Financial Services Bill

Lord Eatwell Excerpts

Monday 26th November 2012 Lords Chamber

Moved by

[Lord Eatwell]

80B: Clause 23, line 21, leave out “of practice”

--- Later in debate ---

[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.