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When is enough, enough? Balancing the rights of consumers and advisers

About The Author

Former Author (Assistant Editor)

Author is a King's College London Law graduate, currently working as a corporate paralegal for a firm based in South West England. Author is due to begin his BPTC at the University of Law in September 2015, having attained a scholarship from Middle Temple.

In recent months there have been several investigations into the past conduct of many high-profile celebrities that have resulted in successful prosecutions. These investigations are undoubtedly a positive step in improving the lives of victims and ensuring such abuse does not happen again, but they do go against orthodoxy in relation to limitation periods. Ordinarily, the law imposes time limits on when individuals can bring claims to court based upon when the offence or disputed action occurred. However, there are certain instances when these limitations do not apply, most notably for serious criminal offences.

However, there are some industries that are subject to investigation far beyond the ordinary time limits through the quasi-legal mechanism of the Ombudsman service. Professions, most notably financial advisers, are starting to rally against the far-reaching consequences of historic investigations into their professional advice or actions. The problem for regulators is striking the correct balance between protecting those affected by the consequences of the initial advice received, and from freeing individuals from liability for past actions.

Limitation Periods

The general time limit to bring a claim in the jurisdiction of England and Wales, found in the Limitation Act 1980, is six years, with the time beginning to run at different times depending on the cause of action. One notable exception to the six-year rule is that one can bring a negligence claim outside of this six-year period if the damage complained of was only discovered out of time. This exception was created by the Latent Damage Act 1986, making amendments and additions throughout the act, but most notably Part 1 of the Act. The act provides that the claimant has three years from the date of discovery or from the date when he ‘ought reasonably to have known’ that the damage had occurred, subject to a 15-year long-stop (section 14B).

There are several rationales for these time limits, the first of which is that in many cases, evidence becomes less reliable as time passes. This is especially important in criminal cases where the burden of proof is the higher standard of 'beyond reasonable doubt' rather than merely 'on the balance of probabilities'. Memories can become distorted or fade so that recollecting information that is crucial to a trial becomes harder to rely on in order to secure a conviction or even a successful claim in the civil courts.

Secondly, limitation periods can also ensure that claimants understand that they should not delay in taking action if they feel that they have been wronged and encourages them to come forward rather than delaying it to do later. Thirdly, they ensure that individuals are released from liability for actions taken several years beforehand, which is important as it allows professionals to give advice in the knowledge that they will be released from liability after a certain period.

The Financial Ombudsman, the FCA and Long-Stop

Complaints by individuals about particular financial advisers can be taken up in two ways, firstly through instructing a solicitor to bring a claim in court for damages, or secondly through the Financial Ombudsman Service (“FOS”). The former route is subject to the time limits found in the Limitation Act, but as a quasi-legal investigatory body, the FOS operates under a different regulatory framework and is able to investigate conduct whenever it took place.

Financial advisers are regulated by the Financial Conduct Authority who were set up in April 2013 following the breaking up of the FSA. The former FSA rules provided that the long-stop should be in place for the FOS to mirror the ordinary legal route, but in the reorganisation this was removed without consultation or prior warning. Alan Lakey has raised real concerns about the inequity of removing the long-stop for the FOS but not for the Financial Services Compensation Scheme (FSCS).

The possibility of investigation by the FOS has been blamed for a sharp decline in the number of independent financial advisers (IFAs) because an individual will potentially be liable for every piece of financial advice that he gives from his first consultation through until the day he dies. The case of Phillip Griffin provides a clear example of the problems with not having a long-stop in place. He is currently under investigation by the FOS for advice given in the late 1980s having received a complaint in 2011.

One way to mitigate some of this longstanding liability is to incorporate their business into a limited company, or upon retirement place all assets into a trust or their spouse’s name. However, this can incur considerable expense for the individual and it seems strange for them to bear the burden of liability. Balancing the rights of advisers and consumers should afford both sides legal protection and the absence of a long-stop is a clear imbalance.

The FCA and FOS have defended the absence of a long-stop, stating that it is “in the interest of consumers” and the long-term nature of the work of IFAs means that they require the power to investigate the validity of advice whenever it was given. Nic Cicutti, writing in December 2013, gave a passionate defence of this position, stating that “[p]oor advice is poor advice… To deny someone whose retirement dreams have been shattered the right to obtain redress through a long-stop is morally indefensible.”

It is important to remember that the advice given by financial advisers relates to the performance of financial markets, which are clearly very difficult to properly predict. There are not many individuals who could have predicted the 2008 crash as far back as the early 90s or who had expected the price of oil to rise unceasingly over the last decade, and yet the FOS would have the power to investigate an individual who had advised on this basis and uphold a complaint against them for their perceived poor advice. The question for regulators is whether the burden of relying on advice should be left solely with the adviser, or whether we should expect some common sense from consumers and expect them to seek a second opinion on financial products or advice that seem too good to be true. The financial adviser does not hold a crystal ball, and expecting them to bear all liability for advice given indefinitely is surely an unfair position.

Other branches of the Ombudsman Service

The Legal Ombudsman, a similar complaints body for lawyers to the FOS, altered their rules in 2013 to extend their time limits. Investigations were previously subject to a limit of one year from the date the advice was given or one year from when the customer could have realised that there was cause for complaint. But these limits were increased to six years and three years respectively. In addition, there is no 15-year long-stop in relation to the Legal Ombudsman.

The potential for change 

In March this year, after pressure from IFA representative bodies and attention given to a government e-petition “fair liability for financial advice”, the FCA announced that it would reconsider a 15-year long-stop in its 2014/15 business plan which was hailed as a positive step for the industry. However, in July, Martin Wheatley, the FCA chief executive claimed that changes to the FOS could be in breach of the European Alternative Dispute Resolution (ADR) Directive. Matthew Connell, speaking in an interview with Money Marketing disagreed with this position, making clear that the ADR Directive does not need to provide an exhaustive list of ADR practices and recognises the principle of time limits.

The use of Directives by the European Union is specifically designed to allow a degree of flexibility within each Member State to apply the rules as they see fit, and there are already other countries that have long-stop provisions, including Portugal and Italy. Richard Hobbs, an independent regulatory consultant, has gone as far as saying that this argument is a ‘red herring’ and is merely a delaying tactic by the FCA.


The Ombudsman Service, most notably the FOS, needs to reconsider the position regarding long-stop time limits for liability. The position is clearly burdensome on advisers and lawyers and can have far reaching professional and personal consequences. Although consumers clearly need to be protected by the law and have redress when they have been wronged, we must not punish advisers and treat them as if they can see into the future.

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Tagged: Banking & Finance, Commercial Law, Consumer Rights, Contract Law, European Union

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