a product’s lifespan which modify its position and value.

Finally, methods by which to increase FSCS funding were explored, including a focus on professional indemnity insurance and increasing contributions from advisers’ bills. The FCA reasoned the latter may also ‘incentivise providers to create products which are better understood and benefit consumers more’.




Ombudsman relieves WASPI group feeling stung by complaint backlog
10 January, 2018

Equality is easier said than done. An example of this is Women Against State Pension Inequality (“WASPI”); a group concerned that, due to changing timelines and ineffective communication, aligning

women’s state pension age with that of men (from 60 to 65) adversely impacts some women nearing retirement.

The 1995 Pension Act set a timetable introducing the change over a ten year period, from 2010-2020. The problem was poor communication meant many were unaware of the change, so did not plan around it.  This was exacerbated by the Pension Act 2011 which accelerated the timetable for increasing women’s state pension age.

WASPI encouraged those affected to send complaints to the Department for Work and Pensions (DWP); the complaints relate to ineffective communication about the changes and the accelerated implementation of the changes. Thousands of complaints were sent to the independent case examiner (ICE). Delays and lost documents followed.  WASPI learnt a specific department was set up to deal with the complaints due to the volume; three individuals comprised this department and of the thousands of complaints sent, only six investigations have been concluded.  WASPI’s legal adviser, Bindmans, requested streamlining a number of times to no avail. 

Bindmans contacted the Parliamentary and Health Services Ombudsman who has intervened; the ICE has agreed to streamline the process and investigate a sample of complaints to assess how the misconduct should be dealt with.  The streamlined process divides complaints into two groups – those impacted only by the 1995 Act (poor communication) and those impacted by both 1995 Act and the 2011 Act (poor communication and acceleration of timetable).  Bindmans will assist the ICE to identify six representative samples for both groups and assess an appropriate way to approach the issues.

It is thought the Ombudsmen involvement may shorten the process by up to a year.

Let me introduce you to this investment, I mean to this financial advisor. When does an introducer become an advisor?
8 January, 2018

There is a misconception in the financial services sector that introducer firms escape the need for regulation. The reality is that it is difficult for introducers not to stray into activities that require authorisation. In most cases, the business models of these firms involve the promotion of particular investments for commission. 

The recent action taken by the FCA against Avacade Limited and Alexandra Associates for promoting high risk unregulated investments such as tree plantations to consumers is indicative of the FCA finally tackling the problem of unregulated introducer firms.

There has been a sharp increase in the number of introducer firms and individuals that are facing regulatory action from the FCA. In particular, the FCA has taken action against introducers who have deceived customers about their authority to provide regulated financial activities and those who have advised consumers to move money out of their pension into high risk unregulated investments.

Although claims are still brought against authorised firms, the FCA’s focus has shifted to holding the introducers themselves accountable.

For firms

For authorised firms, accepting business from unauthorised introducers is a minefield. Proceed with caution.

The ‘general prohibition’ at s19 Financial Services & Markets Act 2000 (FSMA) states that a person must be authorised to conduct any regulated activity. There is case law which suggests that an introducer even filling in part of a fact find would amount to ‘arranging deals in investments’ under the Regulated Activities Order 2001 and the introducer would therefore require separate FCA authorisation.

Previously, the FCA warned authorised firms that are permitted to engage in regulated activities, not to use introducers who do not meet its regulatory requirements. An authorised firm may ultimately be responsible to consumers and face regulatory action if the unregulated introducer gives unsuitable or negligent advice.

Under s27 FSMA, if an authorised party enters into a transaction with a client as a consequence of something said or done by an unregulated introducer, in breach of the general prohibition, the client can be entitled to his or her money back from the firm plus compensation. 

For consumers

The warning for a consumer is to never enter into any investment on the strength of a recommendation from an unregulated adviser.

Unregulated introducers are not permitted to make recommendations to consumers, nor advise them.

Signs that you, as a consumer, may have been given regulated financial advice are:

  • if you have already been persuaded to invest in a pre-determined investment before you seek advice from an independent advisor;
  • if other consumers who were ‘advised’ by the same introducer have invested in the same investment group;
  • if the introducer received any benefit, financial or otherwise, for you investing in a specific project; and/or

If the introducer conducts risk questionnaires with you or uses an authorised firm’s Firm Reference Number to obtain information about your consumer policy information.

No pension transfer, no fee – a bargain or an expensive mistake for British Steel members?
19 December, 2017

The recent experience of some members of the British Steel Pension Scheme (BSPS) is a warning for anyone contemplating transferring out of a final salary scheme.

