People walking in corridor.

Meteor hit by arbitrary FOS decision

15 February 2011

The industry press has reported that Meteor Asset Management had a complaint upheld by FOS about advice on Lehmans structured products because they apparently failed to disclose the downgrade in credit rating (to below Standard & Poor’s A+ grade) and, consequently, the advice was unsuitable thereafter.

It's funny how credit ratings can be relied on when they are downgraded!  Many of the 'credit crunch' problems have been put down to unreliable ratings but it appears the FOS take the view that a downgrade (even of only one rating) should have prompted an immediate reaction amongst advisors.

Although I have seen no details (there is no announcement by FSA or FOS), I expect this to increase the chance that FOS will decide such cases by reference to time periods and changes in published material, including ratings, over time.  This was the eventual solution reached for the split capital investment trust claims and would be a crude tool if deployed again to numerous advisory complaints about particular investments.

Again, although I have seen no details, I assume the firm would have argued that full disclosure of the downgrade would have made no difference to their advice or the client's investment decision - what in law we call the 'causation defence'.  The FOS has little time for causation defences which it considers  unattractive legal arguments.  Famously, in the case of IFG Financial Service v (i) FOS and (ii) Mr & Mrs Jenkins, the High Court confirmed that FOS is "free to make an award which differs from that which a court applying the law would make...".