Money Covered: The Week that Was - 04 August

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

Season 2, Episode 6 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 Rob Morris and Ash Daniells discussing the Third Party (Rights Against Insurers) Act 2010.

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

Headline Development

FCA wins case against director of "Ponzi-like" care home schemes

The High Court has found in favour of the FCA in a case against the director of a company that took £57 million from 380 individuals that invested in a 'Ponzi-like' care home investment scheme. 

The judge found that Robin Forster (who ran Qualia Care) had made "false and misleading statements" about the scheme. The Qualia companies offered the opportunity to invest in long-term leases in care home (costing between £50,000 and £75,000), which would be sub-let back to Qualia. Investors were promised returns of between 8 and 10 per cent on the purchase price for the period of the sublease, which the FOS argued (and the Court agreed) were unachievable. 

The Court found that the scheme was an unauthorised collective investment scheme and therefore unlawful. 

The FCA has confirmed it has issued another claim relating to MBI companies (also involving Forster) who were running similar unauthorised collective investment schemes.

The case is a useful reminder of what constitutes an unregulated collective investment scheme.

To read more, please click here. 

Consumer Duty

This week (1 August) saw the introduction of the Consumer Duty – we will be monitoring developments from a regulatory and complaints perspective and how impacted parties (whether firms, the FOS or the FCA) respond to the new rules.

The FCA sets out action plan in crack down on savings rates

The FCA has set out a 14-point action plan to ensure that banks and building societies are passing on interest rate rises to savers with the advent of the Consumer Duty this week. The FCA published its plan on 31 July aiming to ensure that banks are communicating better with customers and offering them better savings rate deals. 

The FCA publication follows a review of the cash savings market and a roundtable meeting with banks held in early July. The regulator found that, while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts. Consequently, the FCA says that firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value, according to the Consumer Duty. If they are unable to do so, the FCA will take action.

To read the FCA's publication on its 14-point action plan on cash savings, please click here.  

FCA Developments 

FCA pauses simplified advice plans

The FCA has paused its plans to create a new simplified advice regime after receiving push back on their initial proposals. The FCA acknowledged that the feedback from the consultation had not been positive. The FCA had proposed relaxing the advice rules to encourage firms to offer a new form of simplified financial advice for clients with up to £10,000 in cash savings. Concerns were raised within the industry on how the proposed framework would work in practice and there have been calls for wider reforms to the definition of regulated advice. Under the core investment advice framework there would have been a relaxation of the independent/restricted definitions. It would have also permitted advice fees to be accepted in instalments as well as a simplified approach to client fact finds.

Instead, the FCA plans to incorporate its work in this area into its review of rules around advice/guidance. A further update will be published in an updated policy paper this autumn. 

To read the FCA's guidance and advice boundary in full, click here. 

FCA Update on BSPS Redress Scheme

The Financial Conduct Authority (FCA) has provided an update on the British Steel Pension Scheme (BSPS) redress scheme, informing consumers that advice firms will reach out to them by 28 September.

The FCA confirmed that a review of the advice given to transfer out of BSPS is currently underway, and once this is complete, advisers will notify individuals if the advice was suitable or not. If the parties disagree, then the FCA will arrange for FOS to independently review the advice. The regulator will monitor firms closely to ensure that the reviews are conducted properly and confirmed that if advice is found to be unsuitable, advisers will have to use the FCA's redress calculator to determine the amount owed. 

The FCA has encouraged consumers to inform the advice firm about any additional losses they may be entitled to, such as money spent on tax advice, tax charges or compensation for distress and inconvenience. The regulator noted that awards for distress and inconvenience will vary depending on the individual circumstances and will only be a modest sum.                                         

To read more, please click here.

Compensation in sight for former Woodford investors

Following a recent update from Link Fund Solutions (LFS), it appears that there is light at the end of the tunnel for former investors of the failed Woodford Equity Income Fund (Woodford).

LFS has set out a timeline, starting with the provision of a practice statement letter in September 2023, which proposes to explain the operation of the settlement scheme (on which, PwC are to advise and act as prospective supervisors). It is then anticipated that former investors could start to receive compensation from 2024, subject to (a) the High Court's approval of the settlement scheme; and (b) the completion of the sale of LFS to the Waystone Group.

The article can be read here.

Equity Release Council cautiously optimistic on Q2 statistics

The Equity Release Council (ERC) has published its Q2 equity release market data.  The statistics show that the number of active customers using equity release products increased in Q2 to 17,028, up by 2% on the previous quarter, with total lending down 5% to £664m, the lowest level since Q3 2016.

New customer numbers were down by 1% from the previous quarter, and down by 46% against Q2 2022.  However, the amount of new customers increased each month, peaking in June.  The number of returning drawdown customers making new withdrawals from existing loans was up by 1% from the previous quarter, but down by 16% against the previous year.  

Developments for Accountants

Auditors attempt to block proposal to widen responsibilities for fraud prevention

The world's largest accounting firms are attempting to block a proposal from the Public Company Accounting Oversight Board which intends to impose new responsibilities upon auditors to deter fraud by identifying whether the companies that they audit are complying with laws and regulations.

