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Financial Ombudsman Service article by Stuart Brothers
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Financial Ombudsman Service: Examining the 6 & 3 year rule 

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The law recognises that time limits should apply to a claimant’s right to bring a claim. It has passed legislation to give effect to that recognition (notably, Limitation Act 1980 and Latent Damage Act 1986).

Financial Ombudsman Service time limits set out have been criticised

The FOS time limits set out in DISP 2.8.2(2)R (the 6 & 3 Year Rule) have been criticised by some for their perceived generosity to a claimant. In essence, the six year limit from the event complained of can be extended if the complaint is brought within three years from when the complainant became aware (or ought reasonably to have become aware) of the cause of complaint. There is no long stop date to when the 3 year aspect can apply. A further opportunity to a claimant, albeit one very much of a last-ditch effort nature, is available if the Ombudsman believes that the failure to comply with the time limits arose due to exceptional circumstances. DISP 2.8.5R, 2.8.6G, 2.8.7R. 2.8.8G, 2.8.9R and 2.8.10G have separate limitation provisions relating to specific products.

By way of contrast, the PIA Ombudsman Rules had, subject to one exception, provided that the PIA Ombudsman did not have jurisdiction to consider a complaint where the act or omission giving rise to the complaint would have been “.. time-barred by any applicable rule of law or enactment”. The exception to this replication of the legal position was if the complaint fell within the ambit of the Securities and Investment Board’s 1994 Statement of Policy on “Pension Transfers and Opt-outs”. Broadly, the SIB statement had precluded firms from refusing to review pension transfers and opt outs within the scope of the review (starting 29 April 1988) on the basis that they were statute barred.

Call for Input: Modernising the Redress System questions

The FOS/FCA November 2024 Call for Input (CFI) on Modernising the Redress System (Question 14) refers to the lack of a long stop date in the current time limits. It asks the questions (i) whether the current time limits for referring complaints should be reviewed and, if so, (ii) what alternative approaches should be considered which would provide an appropriate level of protection for consumers? The second question appears to make the interesting assumption that dilution of current time limits can be consistent with consumer protection.

Criticisms of the 6 & 3 Year Rule, expressed without evaluation, include:

  1. The absence of a longstop to the 3 year part of the 6 & 3 Year Rule is out of step with Parliamentary intentions. FOS should not be a law unto itself.
  2. Whilst most of the criticism is levied against the 3 year part, even the 6 year rule is out of step with other ombudsman schemes which have an initial time limit of 12 months (Legal Ombudsman Service, Local Government and Social Care Ombudsman) and 3 years for the Pensions Ombudsman.
  3. The application of the three year extension can often be highly fact sensitive. It is more appropriate to have those factual issues decided in the adversarial process adopted by a court rather than the FOS inquisitorial process, especially with the current award limits of £430,000.
  4. It is unfair that elements of ignorance have the potential to assist some claimants to the detriment of respondent firms.
  5. The open ended time limits have an effect on PI cover, both as to availability of cover in relation to certain risks as well as premium costs.
  6. The 6 & 3 Year Rule is one of the causes of FOS’s ongoing backlog of cases.
  7. The lack of balance between claimant and respondent in respect of some claims based upon highly historical matters can produce outcomes which are more than difficult to reconcile with the “fair and reasonable” statutory basis for FOS’s decision making (section 228(2) FSMA).

This article does not seek to deal with any analysis of alternative time limits. Suffice to say, however, that FCA/FOS could look at having the equivalent of section 32 Limitation Act 1980, based upon concealment. There would also need to be an exception for certain mass redress events.

The 6 & 3 Year Rule is unlikely to come out of the CFI process unscathed. The question must be as to the extent of its amendment.

Stuart Brothers Lawyer Punter Southall Law

Stuart Brothers

Consultant

Stuart Brothers specialises in retail financial services regulation, particularly in relation to complaints handling and FCA Handbook DISP related matters.

Prior to joining Punter Southall Law, Stuart undertook an interim role as a legal counsel for the Financial Services Ombudsman (FOS). That role involved advising on a wide range of issues arising under DISP including ambit of FOS jurisdiction, application of fair & reasonable criteria, time limits, eligible complainant criteria, application of Consumer Duty principles, reviewing draft provisional and final decisions and judicial review actions.

