Financial Services Bill

Lord Flight Excerpts

Monday 26th November 2012 Lords Chamber

Moved by

[Lord Flight]

83A: Clause 23, page 95, line 45, at end insert—
“137S Limitation
Neither regulator may make rules that require any person to review, take action with regard to, pay compensation for or otherwise effect redress in relation to any transaction, sale, provision of advice, exercise of discretion or other act or omission where an action based on that event would fall outside the time limits prescribed under the Limitation Act 1980.”

[Lord Flight]

My Lords, I raised the issue of the 15-year longstop in Committee. The Minister gave me some comfort that the Treasury was looking at this.

I have always thought it unreasonable in principle that financial advisers should be picked on as a group not subject to the statute of limitations. A second-hand car dealer is subject to the statute of limitations, as are all sorts of other people who might sell people other products. It is particularly important right now because with RDR, there will be a large number of smaller financial advisers going out of business and wanting to close down their businesses. As long as the statute of limitations does not apply, those businesses have an open-ended possible liability.

A survey was done a while back by the Association of Professional Financial Advisers, which found that 75% of consumers thought there should be a limit applying to financial advisers. Interestingly, as many as 23% felt that all liabilities should cease once someone ceased to be a client of an adviser.

I am hopeful that the Minister may have something a little more explicit to tell the House today but my strong request is that this matter should be addressed now. If it is, it will make what is going to happen next year in terms of the impact of RDR a great deal more manageable. I beg to move.

[Lord Phillips of Sudbury]

Can I now intervene, as I intended to, before the noble Lord, Lord Flight, sits down?

[Lord Phillips of Sudbury]

I thank my noble friend. I withdraw the sedentary remark. The noble Lord is experienced in these affairs, so can he assure the House that the situation will not arise where somebody with no financial sophistication whatever enters into arrangements with one of the agents about whom he is talking—for example, in respect of a pension—only to find 15 years later that there has been a gross failure of propriety?

[Lord Flight]

I do not entirely understand the circumstances that the noble Lord envisages. Someone may have been advised to take out a pension with one of the life companies through their financial adviser. It is possible that the individual’s circumstances, the law or the economic circumstances will change and that, with hindsight, the individual might have taken out a different sort of pension. At the end of the day, the life company is the provider of the pension and it is that company with which the individual will be dealing in their retirement. I think that a 15-year period is fair for a financial adviser, as it is for any other occupation in which an individual is engaged.

[Lord Phillips of Sudbury]

Very often a person taking out a pension, in particular, is wholly dependent upon the advice of the financial adviser.

[Baroness Garden of Frognal]

I remind my noble friend that on Report one may speak only once to any amendment.

[Lord Flight]

My Lords, the biggest contributors to messing up pensions over the past 15 years or so—making them so complicated—have been Governments. I was looking into my own pension arrangements and found that I could not understand them.

[Baroness Garden of Frognal]

I think that the rule applies also to the mover of the amendment.

--- Later in debate ---

[Lord Peston]

Perhaps I could just ask my question now, please. When the noble Lord, Lord Flight, talked about financial advisers, was he talking only about people who advise and receive a payment for their advice, or does his amendment cover those who give advice without payment?

[Lord Flight]

My Lords, if I am permitted—

[A noble Lord]

You are not.

[Lord Flight]

I think that I was interrupted right the way through, as a matter of fact.

[Lord Eatwell]

My Lords, the government Front Bench should calm down and allow us to conduct this discussion broadly under Report mechanisms but in a way which takes us forward on what, as my noble friend has said, is an enormously complicated Bill.

I am afraid that I think the proposal of the noble Lord, Lord Flight, is unfortunate and I cannot support it. It is unreasonable to provide this sort of protection to financial advisers, who should take full and appropriate care in the advice that they give. If they have taken full and appropriate care, they will be able to defend themselves at a later stage against the problem that the noble Lord, Lord Phillips, raised a few minutes ago, but I think it inappropriate that they should not be sensitive to potential comeback for advice which is inappropriate and misconceived.

[Lord Newby]

My Lords, when we debated this issue in Committee, my noble friend Lord Sassoon made it clear that this was an important issue for the regulator to review. The FSA has now committed to consider whether to investigate the case for a longstop as part of its business planning for 2014-15.

The amendment deals with the Limitation Act. It is important to be clear about both the nature of the issue and why I do not think that requiring the regulators to apply the Limitation Act when making rules provides the solution.

First, it is important to be clear that time limits apply for consumers bringing complaints to the FOS. These are: six years from the event that the consumer is complaining about, or, if later, three years after the consumer became aware, or ought to have become reasonably aware, that they had cause for complaint. The question which we are now debating is whether there should be a further absolute or overriding limit, possibly of 15 years. This is an extremely important question for the regulator to review and it is clear that it needs to take into account the particular features of financial services and financial service products in doing so.

When the FSA considered the issue previously, it noted that the long-term nature of some financial services products means that it can take many years for consumers to be made aware that they may have suffered detriment. An example from recent years includes inappropriate pension advice to switch from one investment or one type of pension to another. Consumers did not necessarily realise that this advice was inappropriate until many years later and as they approached retirement. This kind of advice was the subject of the FSA’s pensions review covering the period 1988 to 1994, and concerns about advice given in this period came to light only some years later. Advice from this period is still the subject of consumer complaints now.

It is important to realise that many of the matters that the FCA or PRA, or indeed the FOS, which is also relevant here, will be dealing with will not be subject to the Limitation Act at all. The Act applies to certain causes of action in private law, such as actions for breach of contract or negligence, but the FOS is required to determine cases by reference to what is,

“fair and reasonable in all the circumstances of the case”.

In some cases, there will be no private law course of action and so nothing for the Limitation Act to apply to.

It is also worth remembering that the Limitation Act is very context-specific legislation. Time limits vary considerably according to the nature of the claim; for example, the time limit for libel is one year whereas for negligence it is six years. The time limit also varies on the facts of the case. For example, it is extended in certain cases involving fraud or where the claimant has a disability. Even the 15-year, longstop period that applies in cases of negligence has exceptions—for example, for claims involving personal injury. Therefore, it would be particularly inappropriate as a guide for the FCA in its rule-making powers. It would be next to impossible for the FCA to know how the Limitation Act would apply to all the cases that could be subject to any proposed rule. Far from bringing the financial services into line with other sectors, we would, in our view, be failing to acknowledge that in financial services, as in other sectors, there are many claims to which the Limitation Act does not apply.

Having said that, the regulator will look again at the case for a longstop. In view of my arguments and this commitment by the regulator, I hope that my noble friend will feel able to withdraw his amendment.

[Lord Flight]

My Lords, the key point here is that, in setting the rules for the Financial Ombudsman Service, the FSA decided that no reasonable limit would be provided and that complaints should be brought for an unlimited period of time. This is effectively where the financial adviser industry does not, therefore, have the protection of the statute of limitations.

This area needs to be looked at urgently. I repeat that looking at it in Section 204 is not urgent enough because, assuming that the RDR reforms are not changed, a large number of financial advisers will be going out of business in 2013. For their clients, the best hope is that it will be possible to sell those businesses on to somebody else, but obviously none of them can be sold if there is an unknown exposure to complaints down the line. For better or worse, it is well known that the industry feels extremely upset about the fact that it is picked on in this particular way.

I can see that I will not be able to persuade the Government to do anything immediately and that what we have is at least better than nothing. However, I repeat my exhortation that the Government should consider working with the FSA for a greater urgency in this matter so as it might be addressed coincidently with the RDR. I beg leave to withdraw the amendment.

Amendment 83A withdrawn.