Money Covered: The Week That Was – 3 May

Welcome to The Week That Was, a round-up of key events in the financial services sector over the last seven days.

The second episode of Season 3 of our podcast, Money Covered – The Month That Was, where the team discusses key developments and topical issues in the financial services area, is now available. This episode features Rachael Healey, George Smith and Rob Morris discussing what impact ESG and AI may have on the financial services sector, in particular Pensions and Accountants.

To listen to this and all previous episodes, please click here.

Headline Development

FCA publishes complaints data for the second half of 2023

The FCA has published its complaints data for July to December 2023.  

The headline figure shows that there was a total of 1.87m complaints, which is a decrease of 1% from the first half of 2023 which saw 1.89m complaints.  There were increases in complaints about banking and credit cards (up 3.2%), home finance (up 3.7%) and investments (up 3.4%).  Decumulation & pensions saw a drop (2.8%) in complaints, and insurance & pure protection saw the largest percentage drop (5.8%). 

As well as aggregate complaint data, the FCA has provided firm specific complaint data, broken down by product or sector. Complaints saw a 58% uphold rate, down slightly from the 61% rate in the previous 6 month period.  Whilst the number of complaints and the uphold rate was down slightly, the total redress paid jumped 10% to £259m.  

To access the full data findings, please click here.

FCA considering whether decumulation should be included in advice guidance plans

In a panel discussion with the Financial Times, Kate Tuckley of the Financial Conduct Authority (FCA) announced that the regulator is "actively considering" whether to include pension decumulations into the scope of its advice guidance boundary plans. These comments come as a result of responses the FCA received to its recent discussion paper on the advice guidance boundary, with Tuckley stating that looking into retirement income advice was the natural next step "following our work on defined benefit advice and pensions freedoms".

Tuckley stated that ensuring the standards of advice are both raised and maintained is critical to the FCA's vision and that, together with decumulation this should help prevent harm such as consumers running out of money after receiving improper advice and receiving products which do not suit their individual requirements. 

To read more, please click here.

Developments for Pension Professionals

Third party loan deemed as unauthorised member payment 

The First-tier Tribunal (tax) (FTT) has held that a third party loan provided to a taxpayer following their pension fund transfer from one provider to another was an unauthorised member payment. The taxpayer sought to rely on Hughes v Revenue and Customs Commissioners [2019] UKFTT 641 (TC) to set out that there was not a sufficient link for the loan to fall under Section 161(3) of the Finance Act 2004 (FA 2004). However, the FTT stated that there was a causal link between the investment for the payment of the loan and the loan and that it did fall within s.161(3). It was therefore made in connection with pension funds. The FTT said that an assessment needs to be undertaken on the specific facts to ascertain the connection between a loan and a particular investment in each case. In this instance the connection was established given that without the investment the loan would not have been available.

To read more please click here.

Defence against overpaid lump sum

The Pension Ombudsman (TPO) published a determination in respect of a complaint brought by a Mrs S relating to an overpayment of pension benefits. Questions were raised by Teachers' Pensions (TP) with the local authority about pension service and salary history discrepancies. A delay in the information meant Mrs S was overpaid.

TPO explained the legal position, stating that a member is only entitled to the correct level of benefits from the pension scheme and for them to benefit from a mistake would be unjust enrichment. That is the case irrespective of who was at fault. TPO noted that there are defences against recovering overpayments and in this instance found that Mrs S had received the overpayment in good faith. Mrs S qualified for the change in position defence in respect of the overpaid lump sum having used the money for home renovations. TPO made a finding of maladministration and required the TP to confirm to Mrs S they would not seek the recovery of the overpaid lump sum. 

To read more please click here.

Other Professional Developments

More than 14,000 clients use equity release in Q1 of 2024

The Equity Release Council (ERC) has released figures showing that 14,216 customers made use of equity release products between January and March this year, despite a decrease in new customers. This is an increase in 4% from the last quarter of 2023, in which 13,651 customers used such products. 

ERC chair, David Burrows, said that this data highlights the "ongoing challenges facing the residential property market", as the country monitors the health of the economy, and added that "consumer confidence is holding up well among people with existing plans, who are not shy of making use of drawdown facilities or exploring further advances." Explaining the decrease in new customers, Burrows noted that: "New customer numbers are lower than last year with feedback from the market suggesting that older homeowners are adopting a more cautious approach to borrowing as there are hopes of interest rate reductions in the near future". However, Burrows remained confident that the green shoots in the market should germinate into growth.

To read more, please click here.

