FS Legal's response to the FCA's consultation on extending the Financial Ombudsman Service to SMEs

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James Tallack
Financial Conduct Authority
25 The North Colonnade
London
E14 5HS
Our Ref: TH/FOS.SME
Your Ref: CP18/3
Please reply to our Brierley Hill office
22 April 2018
BY EMAIL ONLY TO: cp18-03@fca.org.uk
Dear Sirs,
Our response to CP18/3: Consultation on SME access to the Financial Ombudsman
Service and Feedback to DP15/7: SMEs as Users of Financial Services
We are a firm of Solicitors specialising in financial services law. This is our response to
CP18/3: Consultation on SME access to the Financial Ombudsman Service and Feedback to
DP15/7: SMEs as Users of Financial Services. We represent both consumers and authorised
firms and therefore consider that we can provide a particularly unique, objective and holistic
response to your consultation.
Your SME proposals
First and foremost, we welcome wholeheartedly your proposals to extend the Financial
Ombudsman Service to SMEs, which we consider will enhance access to justice and provide
further important protections and safeguards within the financial services sector.
In response to your questions specifically set out in the consultation:
Question 1: We agree with your proposed changes to the definition of an "eligible
complainant". We consider that the proposed size thresholds are a good starting point, which
will certainly assist those who would most benefit from access to the Financial Ombudsman
Service. Whether the proposed size thresholds ultimately go far enough is a matter yet to be
seen however, and as such, we consider that this is a matter which should be reviewed by the
Financial Conduct Authority in the future.
Question 2: We agree that your proposed 3 tests should all be met as a starting point. Of
course, in practice, it may become clear that the proposed tests may need amending if it
transpires that certain SMEs are being denied redress where they ought to benefit from it; as
such, we consider that this is a matter which also should be reviewed by the Financial Conduct
Authority in the future.
Question 3: We agree that guarantors should also be recognised as eligible complainants.

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Question 4: We consider that the changes introducing small businesses as eligible
complainants should be implemented as soon as practicable, and thus agree with your
proposed implementation date of 1 December 2018. These changes should not have
retrospective effect and thus should only apply to complaints brought on or after the proposed
implementation date of 1 December 2018.
Question 5: We consider that the changes introducing guarantors as eligible complainants
should be implemented as soon as practicable, and thus agree with the proposed
implementation date of 1 December 2018. These changes should not have retrospective effect
and thus should only apply to complaints brought on or after the proposed implementation date
of 1 December 2018.
Question 6: We express no view in respect of your cost benefit analysis.
We provide our own proposals below which we consider are relevant to Question 7 and
Question 8 of your consultation. For the avoidance of doubt, our proposals are intended to be
of benefit to all eligible complainants, not just small businesses and guarantors.
Proposal One: Removing the Financial Ombudsman Service award limit
Our first proposal is the removal of the Financial Ombudsman Service award limit entirely.
Whilst this proposal may seem radical, we consider that it makes sense and is justifiable.
As you would expect, the financial services sector exposes consumers to significant risk which
can manifest in high-value losses, even for retail consumers, which can de-rail both their and
their family's lives. The most prominent example that we frequently come across are
consumers who are misadvised to transfer the entirety of their pensions and/or life-savings into
unsuitable investments. The introduction of substantial court fees of up to £10,000 acts as a
significant barrier to access to justice. You acknowledge these barriers at paragraphs 2.5 to
2.9 of your consultation.
These issues are more significant than they may first seem however. Pensions, for example,
can be worth hundreds of thousands of pounds. We frequently come across consumers, of
pensionable age, who have lost their entire pension pots to mis-selling, and the issue is
becoming more prevalent, as you have noted recently in respect of defined benefit pension
transfers, particularly in the wake of the British Steel Pension Scheme revelations. Consumers
who have lost their pensions and life savings, simply cannot afford to go to court – having lost
everything, there is no way that they can find the substantial court fees. The current system
simply does not cater for these types of consumers. It is not rare for pension pots to be worth
£200,000 to £500,000 – the current Financial Ombudsman Service award limit therefore is
simply not fit for purpose and denies such consumers from proper redress.
Given the above, it is not difficult to see how such issues will also translate across to small
businesses.
It is noteworthy that the Pensions Ombudsman, which considers complex and high-value
complaints and which is in many ways similar to the Financial Ombudsman Service, has no
award limit. We consider that there is no justification for the Financial Ombudsman Service
being restricted by an award limit whilst the Pensions Ombudsman is not similarly restricted.
We do not consider that the fact that the Financial Ombudsman Service considers complaints

