Greater protection proposed for investors subject to malpractice
City watchdog the Financial Conduct Authority (FCA) is consulting on plans to significantly increase the compensation limit for consumers where a financial company has cost them their savings due to the sharp practice of those entrusted with their money.
Wronged pensioners and investors’ complaints go to the Financial Ombudsman Service (FOS), which has the power to rule on cases and award compensation with the aim of putting them back in the situation they would have been had they not been wronged.
Currently FOS can only award up to £150,000 which is often much less than the victims have lost; FOS can require the offending company to pay more than this amount, but cannot force it to do so.
Under the new scheme, consumers who lodge a successful claim with the FOS about problems occurring after 1st April 2019 will be compensated up to the new limit of £350,000.
‘problems occurring after 1st April 2019 will be compensated up to the new limit of £350,000’
For consumers that refer complaints before 1st April 2019, the limit would remain at £150,000; complaints relating to problems before this date, but referred to FOS after it will be able to receive compensation up £160,000.
From 1st April 2020, both award limits would increase line with inflation.
Investors are able to refer a complaint to FOS within six years of the event or, if later than this, within three years from when they could reasonably have known they had cause to complain; it must also be within six months from the business sending the consumer a final response.
FCA is consulting with the financial services industry on the changes and has said it will report back on its decision in the New Year; its analysis suggested there could be around 2,000 complaints upheld by the ombudsman service each year where the amount of compensation determined is above the current award limit and investors could be losing out on up to £113m per year if firms do not voluntarily pay out.
How do investors complain?
True DIY investors are solely responsible for their investment choices and there is no recourse should an investment ‘blow up’; it is worth spending some time getting to grips with the terms of the service you are signed up to, but most execution only brokers and investment platforms are diligent to ensure that nothing they offer could be construed as investment advice.
The precise nature of the service offered by the new breed of automated investment managers – often ‘robo advisors’ – can vary greatly; whilst some deliver financial advice in the true legal sense by giving you personalised, specific investment recommendations, others may serve up only ‘guidance’ or generalised advice to help you come to a decision.
Again, it is worth getting to grips with the small print of the service you subscribe to because, as is usually the case, it is only when in a squeak that people bother to read the disclaimers.
‘it is worth getting to grips with the small print of the service you subscribe to’
If you have taken bona fide advice, you should complain to the firm that gave you the advice in the first instance which then has eight weeks in which to respond; if you are not satisfied with the conclusion or handling of your complaint that is the point at which you can go to the Financial Ombudsman Service.
The Financial Services Compensation Scheme (FSCS) is there as a safety net should the firm responsible for the mistake be in default and unable to pay sufficient redress.
FSCS protects cash deposits up to £85,000 per person per firm, but losses resulting from advice on investments and mortgages are covered only up to £50,000; for those with sizeable pension pots, this may go only a fraction of the way towards adequate reparation, so it is worth becoming familiar with your individual circumstances.