In light of the recent PPI and other financial products mis- selling scandals, banks have been paying out billions of pounds in compensation to consumers. Section 138D of The Financial Services and Markets Act 2000 (FSMA 2000) (as amended by the Financial Services Act 2012) provides a basis on which an applicant may make a claim for the mis-selling of a financial product.
s.138D of FMSA 2000 states that:
“A rule [any rules contained in the Handbook] made by the [Prudential Regulation Authority] may provide that contravention of the rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.” [emphasis added]
The definition of “private person” is contained in section 3 of The Financial Services and Markets Act 2000 (Right of Action) Regulations 2001 which states that a private person is:
“... any individual, unless he suffers the loss in question in the course of carrying on any regulated activity ... and, any person who is not an individual, unless he suffers the loss in question in the course of carrying on business of any kind.”
In Sivagnanam v Barclays Bank plc1 the applicant, a director of a company (the Company) that was sold interest rate hedging products by Barclays, claimed that he was entitled to claim under section138D of FSMA 2000 notwithstanding the fact that it was the Company that was the counterparty to the financial products.
The claimant stated that he had suffered loss as a result of alleged contraventions by Barclays of the Conduct of Business Rules or rules in the Conduct of Business Sourcebook and that he was a “private person” within the meaning of section138D of FMSA 2000. It was agreed by the parties that the claimant was a “private person”, but the court was directed to consider whether the claimant was entitled to make a claim in light of the lack of locus standi. The parties also agreed that the Company would not be a “private person” within the meaning of this regulation as it was carrying on a business.
The court agreed with the defendant in its assertion that the claimant was not intended to be protected by the rules of either COB or COBS as the claimant was not one of the types of persons who were intended by parliament to be protected by the relevant legislation or rule.
The court held that the particulars of claim were drafted by reference to the loss suffered by the Company. Section 138D of FSMA 2000 was designed to protect the customers who constituted “private persons” within the meaning of that section and was not intended to apply to a different group of people who fell outside that category to whom no duty was owed and in respect of whom no breach of duty has even been pleaded. The claimant was not therefore a person whom the legislation was designed to protect.
This case is a good example of the court demonstrating the fact that the consumer protections under FSMA 2000 are intended for consumers only and that applicants will not be able to, no matter how fanciful their pleadings, persuade the court otherwise if they do not have the necessary locus standi. This note concentrated on the court’s analysis of section138D of FSMA 2000 but the court was minded also to reject the claimant’s claim on other grounds.