Stuart’s FOS role followed 35 years experience in financial services regulation which included acting as a lawyer within the legal department of the AMP group of companies, managing director of London Life Limited and as director in the Banking & Finance group of KLegal (associated law firm of KPMG) where Stuart advised investment and banking clients on matters arising from the implementation of Financial Services & Markets Act 2000.

Stuart was also general counsel to a SIPP administrator for 17 years. Stuart also had a prominent role in litigation relating to the sale of interest rate hedging products from 2010, which included  writing an article for the Law Society Gazette on the regulatory review and redress scheme and giving a presentation to a joint party Parliamentary group on the topic. Stuart’s work on that area was quoted in the Telegraph and Financial Times.

Areas of expertise

  • Complaints handling – case file reviews, final response letters, dealing with FOS, business process review into complaints handling for companies within AMP Group;
  • Investment and pensions, particularly SIPP and SSAS products;
  • Application and interpretation of FSMA/FCA Handbook;
  • Regulatory perimeter issues, including RAO exemptions;
  • FCA thematic reviews (Consumer Duty/suitability/non-standard investments);
  • Defined benefit transfers – suitability (DBAAT), appointment of skilled persons under section 166 FSMA, redress methodology, section 404 scheme (BSPS);
  • Intricate SM&CR/SYSC matter – issues raised by FCA Supervision Group in relation to governance structure of a wealth management LLP, in particular relating to scope of SMF27 roles and controller issues;
  • FCA requests for information, including under section 165 FSMA;
  • Threatened FCA action under section 176 FSMA (mortgage broker);
  • Compliance with conduct of business rules (COBS, MCOB, ICOBS, FPCOB);
  • Whistleblowing reports investigated by FCA;
  • Remuneration structures, particularly post RDR;
  • Issues arising from potential allegations of “phoenixing” and “lifeboating”;
  • VREQ’s and OIREQ’s, including an insurance broker’s alleged non-compliance with CASS rules;
  • Minimum capital requirements including IFPR and ICARA and issues arising from PI exclusions and wind down planning;
  • Demarcation of responsibility for and supervision of appointed representatives;
  • Introducer appointed representative agreements;
  • Insurance Distribution Directive issues;
  • Arrangements with non-regulated introducers (SIPP & SSAS clients);
  • Structuring of cash flow planning company to fall within regulated activities exemptions in relation to investment platform arrangements;
  • Implementation of Consumer Duty;
  • FCA review into decumulation following pensions freedoms;
  • With profits funds – actuarial discretions (guaranteed annuity rate products) and distribution of insurance long term fund; and
  • Setting up of film finance scheme (non-CIS).

Regulatory Transactional Work

  • Section 178 FSMA change in control issues, including challenges by FCA in relation both to disposers and acquirers;
  • Regulatory due diligence – directly authorised firms, appointed representatives, SIPP administrators;
  • Warranties and indemnities in share and asset sale agreements for FCA regulated entities;
  • High profile disposals of an IFA and SIPP administrator (2022/23);
  • Joint venture between IFA and fund manager for provision of discretionary fund management services;
  • Agreements for white-labelling of platform services; and
  • Responsible for regulatory due diligence exercise of UK subsidiaries of Australian Mutual Provident (AMP) for AMP’s listing on Australian Stock Exchange.

Financial Services Dispute Resolution

  • Case on restraints in a pensions and actuarial services outsourcing contract Quantum Advisory Limited v Quantum Actuarial LLP in High Court [2020] EWHC 1072 (Comm) and Court of Appeal [2021] EWCA Civ 227;
  • Interest Rate Hedging Product (IRHP) claims against investment banks, including cases against Barclays Capital and HSBC which were covered by Daily Telegraph (Harry Wilson);
  • Application for the use of expert evidence in a IRHP mis-selling claim (Battrick v Royal Bank of Scotland plc [2013] EWHC 2277 (QB)); and
  • LIBOR manipulation action (Longford Securities & Equities (K&T) Limited v Royal Bank of Scotland plc).
[email protected] 07990 039856
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