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on the basis of what is "fair and reasonable", in contrast to the Pensions Ombudsman
considering complaints in accordance with law, as sufficient to justify an award limit only for the
Financial Ombudsman Service. Whilst the Pensions Ombudsman is accountable in the form of
its decisions being appealable to the High Court, the Financial Ombudsman Service is similarly
accountable as its decisions are nonetheless susceptible to judicial review. The Financial
Ombudsman Service therefore is not, on any analysis, a law unto itself – any perverse or
irrational decisions that it may make can be challenged. Whilst we appreciate your comments
that Parliament intended for the Financial Ombudsman Service to provide quick and informal
redress, the same is undoubtedly true of the Pensions Ombudsman.
We consider that because the Financial Conduct Authority has the power to set an award limit
for the Financial Ombudsman Service, by implication, the Financial Conduct Authority also has
the power to remove the award limit.
Whilst Section 229(5) Financial Services & Markets Act 2000 ('FSMA') states that "a money
award may not exceed the monetary limit" it is noteworthy that Section 229(6) FSMA states
that "the monetary limit is such amount as may be specified" (emphasis added). We consider
that the use of the word "may" in Section 229(6) FSMA suggests that the monetary limit is not
mandatory and thus we consider that the Financial Conduct Authority has the power to remove
the monetary limit if it so desires, without the need for further legislation.
In the event that you consider that you do not have the powers to remove the monetary limit,
we consider that this is still a matter worthy of consideration which should be explored with
Parliament; particularly if this proposal were to be adopted in combination with our third
proposal below.
Proposal Two: A Financial Ombudsman Service award limit of no less than £250,000
We appreciate that our first proposal may not be adopted by the Financial Conduct Authority
owing to the fact that it would be a significant departure from the current regime; for this
reason, our second proposal is more moderate. We consider, for the same reasons set out in
our first proposal, that the Financial Ombudsman Service award limit should be no less than
£250,000. We consider that this would ensure suitable redress is available to those most in
need.
That said, we would welcome any higher award limit proposed by the Financial Conduct
Authority. In particular, we consider that an award limit of £295,000, as considered at
paragraph 4.26 of your consultation, would be a fair limit for those who currently qualify as
eligible complainants alongside small businesses and guarantors. This limit would be in line
with the position in Australia, which you have identified at paragraph 4.26 of your consultation
"is a relevant comparator as it, like the UK, has a common law legal system".
Proposal Three: Decisions in line with law and an appeal process to the High Court
The Financial Ombudsman Service has recently become the subject of increased scrutiny.
Firms frequently complain that they feel that the Financial Ombudsman Service is not properly
accountable because it is not bound by the law and there is no appeals process (other than
judicial review). You acknowledge this in your consultation at paragraph 4.28. Both
complainants and firms recognise that judicial review is a complex, risky and expensive route
which is rarely a genuine or realistic option for either firms or complainants. The Channel 4

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programme, Dispatches, has also recently raised concerns in respect of the Financial
Ombudsman Service's processes.
In light of the above, our third proposal is that the Financial Ombudsman Service should, like
the Pensions Ombudsman, make decisions in accordance with law, and accordingly, its
decisions could then be appealed on a point of law to the High Court, as is the case currently
with the Pensions Ombudsman. We consider that such changes would act as important
safeguards and would be beneficial to both complainants and firms alike.
We consider, in light of the recent revelations highlighted in Channel 4's Dispatches
programme, the fact that the Financial Ombudsman Service is due to be subjected to an
independent review and also because the Treasury Committee has expressed concerns, now
is the time to seriously consider this proposal.
We consider, in light of the above, that these changes would ensure that the Financial
Ombudsman Service is seen as properly accountable and to ensure that a major overhaul of
the Financial Ombudsman Service is not necessary. Such changes become all the more
compelling when considering the recent comments made by the High Court in Aviva Life &
Pensions (UK) Ltd, R (On the Application Of) v McCulloch & Anor [2017] EWHC 352 (Admin),
whereby Justice Jay said this of the Financial Ombudsman Service:
"By way of postscript, I do have personal concerns about a jurisdiction such as this
which occupies an uncertain space outside the common law and statute. The
relationship between what is fair and reasonable, and what the law lays down, is not
altogether clear... Speaking entirely personally, I am not wholly satisfied that this
adequately bridges the gap, or gives sufficient definition to the norms under scrutiny.
Who, or what, defines the contours and content of fairness and reasonableness? If
the law takes one policy direction, what can rationally survive of a policy which has
been eschewed? During the course of oral argument, I suggested that fairness and
reasonableness may occupy some sort of penumbral space, by implication
contiguous with the much larger body of principles and rules which are visible to all,
but I have begun to wonder where this metaphor leads. It might be said that this
jurisdiction is penumbral because its shadows cannot be illuminated".
For the reasons set out above, we consider that this proposal should be adopted in any event,
although it would be particularly relevant if you were to adopt our first proposal. We appreciate
that such changes would require legislation, however we consider that such changes are
warranted and should be considered with Parliament.
Summary
In summary:
1. Predominantly we agree with your proposals to extend the Financial Ombudsman
Service to small businesses and guarantors;
2. We propose that the Financial Ombudsman Service award limit should be removed
entirely;
3. Alternatively, we propose that the Financial Ombudsman Service award limit should be
no less than £250,000; and
4. We consider that the Financial Ombudsman Service should be required to make
decisions in accordance with law and that its decisions can be appealed on a point of

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law to the High Court (particularly if our first proposal to remove the Financial
Ombudsman Service award limit was adopted).
We trust that our submissions assist, and if you have any queries, please do not hesitate to
contact the author of this document, Tobias Haynes, a Solicitor of our firm, by telephone on
01384 889906 or alternatively by email at tobias.haynes@fsl.legal.
Yours faithfully
FS LEGAL SOLICITORS LLP