When the FSA decided against turning the endowments and PPI mis-selling problems into formal s.404 reviews (akin to the Pensions Review), it was assumed s.404 would remain in the regulatory tool-box; an idle threat that the FSA would struggle to put into action.

The Financial Services Act 2010 amended s.404 and introduced the power to vary a firm’s permissions so as to require, in effect, a single firm consumer redress scheme (without any of the rule changes or consultation originally required under s.404).

The FSA’s announcement today – that it has already used its revised powers – followed Lloyds Bank’s statement to the Stock Exchange about a £500m compensation package relating to confusing information provided in respect of Halifax mortgages (see my earlier post).

The FSA, in recognition of the likely reaction to this new power, proposes to issue guidance on the use of the revised s.404 powers later this year. In the meantime, the FSA will continue to use the power and expect the FOS to follow suit if the case falls within the scheme, regardless of the other circumstances of the particular case.

The FOS is a quasi-legal tribunal that professes to act “as independent experts” and is empowered by FSMA to determine each complaint “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”. The requirement on the FOS to comply with such a scheme further undermines the idea of its independence.