Time is running out… clarity on time bar at FOS?
New DISP pro forma final response language seems to allow firms to be more confident when time barring complaints.
The confusion
The precise meaning of the FOS time bar rules has brought confusion to legal practitioners, compliance officers, complaints handlers and even FOS adjudicators and ombudsmen. Under DISP 2.8.2R(2), FOS cannot consider a complaint if the complainant refers their complaint to FOS either (a) more than six years after the event complained of (the 'six-year rule') or (if later); (b) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint (the 'three-year rule').
Raising time bar arguments before FOS can often lead to inconsistent outcomes, but there is, broadly speaking, general agreement about how to approach the six-year rule. In the main, disagreements about this rule are factual: what was the event (the act or omission) which is the subject of the complaint?
There is much less agreement about the correct approach to the three-year rule. In particular, there is disagreement as to what it is that the complainant ought reasonably to have become aware of. Does a complainant need to be aware of the regulatory cause for their complaint, such as the unsuitability of the investment advice? Or do they simply need to be aware of some troubling facts, such as a sudden and significant drop in the value of their investments?
Simple awareness of the facts as the motivating factor for a complaint seems to be envisaged elsewhere in DISP. The DISP rules do not require complainants to meet any threshold in order to complain to a firm. Complainants merely need to become dissatisfied with the service that they have received and express that dissatisfaction to the firm. The firm will then assess whether it needs to deal with the complaint as a regulated complaint and, if so, investigate the complaint in full in line with DISP 1.4.1R. The onus is on the firm's complaints function to investigate the background to the complaint.
Therefore, it strikes me as odd to interpret the three-year rule as applying only when the complainant understood the regulatory cause (e.g. unsuitability) of the facts (e.g. dropping investment values) which form the basis of the complaint. Most complainants cannot reasonably be expected to understand the regulatory reasons for their complaint. I note the DISP rules refer to cause "for" complaint and not cause "of" complaint. My view is that time starts to run under the three-year rule when a set of facts arise which, when viewed objectively, should give rise to dissatisfaction and cause the client to complain.
The similar three-year rule set out in section 14A of the Limitation Act 1980 ('Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual') is engaged when the claimant has a simple awareness of the facts: when they know that the damage was attributable to acts or omissions which they now allege constitute negligence. Time starts to run at that point, even if Claimants do not know that those acts or omissions were negligent at law.
The new rules
The FCA updated the definition of a 'final response' at DISP 1.6.2R on 9 July 2015. The new DISP 1.6.2R(1)(f) provides that a 'final response' is a written response which, among other things, "indicates whether or not the respondent consents to waive the relevant time limits in DISP 2.8.2R or DISP 2.8.7R (Was the complaint referred to the Financial Ombudsman Service in time?) by including the appropriate wording set out in DISP 1 Annex 3R."
The pro forma language options (2) and (3) in DISP 1 Annex 3R set out the FCA's own 'consumer-friendly' and simplified version of the three-year rule: "[t]he Ombudsman might not be able to consider your complaint if:... you're complaining more than three years after you realised (or should have realised) that there was a problem [my emphasis]." This formulation supports the notion that firms and the FOS simply need to consider whether a set of facts existed which should have led the complainant to realise that there was a problem, not whether the complainant understood the regulatory cause of that problem.
Conclusion
Complainants will still try to buy themselves more time by asserting that the mere fact the investment has lost value is not, of itself, an indication there is a problem unless the investment was capital guaranteed.
However, my view is that if the investment has not met an investor's reasonable expectations (i.e. because there has been a significant drop in value) this should lead the investor to realise that there was a problem, which should give them cause for complaint, and that this should start time running for the three year rule. And in fact, for much of this year, we have already seen FOS holding that the three year time limit starts to run 'when the complainant knew that something had gone wrong'. This may suggest that FOS had already begun to shift their interpretation, in preparation for the recent rule changes.
The new pro forma final response language in DISP 1 Annex 3R should give complaints handlers the confidence to apply the three-year rule more widely when time barring complaints.