9th January 2007
In Outlook Issue 14 (November 2006), FSCS updated its forecasts for the number of Pensions Review claims we expect to deal with during 2006/07 and beyond, and outlined the potential impact for levy payers in the A16 (IFA Pensions Review claims) contribution group.
Following the publication of Outlook, the trade body AIFA asked FSCS to clarify its approach to Pensions Review claims. Our responses to the questions they asked are below.
Q1. If a consumer has sought redress under the Pensions Review and been told they do not have a claim against a firm (while still trading), will FSCS review the complaint if a firm is subsequently declared in default?
Q2. Under what part of the Act, or FSA rule, is the FSCS empowered to review and make awards to complainants who have already had a case reviewed by the FOS (whatever the finding of the FOS)?
The roles of FOS and FSCS are different and we work co-operatively but independently of each other. We are unlikely to take different views in practice on the eligibility of claims. Our obligation to pay only such compensation as is 'essential to be fair' is slightly different from FOS's 'fair and reasonable' jurisdiction. The maximum we can award is £48,000 for investment claims. In very general terms where we differ from FOS it would most likely be because our remit and rules, including the £48,000 limit, would result in lower quantification of claims.
Where a complaint has been settled following a reference to FOS, for the Pensions Review or otherwise, it would normally be final and binding (either because the consumer had accepted a formal decision, or because FOS had negotiated a full and final settlement). If, however, a FOS award, binding on the firm, has not been paid, and the firm is declared in default, FSCS may review the claim. Compensation, however, will only be paid if we are satisfied that the firm's actions have given rise to a civil liability due to the investor. Further, we would apply our own policies and procedures to the quantification of the claim. The award could be lower but we would not expect to pay compensation in excess of the amount due under the FOS award.
If FOS has rejected a complaint against a firm which then becomes insolvent and is declared in default, the investor is free to make a claim to FSCS. As you will appreciate, a rejection by FOS is not binding on the investor who would be able to issue court proceedings against the firm. If, on the review of such a claim, FSCS is satisfied that the firm does owe the investor a liability, FSCS may make an offer of compensation. FSCS would normally have regard to the material on FOS's file when considering the claim for compensation, and in practice, it is generally unlikely that FSCS would reach a different conclusion to FOS on the merits of a claim.
Q3. Does FSCS recognise Limitations legislation and if so, how is it applied?
The starting point under FSCS's Rules is to apply the legal limitation test (i.e. under the Limitation Act 1980, as amended), but at the earlier of the investor's written indication of claim or the firm's date of default. Accordingly, where a firm has been declared in default, time has stopped running for the purposes of limitation under the COMP Rules. However, FSCS also has discretion to disregard limitation where it considers it reasonable to do so.