People entering the building.

FOS is not unfair; it just doesn't apply the law

16 October 2014

The new CEO of FOS, Caroline Wayman, gave evidence to the Treasury Select Committee yesterday, including (reportedly) in response to a poll that revealed 58% of advisers considered FOS unfair in its decisions on financial advice.

She acknowledged the anti-adviser perception and promises to try to address it.

However, I doubt the current regulatory framework will allow for any such change.  FOS could be a little more forgiving of advisers but cannot start applying a wholly different, legal standard to its decision making without fundamental reform of its statutory powers.

There is little to be gained from arguing over what is 'fair and reasonable' in the opinion of the Ombudsman in all the circumstances of the case (DISP 3.6.1).  An Ombudsman's decision on his or her opinion as to what is fair and reasonable is almost unchallengeable, except by the very difficult and expensive process of Judicial Review which rarely succeeds on questions of the Ombudsman's discretion (as opposed to FOS jurisdiction which is far more susceptible to challenge).

There is little point in complaining that FOS imposes (often retrospectively) impossibly high standards on advisers or that FOS upholds complaints by reference to any minor breach of rules without regard for the causative impact of the breach.  It is well established that FOS need not meet the legal standards of a Court when reaching its decisions and advisers find it difficult to fight a point in the context of a regulatory regime with obligations to take Ombudsman decisions into account in other complaints handling and to report to the regulator.  We still await the findings of the FCA's report on its complaints review which promises to look into root cause analysis and redress.

Firms stand little chance of getting FOS to give them a 'fairer' hearing.  By definition, FOS already achieves 'fairness'.  Their real complaint is that FOS operates in a parallel jurisdiction beyond the common law and that financial services firms are therefore at a disadvantage when compared to most other businesses, which are judged only by legal standards.  FOS' promise to address perceptions is welcome but if firms want fairness under the law, they need to lobby Parliament to change FSMA. In the anti-financial services, consumer-protectionist political climate in which we live, I won't be holding my breath.