The BSPS separated from Tata Steel UK in September 2017 resulting in the BSPS winding-up; over 130,000 individuals have their pensions in this scheme and must now decide whether to leave their pensions in the BSPS, which will be incorporated into the Pension Protection Fund (the PPF, a fund which provides for individuals whose pension scheme fails) or to move to a new Tata Steel UK scheme, which is expected to be similar to the old BSPS but with fewer benefits.  The 40,000 not yet drawing on their pension have the further option of taking their pension as a cash lump sum and transferring it into a personal pension scheme (losing the defined benefit scheme’s guaranteed monthly income when they retire).

When considering such an important decision, good quality financial advice is worth paying for; even if that advice results in a recommendation to stay in the scheme. 

The Financial Conduct Authority (FCA) is investigating firms which have provided, or continue to provide, financial advice to individuals with pensions in the BSPS. At least four firms have stopped advising on pension arrangements following visits from the FCA and investigations are ongoing. Reportedly hundreds of steel workers have received inappropriate advice to transfer out of their final salary schemes, apparently some firms (charging on a ‘contingent’ basis) only recommended that clients transfer out of the BSPS. 

Advisers charging on a contingent basis are faced with an obvious potential conflict of interest. The analysis that is required to establish whether it is appropriate to transfer out of a final salary scheme can be nuanced and time intensive. If an adviser will only be paid for advice if it results in a recommendation to transfer, it is questionable whether that advice is truly independent.

Legally, it is arguable whether or not a financial adviser owes fiduciary duties, however the regulatory regime makes it abundantly clear that a firm must act in its client’s best interests.

The FCA can take action against the funds and financial advisers but the individuals who followed questionable advice are unable to easily ‘undo’ the transfer and move their pensions back. Their only option is to consider approaching the financial ombudsman or taking action against the financial advisers/firms directly. The steelworkers’ union ‘Community’ has indicated it will take legal action on behalf of members if evidence suggests they were misled by their financial advisers. 

You’ve been served! Or have you? An analysis of how the courts deal with the failure to serve a claim form in the prescribed way
13 November, 2017

The recent decision in Barton v Wright Hassall LLP [2016] EWCA Civ 177 provides a cautionary tale, emphasising the importance of complying with the Civil Procedure Rules (CPR) when serving a claim form.  

There are strict requirements that must be met before a claim form can be served by fax or other electronic means such as email (CPR 6.15 and CPR PD 6A). In the event that a claimant fails to comply with the CPR, the court has discretion to allow the service of documents by alternative means, if steps have been taken to bring

the claim form to the defendant’s attention (CPR 6.15 (2)). Nevertheless, this case demonstrates that this order may be of limited use to litigants who have missed the deadline for serving documents in the correct manner. In Barton, the claimant tried to argue that his service of the claim form by email should constitute good service, despite non-compliance with the CPRs. His appeal was unsuccessful. 

In deciding whether an order to validate service will be made, the court will ask two questions:

  • Why was the claim form not served in the ordinary way during the period of validity?

A critical factor for the court to consider is whether the claim form came to the defendant’s attention. The court emphasised that even if the defendant does become aware of the contents of the claim form, this does not, by itself, constitute enough for an order to be made that the claim form had been served.

The court will also look at the reason for the failure to serve the claim form in the prescribed way. An acceptable reason for such a failure might be something outside the control of the defaulting party, such as incapacitation or the recipient being particularly obstructive and un-cooperative. The court was unequivocal in finding that ignorance of the legal procedures under the CPR is not a satisfactory reason for the claim form not being served in the ordinary way.

If the court is satisfied that the claimant has a good answer to question one, it will consider question two.

  • Is there a good reason to make the order sought?

The court will consider the defendant’s conduct as a factor when deciding whether to grant an order. In Power v Meloy Whittle Robinson [2014] EWCA Civ 898, the fact that the defendants were having discussions and corresponding with the claimant’s solicitors as if the claim form had been served correctly, was deemed enough of a good reason to grant the order.

However, the court in Barton made clear that the defendant has no obligation to inform the claimant if the service of the claim form is not valid. They are entitled to wait until the deadline for service has expired.


The decision reiterates the importance of obtaining specialist legal advice at an early stage. Lord Justice Moore-Bick in R (Hysai) v Secretary of State for the Home Department [2015] 1 WLR 2472 emphasised that although the CPR are widely accessible online, it is essential that ordinary people seek professional help to fully understand and interpret the rules about how proceedings are conducted.

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