Case Law Developments

Court of Appeal reiterates that not responding to a proposal to mediate is unreasonable

The Court of Appeal has found that a party being silent in response to an offer to mediate is unreasonable conduct that can attract cost sanctions.
In Northamber PLC v Genee World Ltd & Ors, the Court of Appeal considered a number of issues following a judgment about a breach of exclusivity agreements.  One issue that arose was that the Claimant had made an offer to mediate.  This was a general invitation asking the Defendant to confirm its willingness to engage in mediation, without any fixed proposals.  The Defendant's solicitors had replied that they would take instructions, but thereafter did not reply further on the issue.  At first instance, the judge considered that the invitation to mediate was "half-hearted", without the Claimant following up for a response, and so nothing came from this invitation.  The Court of Appeal, however, considered that this was not just "half-hearted", and that at the point that invitation was made, it was for the Defendant to engage and reply.  A successful mediation could have avoided the costs that followed, including a 9-day trial. The Court of Appeal considered that the Defendant's conduct was unreasonable and exercised its discretion on costs, imposing a "modest" cost penalty by increasing the claimant's cost recovery by 5%, from 70% to 75%.

The case demonstrates that when an offer to mediate is made, silence is not an answer, and it is for the receiving party to properly engage in proposals or make counter proposals.  

To read the full judgment, please click here.

High Court reject claims over HSBC tax scheme misrepresentations

In the recent case of Christopher Bernard Upham and others v HSBC UK Bank Plc, the High Court handed down judgement confirming that misrepresentations had not been made by an employee despite material differences in the tax scheme employed.

The case concerned a scheme known as Eclipse which was intended to allow UK taxpayers to defer their tax liabilities by investing in LLPs associated with the film industry. Ultimately the scheme was challenged for being unlawful with the result that investors did not succeed in deferring their tax liabilities. In bringing a claim against HSBC, whose employees had designed the tax scheme, they argued ultimately that representations made by HSBC concerning the tax scheme were false and had been made dishonestly.

The claim was held to be time-barred, but the High Court did in any event consider the argument, ultimately rejecting the same. The tax scheme implemented did materially differ from the tax scheme proposed. They held that the employee involved had reasonable grounds for believing the scheme implemented was the one originally proposed based on the specific facts of her involvement, and as such they were not dishonest. All claims were dismissed.

The full case can be read here.

Court dismisses judicial review against FOS in relation to its handling of service complaints

The High Court refused a claim for judicial review (JR) brought by iDealing.com against the Financial Ombudsman Service (FOS). The Court dismissed the JR at the permission stage, but noted it would have refused permission on all grounds of challenge.

iDealing.com, a securities brokerage, brought the claim in relation to the lawfulness of three FOS decisions on iDealing's service complaints (submitted through its solicitors). The complaints concerned the FOS' handling of an earlier complaint brought by an individual against iDealing. By way of redress, the Claimant requested payment of the legal costs it had incurred defending complaints (which the FOS refused). 

The decisions subject to the JR were:

• A decision of the Ombudsman Manager offering the Claimant compensation of £500 "for any inconvenience";
• A decision of the Independent Assessor (IA), Dame Gillian Guy, recommending the FOS pay £750 where its level of service had fallen "well below a reasonable level" for "the amount of unnecessary effort … needed to expend with the [FOS]"
• A decision of the FOS Chief Ombudsman, Abby Thomas, accepting the IA's recommendation without, it was claimed, considering whether it was correct.  

The Court held that the FOS' voluntary non-statutory service complaint scheme and the decisions were not amenable to JR. It was not persuaded by the Claimant that the nature of the FOS' power in making these decisions under the scheme had "sufficient public element, flavour or character" to bring them within the scope of public law simply because they related to the earlier consumer complaint. The Court noted that iDealing.com was not entitled  to recover its costs, or damages relating to the FOS' compulsory jurisdiction under the Financial Services and Markets Act 2000 (FSMA) or the FCA's complaints handling rules in the Dispute Resolution sourcebook (DISP). 

This is an unusual case in that the respondent firm was effectively trying to recover the costs it had spent defending FOS complaints following FOS' refusal to entertain the firm's requests. Whilst unusual, the JR is unsurprising as respondent firms are likely to be increasingly concerned about the FOS compensation limits (which now go up to £430,000) and might view the incurrence of legal defence costs as being proportionate (but ultimately irrecoverable irrespective of the FOS' conduct, as demonstrated here). 

To read the judgment, please click here. 

With thanks to this week's contributors: Patrick Barclay, Rebekah Bayliss, Anthony Cutler, Shauna Giddens, Damien O'Malley, Faheem Pervez, Tom Spratley.