The proposal is currently in its consultation stage which comes to an end on 7 August 2023 and has sparked debate amongst firms who consider that these responsibilities go far beyond the responsibilities of an auditor and instead, is asking auditors to police their clients. However, supporters state that the adoption of the proposal will reduce investors harm caused by legal and regulatory penalties. 

Further information on the proposal can be read here.

Government announces new CEO of the Financial Reporting Council

The Department for Business and Trade has announced that Richard Moriarty as the new CEO of the Financial Reporting Council (FRC), the UK's audit regulator.  Richard Moriarty was formerly the head of the UK's aviation regulator. The announcement notes that the new CEO will continue the work to transform the FRC into the Audit, Reporting and Governance Authority (ARGA).  The timetable for the transformation from the FRC to ARGA remains uncertain.  Implementation was expected by some point in 2023 but is delayed with no set date.  

To read the government press release, please click here.

Developments for Pension Professionals

Pensions Ombudsman decision : incorrect benefits quotations

The Pensions Ombudsman has published a decision in a complaint by Mr D against the Trustees of the Stantec Pension Plan (UK) declining to uphold the complaint. 

Whilst there was no dispute that Mr D had received incorrect benefit quotations, which did constitute maladministration, the Ombudsman was satisfied that there was no financial loss. Mr D failed to provide any evidence that he made any irreversible financial commitments or acted in a particular way as a result of the incorrect information. of an employment income. 

The decision highlights the Ombudsman's stance that there is only a right to receive benefits that a member is entitled to, not the greater incorrect amount even where it is reasonable for the member to rely on that information. 

To read the Pensions Ombudsman's decision in full, click here. 

Other Developments

Fix up, look sharp: FRC update

The new Fixed Recoverable Costs Rules have been enshrined in statute as the Civil Procedure (Amendment No. 2) Rules 2023 and the 156th update to the CPR. While most of the rules remain unchanged from the drafts published in April, the provision stating that a 30-week time limit between allocation and trial for fast-track claims has been removed, it is noted that this change is likely due to the timeframe being unachievable because of the pressure on the justice system. The average time for such claims to reach trial reached an all-time high of 79.9 weeks.

The MOJ has provided little guidance on the new rules and stated that any problems will be addressed during future reviews, possibly three years from now. One particular concern surrounds the assignment of a complexity band within the intermediate track – not only is it unclear what "one issue" means for the purpose of the rules (i.e., is "liability" one issue, even if it has several disputed strands, such as scope of duty, breach and causation?), there is no indication of how the complexity of a claim fits with the intermediate track complexity bands. There are also concerns about the new rules undermine the Professional Negligence Pre-Action Protocol, as claimants may be motivated to issue proceedings early to maximise cost recovery. 

To read RPC's full update on FRC, click here.

New justice reforms to allow for free mediation to resolve disputes

The Ministry of Justice (MoJ) will implement automatic referral to mediation for small claims valued under £10,000 in the UK. Initially, this will begin with "integrated mediation" for specified money claims handled through the Part 7 procedure and allocated to the small claims track. The objective is to extend this policy to all standard Part 7 small claims, without any exceptions or individual exemptions.

Once the defence is filed on a case and it is assigned to the small claims track, parties will be notified that mediation is the next step. The Small Claims Mediation Service (SCMS) operated by HMCTS will expand to offer free in-house mediation, providing a one-hour mediation appointment with an HMCTS-employed mediator within 28 days of receiving the case. Settlement through mediation will remain voluntary, allowing parties to retain access to the courts.

Although parties are encouraged to participate in mediation in good faith, attendance at the scheduled mediation appointment is the only mandatory requirement. Failure to comply may result in court-imposed sanctions, including potential costs penalties.

The MoJ intends to broaden the requirement to mediate to include all County Court claims, including higher-value cases, which will involve directing parties to external mediators. 

You can read more here.

Case Law Developments 

Setting aside default judgment under CPR 13.3

The Court of Appeal has unanimously held that the test in Denton v TH White Ltd [2014] EWCA Civ 906 for relief from sanctions applies to applications to set aside a default judgment under CPR 13.3. 

In the case of FXF v English Karate Federation Ltd [2023] EWCA Civ 891 the Court of Appeal confirmed the correct approach to dealing with applications to set aside default judgments. The case involved a personal injury arising from alleged historic sexual abuse. Following proceedings being issued, an extension of time was agreed for the Second Defendant to file its Defence, which it failed to adhere to. The Claimant requested and obtained judgment in default in an amount to be decided by the court. The Second Defendant applied to set the default judgment aside, which was granted in the first instance. The Claimant appealed the decision on the basis that Denton had not been applied correctly. The Court of Appeal considered the relevant case law and rejected the appeal.

The decision makes it clear that applications to set aside a default judgment must be considered with the Denton criteria in mind. It further reinforced the Court of Appeal's hard line against any non-compliance with the CPR. As a result, it is likely applications made under CPR 13.3 will focus more on the factors around the non-compliance of the CPR which resulted in the application needing to be made. 

To read judgment in full, click here.